<PAGE>
As filed with the Securities and Exchange Commission on April 20, 1999
Registration No. 333-74057
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TenFold Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 7371 83-0302610
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
180 West Election Road
Draper, UT 84020
(801) 495-1010
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
---------------
Gary D. Kennedy
President and Chief Executive Officer
180 West Election Road
Draper, Utah 84020
(801) 495-1010
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
COPIES TO:
Donald M. Keller, Jr. Kenneth M. Siegel
Daniel W. Burke N. Anthony Jeffries
Vivian P. Morris Linda M. Cuny
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A Professional Corporation Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
(650) 854-4488 (650) 493-9300
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
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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, please 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 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(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. [_]
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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated April 20, 1999.
Shares
TenFold Corporation
Common Stock
[TENFOLD LOGO]
--------------
This is an initial public offering of shares of common stock of TenFold
Corporation. TenFold is offering of the shares to be sold in this offering.
The selling stockholder identified in this prospectus is offering an additional
shares. TenFold will not receive any of the proceeds from the sale of the
shares being sold by the selling stockholder.
It is currently estimated that the initial public offering price per share
will be between $ and $ . Application has been made for quotation of the
common stock on The Nasdaq Stock Market under the symbol "TENF".
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
--------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to TenFold........................... $ $
Proceeds, before expenses, to the selling stockholder........... $ $
</TABLE>
The underwriters may purchase up to an additional shares from TenFold and
certain selling stockholders at the initial public offering price less the
underwriting discount.
--------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
BT Alex. Brown
U.S. Bancorp Piper Jaffray
--------------
Prospectus dated , 1999.
<PAGE>
[Description of Artwork]
Inside cover:
The inside cover includes images of people in work situations and images
representing various industries such as insurance, banking, and utilities. Text
reads: "TenFold is an innovative software and services company that builds and
implements complex applications rapidly and for a fixed price. We offer the
TenFold Guarantee, the industry's first money-back guarantee for large-scale
software applications. We deliver applications on time, for a fixed price, and
on target--or we refund our customer's money." The text reads further: "ON
TIME We show clear, visible results within weeks and typically deliver
completed, tested, and documented applications in four to eight months. ON
BUDGET By reducing the overall development and delivery time frame, we help
customers avoid expensive projects that exceed budgets and schedules. ON
TARGET TenFold applications meet precise business needs by offering significant
functionality, flexibility, and quality. We strive to exceed customer
expectations by delivering features customers need today as well as
functionality for tomorrow. GUARANTEED."
Gatefold:
A chart depicts the headline "The TenFold Advantage: The Best of "Buy' and
"Build.'" Below the chart appears a collage of people in work situations and
includes the headline: "Process + Technology=Business Value." Call-out text
describes the TenFold Way, the Universal Application, TenFold ComponentWare,
and FastStart. A collage of customer logos represents a sampling of TenFold
customers. A chart has Speed of Implementation on one axis and Features for
Your Business on another axis, with "Buy" in the Speed of Implementation upper
gradiant, "Build" in the upper quadrant of Features for Your Business and
"TenFold" in the upper gradiant of both axis. The further text is as follows:
1 TenFold applications offer the best of both the "buy" and "build" options,
giving customers the rapid time-to-market and quality benefits of packaged
applications, with the tailored-to-their-business features of custom-built
software. 2 The TenFold Way(TM) is a start-to-finish approach to working
closely with our customers to design, develop, test, deliver, and evolve custom
applications. We use the TenFold Way to identify requirements in four to eight
weeks, and typically deliver the complete, fully tested application in four to
eight months. 3 TenFold is led by applications experts and business managers
with significant experience delivering large-scale software solutions. 4 The
combination of our TenFold Way methodology and our unique Universal
Application(TM) and TenFold ComponentWare(TM) technologies lets us develop
applications significantly faster than alternative approaches. 5 The Universal
Application is a sophisticated and powerful applications architecture that
reduces design effort, and automates and accelerates applications development
and testing. TenFold ComponentWare is a library of components, reusable across
multiple applications and industries, that lets us add complex, business-
specific functionality to an application and virtually eliminate applications-
specific programming. 6 We recognize that implementing complex applications
can be as difficult as building them. FastStart(TM) provides both technology
and implementation services to quickly put TenFold applications into production
- - all within a fixed price and time frame. 7 Our customers include industry
leaders in insurance, investment management, telecommunications, utilities and
energy, healthcare, banking and credit, and other industries. Each of these
customers accounted for the following percentage of revenues in 1998: Barclays
Global Investors (7%), Dresdner RCM Global Investors (2%), Franklin Templeton
(2%), Loomis Sayles & Company (1%), Mercy Health Services (3%), Nielsen Media
Research (8%), Oppenheimer Capital (1%), Provident (15%), TIG Insurance (5%),
Utica National (10%). Each of these customers accounted for the following
percentages of revenues in the first quarter of 1999: HEALTHSOUTH (1%) and
Westfield Companies (30%). Southern Company is a recent customer in the second
quarter of 1999.
Inside back cover:
A TenFold ad shows an archer's arrow aimed at an apple on top of an
executive's head with the headline, "Imagine an archer who hits the bulls-eye
8% of the time. Now imagine he's placed an apple on your head." The text of the
ad highlights statistics from the Standish Group, a software industry research
firm, illustrating that 92% of large-scale software development projects fail
to be delivered on time, on budget, and on target. The ad copy further states:
Introducing the TenFold Guarantee. So there you are, balancing the apple, and
hoping the archer defies the odds. Talk about a do-or-die situation. At
TenFold, we know that developing core software applications is critical to your
company. And currently, 92% of applications development projects costing
$6-10 million fail to be delivered on time, on budget, and according to
original specifications. Do you see the arrow coming? Now consider the TenFold
Guarantee: We deliver large-scale applications on time and on budget, or you
get your money back. You might say we have straighter arrows in our quiver. So
give us a call, or visit our Web site. We're TenFold. And we'll hit the apple,
guaranteed.
1999 TenFold Corporation. All rights reserved. Statistical data taken from
1998 Standish Group CHAOS study.
2
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the following
summary together with the more detailed information regarding TenFold and the
common stock being sold in this offering, "Risk Factors", and our financial
statements and notes to those statements appearing elsewhere in this
prospectus.
TenFold Corporation
TenFold is an innovative software and services company that builds and
implements large-scale, complex applications rapidly and for a fixed price. We
offer the TenFold Guarantee, the industry's first money-back guarantee for
large-scale software applications. We deliver applications on time, for a fixed
price, and on target--or we refund our customer's money.
Organizations worldwide face increasing pressure to install new software
applications and to replace their outdated applications with new systems as
they seek to increase productivity, leverage distributed computing environments
and the Internet, and address changing business and competitive demands. To
obtain new or replacement applications, companies face a "buy vs. build"
dilemma: 1) they can buy packaged software; or 2) they can build custom
software, either internally or by hiring a services firm.
Packaged software suppliers such as Enterprise Resource Planning (ERP)
vendors primarily offer horizontal applications that address general business
processes, such as accounting, human resources, and manufacturing, but offer
limited industry-specific functionality outside of manufacturing. Traditional
industry-specific, or "vertical", software vendors provide more industry
functionality, but often with products built on aging technology.
Instead of purchasing packaged software, companies can build custom
applications, either internally or with third parties. This approach may
provide the functionality and flexibility they seek, but it carries a high risk
of failure. According to research from The Standish Group, a software industry
research firm, only 8 percent of applications development projects costing $6-
10 million succeed--delivered on time, on budget, and according to original
specifications. Their published 1998 CHAOS Study also indicates that in 1998
cost and time overruns for project failures amounted to almost $100 billion in
the United States.
We believe that our applications offer the best of both the "buy" and
"build" options, giving customers the rapid time-to-market and quality benefits
of packaged applications, with the tailored-to- their-business features of
custom-built software. We believe that it is the combination of our disciplined
methodology and our unique technologies that lets us develop applications
significantly faster than alternative approaches. Because TenFold can deliver
complex applications in relatively short time frames, we believe that our
applications typically cost less than those offered by competitors.
Our disciplined methodology, the TenFold Way, is a start-to-finish approach
to working closely with our customers to design, develop, test, deliver, and
evolve custom applications. We use the TenFold Way to identify requirements in
four to eight weeks, and typically deliver the complete, fully tested
application in four to eight months. The TenFold Way organizes a project into
phases, each with well-defined activities and deliverables, and combines
continuous communication and customer feedback with rapid, iterative
development to keep projects on target.
3
<PAGE>
Our unique technologies include the Universal Application and TenFold
ComponentWare. The Universal Application is a sophisticated and powerful
applications architecture that reduces design effort and automates and
accelerates applications development and testing. The Universal Application
lets us begin applications development projects having pre-built significant
functionality and having already solved many complex applications design and
implementation problems. TenFold ComponentWare is a library of components,
reusable across multiple applications and industries, that lets us add complex,
business-specific functionality to an application and lets us virtually
eliminate applications-specific programming.
Our mission is to become the leading provider of vertical software
applications in multiple industries. We intend to accomplish this by developing
innovative applications for customers and reselling these applications to other
companies in the same industry. A key element of our strategy is to leverage
our innovative technology to build mission-critical applications that address
under-served needs in large, multi-billion dollar vertical markets. We organize
TenFold into discrete, industry-specific business units called Vertical
Business Groups, to tailor marketing, selling, product development, and
business strategies for our target industries.
Our customers include industry leaders in insurance, investment management,
telecommunications, utilities and energy, healthcare, banking and credit, and
other industries. TenFold customers include Ameritech, Barclays Global
Investors, Crawford & Company, Enron, Mercy Health Services, Provident, and
Unitrin. Each of these customers accounted for more than $500,000 of our
revenues in 1998 and collectively accounted for 62% of these revenues.
Our executive offices are located at 180 West Election Road, Draper, Utah
84020. The telephone number at that location is (801) 495-1010 and the Web site
address is www.10fold.com. The information on our Web site is not part of this
prospectus.
We have applied for federal registration of the marks TenFold, The TenFold
Way, Universal Application, The Power of Ten, TenFold Revenue Manager,
10fold.com, and the TenFold logo. All other brand names, trademarks, or service
marks appearing in this prospectus are the property of their respective
holders.
4
<PAGE>
The Offering
The following information, which is based on shares outstanding as of March
31,1999, assumes that the underwriters do not exercise the option to purchase
additional shares in this offering. Please see "Underwriting" for more
information concerning this option.
<TABLE>
<C> <S>
Shares offered by TenFold..................... shares
Shares offered by the selling stockholder..... shares
Shares to be outstanding after this offering.. shares
Use of proceeds............................... Working capital, general
corporate purposes, and capital
expenditures. See "Use of
Proceeds" for more information
concerning our proposed use of
proceeds.
Proposed Nasdaq Stock Market Symbol........... "TENF"
</TABLE>
The share numbers exclude:
. 7,065,000 shares issuable upon exercise of options outstanding under
TenFold's 1993 flexible stock incentive plan with a weighted average
exercise price of $3.14 per share;
. 6,500,000 shares reserved for issuance under TenFold's newly adopted 1999
stock incentive plan, excluding future annual automatic increases to the
number of shares reserved under the plan; and
. 1,000,000 shares reserved for issuance under TenFold's newly adopted 1999
employee stock purchase plan, excluding future annual automatic increases to
the number of shares reserved under the plan.
Subsequent to March 31, 1999, TenFold granted additional options to purchase
579,000 shares of common stock at an exercise price of $12.60 per share. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements for more information concerning our stock plans and option grants.
Summary Financial Information
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March
Year Ended December 31, 31,
--------------------------- ---------------
Consolidated Statement of 1996 1997 1998 1998 1999
Operations Data: ------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues:
License........................ $ 271 $ 5,244 $ 13,382 $1,259 $ 5,656
Services....................... 2,744 8,879 26,785 3,940 10,371
------- -------- -------- ------ -------
Total revenues............... 3,015 14,123 40,167 5,199 16,027
Total operating expenses......... 3,142 15,012 38,324 5,909 15,508
------- -------- -------- ------ -------
Income (loss) from operations.... (127) (889) 1,843 (710) 519
Net income (loss)................ $ (99) $ (600) $ 1,723 $ (401) $ 373
Accretion of Series A and B
redeemable
preferred stock................. -- (274) (915) (218) (248)
------- -------- -------- ------ -------
Net income (loss) applicable to
common stock.................... $ (99) $ (874) $ 808 (619) 125
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As Adjusted
Consolidated Balance Sheet Data: ------- -----------
<S> <C> <C>
Cash and cash equivalents.................................. $13,171 $
Total current assets....................................... 21,752
Total assets............................................... 28,395
Total current liabilities.................................. 9,445
Long-term obligations, less current portion, and redeemable
preferred and common stock ............................... 14,687
Total stockholders' equity................................. 4,178
</TABLE>
- -------
As adjusted amounts reflect the sale of shares of common stock by
TenFold at an assumed initial public offering price of $ per share after
deducting the estimated underwriting discount and offering expenses. See "Use
of Proceeds" and "Capitalization" for more information concerning proceeds of
the offering and our capitalization after the offering.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. The risks and uncertainties described below
are not the only ones facing our company.
If any of the following risks actually occur, our business, financial
condition, and results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may
lose all or part of your investment. You should also refer to the other
information set forth in this prospectus, including our financial statements
and the related notes.
Risks Related to Our Business
We have a limited operating history and consequently face significant risks and
difficulties
TenFold was founded in 1993 and has a limited operating history. As a
result, we face significant risks and difficulties, including:
. our substantial dependence on products with only limited market acceptance;
. our need to expand our sales and service organizations;
. our ability to develop and upgrade our technology;
. our ability to compete in a highly competitive market;
. our need to manage changing operations; and
. our dependence upon key personnel.
We have only a limited number of applications completed and currently in use
and there can be no assurance that we will be able to complete any current or
new projects. We cannot be certain that our business strategy will succeed or
that we will successfully address these risks.
There are many factors that may cause fluctuations in our quarterly financial
results, and if our results are below the expectations of securities market
analysts, our stock price will likely decline
In the past, the software industry has experienced significant downturns,
particularly when general economic conditions decline and spending on
management information systems decreases. Our business, financial condition,
and operating results may fluctuate substantially from quarter to quarter as a
consequence of general economic conditions in the software industry. In
addition, our revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, including:
. the number, size, and scope of projects in which we are engaged;
. the contractual terms and degree of completion of our projects;
. any delays or changes in customer requirements incurred in connection with
new or existing projects;
. the accuracy of our estimates of the resources required to complete ongoing,
as well as new, projects;
. the adequacy of provisions for losses associated with fixed-price contracts;
. the timing of sales of our products and services; and
. delays in introducing new applications.
6
<PAGE>
Due to these factors, some of which are discussed in more detail below, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. It is likely that in some future
quarter our operating results will be below the expectations of securities
market analysts and investors. In this event, the price of our common stock
will likely fall.
Historical Fluctuations
Historically, our quarterly operating results have varied significantly. For
example, our results of operations during 1997 fluctuated from a net loss of
$1.3 million in the first quarter, to a net income of $1.1 million in the
second quarter, to a net loss of $927,000 in the third quarter, and to a net
income of $526,000 in the fourth quarter. During 1998, our results of
operations improved from a net loss of $401,000 in the first quarter, to a net
loss of $17,000 in the second quarter, to a net income of $557,000 in the third
quarter, and to a net income of $1.6 million in the fourth quarter. Our future
quarterly operating results may continue to vary significantly. Furthermore,
although we have not suffered an operating loss since the second quarter of
1998, there can be no assurance that we will not suffer a loss in future
periods.
Employee and Resource Utilization Rates
We plan to significantly increase our operating expenses to broaden our
service and customer support capabilities, expand our sales and marketing
operations, develop new distribution channels, and fund greater levels of
research and development. Our operating expenses are largely based on
anticipated revenue trends and a high percentage of our operating expenses,
particularly personnel and rent, are relatively fixed in advance of any
particular quarter. As a result, unanticipated variations in the number, or
progress toward completion, of our projects or in employee utilization rates
may cause significant variations in operating results in any particular quarter
and could result in quarterly losses. An unanticipated termination of a major
project, the delay of a project, or the completion during a quarter of several
major projects could result in underutilized employees and could, therefore,
cause us to suffer quarterly losses or adverse results of operations.
Project Delays
Because we recognize service revenues over the period we develop an
application, project delays could have a significant negative impact on our
operating results. See "Management Discussion and Analysis of Financial
Condition and Results of Operations--Overview" for a discussion of our revenue
recognition policies. These delays could be caused by a number of factors that
are outside of our control. For example, because our development methodology
requires significant involvement by customer personnel during several key
phases of the development cycle, delays could be caused by customers failing to
meet their contractual obligations, including reviewing and approving
requirements, providing timely feedback, and providing adequate staffing.
Delays could also be caused by customers being distracted by information
technology issues they face, including Year 2000 issues, by corporate
reorganizations or business combinations in which they are involved, or other
factors. Furthermore, delays could be caused by a loss of personnel or members
of a particular project team. We have experienced delays for these and other
reasons in the past and there can be no assurance that we will not experience
delays in the future.
Sales Cycles
We believe that a customer's decision to purchase our software involves a
significant commitment of resources and is influenced by customer budget
cycles. To successfully sell our products, we generally must educate our
potential customers regarding the use and benefit of our products, which can
require significant time and resources. Consequently, the period between
initial contact and the purchase of our products is often long and subject to
delays associated with the lengthy budgeting, approval, and competitive
evaluation processes that typically accompany
7
<PAGE>
significant capital expenditures. Our sales cycles are lengthy and variable,
typically ranging between three to twelve months from our initial contact with
a potential customer to the signing of a contract. Sales delays could cause our
operating results to vary widely. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations"
for more information concerning our quarterly operating results.
We are dependent on a small number of large customers and the loss of one or
more of these customers may adversely affect our operating results
We derive, and expect to continue to derive, a significant portion of our
revenues from a limited number of large customers. The loss of any of these
large customers, or the failure to generate new large customers, would have an
adverse effect on our revenues. In 1998, our five largest customers accounted
for approximately 66% of our revenues, with four customers each accounting for
more than 10% of these revenues. In the future, revenues from a single customer
or a few large customers may constitute a significant portion of our total
revenues in a particular quarter. The volume of work performed for specific
customers is likely to vary from year to year, and a major customer in one year
may not hire us to develop applications in a subsequent year. In addition, if a
customer is involved in a corporate reorganization or business combination, it
may delay a decision to hire us or cause the customer to choose not to hire us
to develop applications in a given year. See "Management Discussion and
Analysis of Financial Condition and Results of Operations" for more information
concerning our customers and revenues.
Our dependence on customers in the insurance industry may adversely affect our
results of operations if the insurance industry suffers adverse economic
conditions
During 1998, 65% of our revenues were derived from software applications we
developed for companies in the insurance industry. Our reliance on customers
from a particular industry subjects our business to the economic conditions
impacting that industry, including the industry's demand for information
technology resources. If we continue to rely on the insurance industry as a
major source of revenues, and the insurance industry suffers adverse economic
conditions, there will likely be a significant reduction in the demand for our
products, causing our revenues to suffer. Although we intend to diversify our
customer base, there can be no assurance that we will be able to do so in the
near term or at all.
Our failure to manage growth and multiple organizations could impair our
business
Our growth and new projects have placed significant demands on our
management and other resources. If we are unable to manage our growth and
projects effectively, this inability could have a material adverse effect on
the quality of our services and products, our ability to retain key personnel,
and our business, financial condition, and results of operations. Our revenues
increased approximately 184% in 1998 from $14.1 million in 1997 to $40.2
million in 1998. Our staff increased from 146 full-time employees at December
31, 1997 to 318 full-time employees at December 31, 1998. Our ability to manage
this growth effectively will require us to continue to develop and improve our
operational, financial, and other internal systems, as well as our business
development capabilities, and to train, motivate, and manage our employees. In
addition, our future success will depend in large part on our ability to
continue to set fixed-price fees accurately, maintain high rates of employee
utilization, and maintain project quality.
An element of our business strategy involves organizing our business along
industry lines, and evolving these business units into separate operating
companies. Our success in executing this strategy will depend to a large extent
on our ability to create and manage this complex organizational structure,
including our ability to establish and implement the appropriate management
structure, compensation programs, and financial reporting systems. Our
management has limited experience in managing an organization of this nature,
and its failure to meet the managerial challenges posed by the development and
operation of such an organization would harm our business.
8
<PAGE>
We offer fixed-price, fixed-time contracts that we guarantee; if we fail to
accurately estimate the resources necessary to complete these contracts, our
operating results could be adversely affected
An important element of our strategy is to enter into fixed-price, fixed-
time contracts, rather than time and materials contracts. These contracts
involve risk because they require us to absorb possible cost overruns and, if
we fail to meet our performance obligations, may require us to satisfy our
performance guarantee. We guarantee that we will complete our projects within a
fixed time or the customer has the option to return the software and receive a
refund of any fees paid under the contract. For fixed-price contracts, we
recognize license fees related to the application and the application
development service fees over time as we perform the services, using the
percentage of completion accounting method. Our failure to accurately estimate
the resources required for a project or our failure to complete our contractual
obligations in a manner consistent with the project plan would likely cause us
to have lower margins or to suffer a loss on the project, which would
negatively impact our operating results. In specific circumstances, we have
been required to commit unanticipated additional resources to complete
projects. We will likely experience similar situations in the future. In
addition, for specific projects, we may fix the price before the requirements
are finalized. This could result in a fixed price that turns out to be too low,
which would cause us to suffer a loss on the project and would negatively
impact our operating results.
A loss of key personnel could impair our business
Our industry is competitive and we are substantially dependent upon the
continued service of our existing executive personnel, especially Gary D.
Kennedy, President and Chief Executive Officer and William M. Conroy, Executive
Vice President and Chief Operating Officer. Furthermore, our products and
technologies are complex and we are substantially dependent upon the continued
service of our senior technical staff, including Jeffrey L. Walker, Chairman,
Executive Vice President and Chief Technology Officer; Sameer Shalaby, Senior
Vice President of Architecture Development; Adam Slovik, Senior Vice President
of Worldwide Applications Development; and Richard W. VanderDrift, Senior Vice
President of Applications Products. If a key employee resigns to join a
competitor or to form a competing company, the loss of the employee and any
resulting loss of existing or potential customers to the competing company
would harm our business. We do not carry key man life insurance on any of our
key employees. None of our key employees, other than Mr. Kennedy, has signed an
employment agreement or an agreement not to compete with TenFold upon
termination of employment. Even in the case of Mr. Kennedy, his employment
agreement does not assure his continued service to TenFold. In the event of the
loss of key personnel, there can be no assurance that we would be able to
prevent their unauthorized disclosure or use of our technical knowledge,
practices, or procedures.
Our failure to attract and retain professional staff would impair our ability
to complete projects and expand our business
Our business is labor intensive. Our success will depend in large part upon
our ability to attract, retain, train, and motivate highly-skilled employees,
particularly project managers and other senior technical personnel. Any failure
on our part to do so would impair our ability to adequately manage and complete
our existing projects, bid for and obtain new projects, and expand our
business. There exists significant competition for employees with the skills
required to perform the services we offer. Qualified project managers and
senior technical staff are in great demand and are likely to remain a limited
resource for the foreseeable future. There can be no assurance that we will be
successful in attracting a sufficient number of highly-skilled employees in the
future, or that we will be successful in retaining, training, and motivating
the employees we are able to attract. If our employees are unable to achieve
expected performance levels, our business will be harmed.
9
<PAGE>
If we are unable to resell applications products that we build for our
customers, our ability to grow will be limited and our operating results will
suffer
The success of our business is dependent upon our ability to develop
software applications for customers that we can resell to other customers in
the same industry without significant modification. If we are unable to develop
and license these applications successfully or within the timeframes
anticipated, our revenues, growth, and operating results will suffer. Some
customers have prohibited us from marketing the applications developed for them
for specified periods of time or to specified third parties or have required
that we pay them a royalty on licenses of the application to third parties.
Customers may continue to make similar demands in the future. Furthermore,
there can be no assurance that we will be able to develop software applications
that can be marketed generally within a particular industry without the need
for significant modification. Our current product plans include the
introduction of multiple resellable products in the near term. To date we have
resold one application, TenFold Revenue Manager, to three customers. Revenue
from these sales totalled approximately $1.7 million through March 31, 1999.
We may enter markets in which we have limited experience and we may not be able
to compete successfully in these markets
We intend to expand our business into new vertical industries. If we are
unsuccessful in developing applications that meet the needs of companies in
these industries or if our applications are not competitive, our operating
results will suffer. We have limited experience in developing software
applications for companies outside of the industries we have targeted to date
and there can be no assurance that we will be able to successfully develop
these applications in the future. In addition, we will face competition from
companies that have significantly greater experience in developing applications
for the industries we intend to target and that have greater name recognition
than we do.
If we do not successfully implement our vertical business strategy, our ability
to grow our business will suffer
Our vertical business strategy involves segmenting our business along
industry lines, likely through the creation of separate subsidiaries, and
having these subsidiaries evolve into separate operating companies. We may
offer equity in these vertical subsidiaries to strategic industry partners.
These subsidiaries would also have the ability to attract management talent by
offering equity in the subsidiary as incentive compensation. Eventually, these
subsidiaries may gain substantial autonomy and raise capital independently or
be spun off from TenFold. If we fail to successfully implement our vertical
business group strategy, our growth will suffer.
We may face significant challenges in implementing this strategy, including
the segmentation and valuation of the various subsidiaries, the selection of
strategic industry partners, and issues relating to conflicts of interest among
the subsidiaries, their stockholders and TenFold, and potential charges and
expenses resulting from any repurchases of equity interests in the
subsidiaries. Our failure to successfully address these challenges could cause
this business strategy to fail, which would impair our ability to grow our
business.
If we are unable to expand our international operations, our growth will suffer
Although we currently have limited international operations, our ability to
achieve revenue growth in the future will depend in part on our ability to
develop international sales. Although we may invest significant resources to
establish additional sales and service operations outside the United States and
to enter additional international markets, there can be no assurance that these
efforts will be
10
<PAGE>
successful. In order to successfully establish international sales, we must
establish foreign operations, add an international sales and support
organization, hire additional personnel, and recruit international
distributors. To the extent that we are unable to do so in a cost-effective
manner, our growth and operating results could be materially adversely
affected. In addition, our TenFold Guarantee may not be appropriate in some
international markets for various reasons, including business practices in
these markets. As a result, we may not be able to derive value from the TenFold
Guarantee in these markets.
If our internal systems are not year 2000 compliant, our business could be
seriously disrupted
Although we do not believe that we will incur any material costs or
experience material disruptions in our business associated with preparing our
internal systems for the year 2000, there can be no assurance that we will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in our internal
systems. These systems include the hardware and third-party software products
that our applications developers and research and development staff use in
their day-to-day activities, as well as our management information systems. The
most likely worst case scenarios include:
. hardware or software failures that would prevent our applications
developers and research and development staff from effectively
performing their duties;
. corruption of data contained in our internal information systems; and
. the failure of infrastructure services provided by government agencies
and other third parties, including public utilities and internet
services.
If we cannot protect or enforce our intellectual property rights, our
competitive position may be impaired
Our success is dependent, in part, upon our proprietary Universal
Application technology and other intellectual property rights. If we are unable
to protect and enforce these intellectual property rights, our competitors will
have the ability to introduce competing products that are similar to ours, and
our revenues, market share and operating results will suffer. To date we have
relied primarily on a combination of copyright, trade secret, and trademark
laws, and nondisclosure and other contractual restrictions on copying and
distribution to protect our proprietary technology. We have applied for two
separate patents in the United States and intend to continue to seek patents on
our technology where appropriate. There can be no assurance that the steps we
have taken in this regard will be adequate to deter misappropriation of our
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights. The laws of
some foreign countries may not protect our intellectual property rights to the
same extent as do the laws of the United States. Furthermore, litigation may be
necessary to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. This
litigation could result in substantial costs and diversion of resources which
would harm our business.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us with respect to current or future
products. We expect software developers will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any of these claims, with or without merit, could be time-consuming
to defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays, or require us to enter into royalty
or licensing agreements. These royalty or licensing agreements, if required,
may not be available on
11
<PAGE>
terms acceptable to us, or at all. A successful claim against us of product
infringement and our failure or inability to license the infringed or similar
technology on favorable terms would harm our business.
No corporate actions requiring stockholder approval can take place without the
approval of our controlling stockholders
The executive officers, directors, and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our outstanding common
stock following the completion of this offering, or % if the underwriters'
over-allotment option is exercised in full. Furthermore, Jeffrey L. Walker,
Chairman, Executive Vice President and Chief Technology Officer, and the Walker
Children's Trust, will, in the aggregate, beneficially own approximately % of
our outstanding common stock following the completion of this offering, or %,
if the underwriters' over-allotment option is exercised in full. Mr. Walker,
acting alone or with others, would be able to decide or significantly influence
all matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. This concentration of ownership may have the effect of delaying
or preventing a merger or other business combination transaction, even if the
transaction would be beneficial to our other stockholders. See "Principal and
Selling Stockholders" for more information concerning the ownership of our
stock by significant stockholders.
The antitakeover provisions in our charter documents and under Delaware law
could discourage a takeover
Provisions of our Certificate of Incorporation, Bylaws, stock incentive
plans and Delaware law may discourage, delay, or prevent a merger or
acquisition that a stockholder may consider favorable. See "Management--Stock
Plans" and "Description of Capital Stock--Antitakeover Effect of Provisions in
Our Certificate of Incorporation and Bylaws" for more information concerning
antitakeover matters.
Risks Related to Our Industry
If our software contains defects or other limitations, we could face product
liability exposure and our reputation could be damaged
Because of our limited operating history and our small number of customers,
we have completed a limited number of projects that are now in production. As a
result, there may be undiscovered material defects in our products or
technology. Furthermore, complex software products often contain errors or
defects, particularly when first introduced or when new versions or
enhancements are released. Despite internal testing and testing by current and
potential customers, our current and future products may contain serious
defects. Serious defects or errors could result in lost revenues or a delay in
market acceptance, which would damage our reputation and our business.
We have designed and tested the current versions of our products to be year
2000 compliant. We believe that none of our customers is currently using prior
versions of our products, and, as a result, we have not assessed whether these
prior versions are year 2000 compliant. However, there can be no assurance that
any current or prior versions of our products do not contain undetected errors
or defects associated with year 2000 date functions that may result in material
costs to TenFold. Some commentators have stated that a significant amount of
litigation will arise out of year 2000 compliance issues, and we are aware of a
growing number of lawsuits against other software vendors. Because of the
unprecedented nature of this litigation, it is uncertain to what extent TenFold
may be affected by it.
Our products have not been extensively tested to determine the extent to
which they are scalable -- capable of being used effectively by large numbers
of users simultaneously. Because customers may require that our products be
capable of simultaneous use by large numbers of users, if it turns out that our
products are not scalable to the required extent, our growth and market share
would be materially adversely affected.
12
<PAGE>
Because our customers may use our products for mission-critical
applications, errors, defects, or other performance problems could result in
financial or other damages to our customers. Our customers could seek damages
for these losses. Any successful claims for these losses, to the extent not
covered by insurance, could result in us being obligated to pay substantial
damages, which would cause our operating results to suffer. Although our
license agreements typically contain provisions designed to limit our exposure
to product liability claims, existing or future laws or unfavorable judicial
decisions could negate these limitation of liability provisions. A product
liability claim brought against us, even if not successful, would likely be
time consuming and costly.
We face significant competition, and if we fail to successfully compete, our
growth and market share will be adversely affected
The market for our products and services is highly competitive, and if we
are not successful in competing in this market, our growth and market share
will suffer. We believe that we currently compete principally with consulting
and software integration firms, application software vendors, and internal
information systems groups. Many of these competitors have significantly
greater financial, technical and marketing resources, generate greater
revenues, and have greater name recognition than we do. In addition, there are
relatively low barriers to entry into our markets and we have faced, and expect
to continue to face, additional competition from new entrants into our markets.
We believe that the principal competitive factors in our markets include
quality of services and products, speed of development and implementation,
price, project management capability, and technical and business expertise. We
believe that our ability to compete also depends in part on a number of
competitive factors outside our control, including the ability of our
competitors to hire, retain and motivate project managers and other senior
technical staff, the development by others of software and services that are
competitive with our products and services, and the extent of our
responsiveness to customer needs. There can be no assurance that we will be
able to compete successfully with our competitors.
Future demand for our applications may decline as the year 2000 approaches
We have experienced demand for our applications in recent years that may
have been generated by customers replacing and upgrading applications in order
to prepare for the year 2000. Once these customers have completed their year
2000 projects, the software industry, and TenFold, may experience a significant
deceleration in the annual growth rates from the rates recently experienced.
As the end of 1999 approaches, there is a risk that orders for our products
will be reduced or delayed as our customers or potential customers divert their
resources to prepare for the year 2000. If this reduction in orders occurs, it
could significantly impact our operating results which could cause our stock
price to materially decline.
If we are unable to develop new applications and technology during periods of
rapid technological change, our ability to grow our business will suffer
The market in which we compete is characterized by rapid technological
change, including new versions of operating systems, relational databases or
new hardware technologies. We may need to modify our products to accommodate
these changes. Our revenues and market share will decline if we fail to release
new versions of our products or product enhancements in a timely manner or if
these products and product enhancements fail to achieve market acceptance when
released. In addition, customers may defer or forego purchases of our products
if our competitors or major hardware, systems, or software vendors introduce or
announce new products or product enhancements.
13
<PAGE>
Risks Related to the Securities Markets
Future sales of our common stock may depress our stock price
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. Upon
completion of this offering, we will have outstanding shares of common
stock (based upon shares outstanding as of March 31, 1999), assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after March 31, 1999. Of these shares, the shares sold
in this offering are freely tradeable. This leaves shares that will become
eligible for sale in the public market at various times after the offering. See
"Shares Eligible for Future Sale" for a discussion of how and when these shares
will become eligible for sale in the public market.
Our stock price could decline following the offering, and our stockholders
could bring a securities class action lawsuit against us as a result of any
decline
The market price of our common stock is likely to be highly volatile and may
be significantly affected by factors such as:
. actual or anticipated fluctuations in our operating results;
. announcements of technological innovations;
. new products or new contracts by us or our competitors;
. conditions and trends in the software and other technology industries;
and
. changes in financial estimates by securities analysts.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the securities of technology companies. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against the company. There can
be no assurance that we will not face this litigation in the future. This
litigation could result in substantial costs and a diversion of management's
attention and resources, which could materially harm our business.
New investors will incur immediate and substantial dilution in the amount of
$ per share
The initial public offering price will be substantially higher than the book
value per share of our outstanding common stock. As a result, investors
purchasing common stock in this offering will incur immediate and substantial
dilution in the amount of $ per share. To the extent outstanding options
to purchase common stock are exercised, there will be further dilution. See
"Dilution" for information concerning dilution, including the factors used in
computing this dilution amount.
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary", "Risk
Factors", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and "Business" contains forward-looking statements.
These statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties, and other factors that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-
looking statements. These risks and other factors include, among other things,
those listed under "Risk Factors" and elsewhere in this prospectus. In some
cases, you can identify forward-looking statements by terminology such as
"may", "will", "should", "expects", "plans", "anticipates", "believes",
"estimates", "predicts", "potential", "continue", or the negative of these
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors". These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to TenFold from the sale of the shares of common stock
being offered by TenFold are estimated to be approximately $ million, or
approximately $ million if the underwriters' over-allotment option is
exercised in full, in each case assuming an initial public offering price of
$ per share, after deducting the estimated underwriting discount and offering
expenses payable by TenFold. TenFold will not receive any proceeds from the
sale of shares by the selling stockholders.
The principal purposes of this offering are to obtain additional capital, to
create a public market for TenFold's common stock, to facilitate TenFold's
future access to public equity markets, and to provide increased visibility and
credibility in a marketplace where many of TenFold's current and potential
competitors are or will be publicly held companies. TenFold intends to use the
net proceeds for general corporate purposes, including working capital and
capital expenditures. We may also use a portion of the proceeds for strategic
investments and acquisitions, although we have no current plans for these
investments or acquisitions. TenFold's management will retain broad discretion
in the allocation of a substantial portion of the net proceeds. Pending use of
the net proceeds for the above purposes, TenFold intends to invest these funds
in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
TenFold has never declared or paid any cash dividends on its capital stock.
TenFold currently intends to retain all available funds and any future earnings
for use in the operation of its business and does not anticipate paying any
cash dividends in the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999: (1) TenFold's actual
capitalization; (2) TenFold's capitalization after giving pro forma effect to
the conversion of TenFold's outstanding preferred stock and redeemable common
stock into common stock upon the closing of this offering; and (3) TenFold's
pro forma capitalization as adjusted to reflect its receipt of the estimated
net proceeds from the sale of the shares of common stock offered hereby at
an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and offering expenses. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------
Pro forma As
Actual Pro forma Adjusted
------- --------- ------------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Current portion of capital lease
obligations(1)............................... $ 525 $ 525 $
Current portion of notes payable(1)........... 976 976
======= ======= ====
Long-term obligations, net of current
maturities................................... $ 2,908 $ 2,908 $
Series A and B Redeemable Convertible
Preferred Stock, $0.001 par value; 6,261,129
shares authorized, issued, and outstanding,
actual; no shares authorized, issued, or
outstanding pro forma and pro forma as
adjusted..................................... 9,803 -- --
Redeemable Common Stock, $0.001 par value;
200,000 shares authorized, issued, and
outstanding, actual; no shares authorized,
issued, or outstanding pro forma and pro
forma as adjusted............................ 1,976 -- --
Stockholders' equity:
Common Stock, $0.001 par value, 43,800,000
shares authorized, actual; 120,000,000
shares authorized pro forma and pro forma
as adjusted; 25,364,204 shares issued and
outstanding, actual; 31,825,333 shares
issued and outstanding pro forma;
shares issued and outstanding pro
forma as adjusted(2)....................... 25 32
Preferred Stock, $0.001 par value, no shares
authorized, issued, or outstanding actual
2,000,000 shares authorized pro forma and
pro forma as adjusted; no shares issued and
outstanding pro forma and pro forma as
adjusted................................... -- -- --
Additional paid-in capital.................. 12,178 23,950
Notes receivable from stockholders.......... (678) (678)
Deferred compensation....................... (7,856) (7,856)
Retained earnings........................... 521 521
Accumulated other comprehensive income...... (12) (12)
------- ------- ----
Total stockholders' equity................ 4,178 15,957
------- ------- ----
Total capitalization.................... $18,865 $18,865 $
======= ======= ====
</TABLE>
- --------
(1)See Notes 4 and 5 of Notes to Consolidated Financial Statements.
(2)Based on the number of shares outstanding as of March 31, 1999. Excludes:
. 7,065,000 shares issuable upon exercise of options outstanding under
TenFold's 1993 flexible stock incentive plan with a weighted average
exercise price of $3.14 per share;
. 6,500,000 shares reserved for issuance under TenFold's newly adopted
1999 stock incentive plan, excluding future annual automatic increases
to the number of shares reserved under the plan; and
. 1,000,000 shares reserved for issuance under TenFold's newly adopted
1999 employee stock purchase plan, excluding future annual automatic
increases to the number of shares reserved under the plan.
Subsequent to March 31, 1999, TenFold granted additional options to
purchase 579,000 shares of common stock at an exercise price of $12.60 per
share. See "Management--Stock Plans" and Note 8 of Notes to Consolidated
Financial Statements for more information concerning our stock plans and
option grants.
17
<PAGE>
DILUTION
TenFold's pro forma net tangible book value as of March 31, 1999 was
approximately $16.0 million, or $0.50 per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the total number of shares of common stock
outstanding, after giving pro forma effect to the automatic conversion of all
outstanding shares of preferred stock and redeemable common stock into common
stock. After giving effect to the sale of the shares of common stock
offered under this prospectus by TenFold at an assumed initial public offering
price of $ per share, after deducting underwriting discounts and commissions
and estimated offering expenses payable by TenFold, TenFold's pro forma net
tangible book value at March 31, 1999 would have been approximately $
million or $ per share of common stock. This amount represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share at March 31, 1999..... $0.50
Increase per share attributable to new investors..................
-----
Pro forma net tangible book value per share after this offering.....
Dilution per share to new investors................................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from TenFold, the
total consideration paid to TenFold, and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 31,825,333 % $13,494,000 % $0.42
New investors..............
---------- ----- ----------- -----
Total.................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The information in the table is based upon an assumed initial public
offering price of $ per share before deducting underwriting discounts and
commissions and estimated offering expenses payable by TenFold. The information
concerning existing stockholders is based on the number of shares of common
stock outstanding on March 31, 1999 and gives effect to the conversion of all
outstanding shares of TenFold's preferred stock and redeemable common stock
into shares of common stock automatically upon the closing of this offering.
This information excludes:
. 7,065,000 shares issuable upon exercise of options outstanding under
TenFold's 1993 flexible stock incentive plan with a weighted average
exercise price of $3.14 per share;
. 6,500,000 shares reserved for issuance under TenFold's newly adopted
1999 stock incentive plan, excluding future annual automatic increases
to the number of shares reserved under the plan; and
. 1,000,000 shares reserved for issuance under TenFold's newly adopted
1999 employee stock purchase plan, excluding future annual automatic
increases to the number of shares reserved under the plan.
Subsequent to March 31, 1999, TenFold granted additional options to purchase
579,000 shares of common stock at an exercise price of $12.60 per share. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements for more information concerning our stock plans and options grants.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation", the Financial Statements and the Notes thereto and
the other information contained in this prospectus. The selected consolidated
statements of operations data for the years ended December 31, 1996, 1997 and
1998, and the selected consolidated balance sheet data as of December 31, 1997
and 1998, are derived from, and are qualified by reference to, TenFold's
audited financial statements appearing elsewhere in this prospectus. The
selected consolidated statement of operations data for each of the three month
periods ended March 31, 1998 and 1999, and the selected consolidated balance
sheet data as of March 31, 1998 and 1999 are derived from, and are qualified by
reference to, TenFold's unaudited interim financial statements appearing
elsewhere in this prospectus. The selected consolidated statements of
operations data for the years ended December 31, 1994 and 1995, and the
selected consolidated balance sheet data as of December 31, 1994, 1995 and
1996, are derived from TenFold's unaudited consolidated financial statements
not included herein. The historical results are not necessarily indicative of
future results.
<TABLE>
<CAPTION>
Three Months Ended March
Year Ended December 31, 31,
------------------------------------------ -----------------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License................ $ 11 $ 128 $ 271 $ 5,244 $13,382 $ 1,259 $ 5,656
Services............... 2,167 1,420 2,744 8,879 26,785 3,940 10,371
------- ------- ------- ------- ------- ------- -------
Total revenues....... 2,178 1,548 3,015 14,123 40,167 5,199 16,027
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of revenues....... 202 302 370 4,661 14,529 2,176 6,246
Sales and marketing.... -- -- 87 2,765 11,070 1,442 4,736
Research and
development........... 1,182 1,774 2,289 4,739 9,690 1,807 3,401
General and
administrative........ 42 178 396 1,364 2,882 471 820
Amortization of
deferred
compensation.......... -- -- -- 34 153 13 305
Other charge........... -- -- -- 1,449 -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,426 2,254 3,142 15,012 38,324 5,909 15,508
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 752 (706) (127) (889) 1,843 (710) 519
------- ------- ------- ------- ------- ------- -------
Interest and other
income, net............ 9 52 28 179 375 102 88
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 761 (654) (99) (710) 2,218 (608) 607
Provision (benefit) for
income taxes........... 242 (141) -- (110) 495 (207) 234
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 519 $ (513) $ (99) $ (600) $ 1,723 $ (401) $ 373
======= ======= ======= ======= ======= ======= =======
Accretion of Series A
and B redeemable
preferred stock........ $ -- $ -- $ -- $ (274) $ (915) $ (218) $ (248)
======= ======= ======= ======= ======= ======= =======
Net income (loss)
applicable to common
stock.................. $ 519 $ (513) $ (99) $ (874) $ 808 $ (619) $ 125
======= ======= ======= ======= ======= ======= =======
Basic earnings (loss)
per share.............. $ 0.03 $ (0.03) $ (0.00) $ (0.04) $ 0.04 $ (0.03) $ 0.01
======= ======= ======= ======= ======= ======= =======
Diluted earnings (loss)
per share.............. $ 0.03 $ (0.03) $ (0.00) $ (0.04) $ 0.03 $ (0.03) $ 0.00
======= ======= ======= ======= ======= ======= =======
Weighted average
shares--basic(1)...... 19,385 20,047 20,285 21,542 21,551 21,031 22,765
======= ======= ======= ======= ======= ======= =======
Weighted average
shares--diluted(1).... 19,385 20,047 20,285 21,542 26,663 21,031 28,361
======= ======= ======= ======= ======= ======= =======
Consolidated Balance
Sheet Data (at period
end):
Cash and cash
equivalents............ $ -- $ 723 $ 1,211 $ 9,022 $15,373 $ 7,943 $13,171
Total current assets.... 1,132 846 1,376 10,443 23,223 11,225 21,752
Total assets............ 1,179 963 1,890 12,044 29,566 13,447 28,395
Total current
liabilities............ 265 561 585 2,921 11,493 4,842 9,445
Long-term obligations,
redeemable preferred
and common stock, less
current portion........ -- -- -- 8,640 14,240 8,858 14,687
Stockholders' equity
(deficit).............. 914 403 1,305 483 3,748 (253) 4,178
</TABLE>
- --------
(1) See Note 10 of Notes to Consolidated Financial Statements for an
explanation of the determination of the method used to determine the number
of shares used in computing net earnings (loss) per share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and with the other information
included elsewhere in this prospectus.
Overview
TenFold is an innovative software and services company, founded in 1993,
that builds and implements large-scale, complex applications rapidly and for a
fixed price. Our mission is to become the leading provider of industry-
specific, "vertical", software applications in multiple industries. From 1993
through 1995, we engaged primarily in the development of our Universal
Application technology and derived revenue primarily from technology
development and consulting projects, generally on a time and materials basis.
In 1996, we began using our Universal Application to develop large-scale,
complex applications. In 1997 and 1998, we derived the majority of our license
and service revenues from fixed-price, fixed-time applications development
projects. Through March 31, 1999, we also generated approximately $1.7 million
in license and service revenues from the resale of our first vertical
applications product, TenFold Revenue Manager.
We derive our revenues from license fees, application development and
implementation services, support, and training services. License revenues
consist of fees for licensing our Universal Application and license fees for
the applications that we develop for our customers. We also derive license
revenues from the resale of our vertical applications products. Service
revenues consist of fees for applications development and implementation,
support and training. We recognized revenue consistent with Statement of
Position (SOP) 97-2, Software Revenue Recognition, as modified by SOP 98-9,
Modification of SOP 97-2 with Respect to Certain Transactions for 1998, and
using SOP 91-1, Software Revenue Recognition, for prior years.
For fixed-price contracts that include a service element that is essential
to the functionality of the software, we recognize license fees related to the
application, and the application development service fees, over time as we
perform the services, using the percentage-of-completion accounting method. We
determine our proposed fixed price for a project using a formal estimation
process that takes into account the project's timetable, complexity, technical
environment, and risks. Members of our senior management team approve each
fixed price proposal. On a limited basis, we also provide application
development and implementation services on a time and materials basis. We
recognize revenue on our time and material contracts as we perform the
services.
We recognize license revenues from applications products sales and Universal
Application development licenses, whether sold separately or with an
application development project, that do not require significant production,
modification, or customization of software or the service-related element, is
not essential to the functionality of the software and when the following
criteria are met: we have a signed noncancellable license agreement; we have
shipped the software product; there are no uncertainties surrounding product
acceptance; the fees are fixed and determinable; and collection is considered
probable.
We recognize support revenue from contracts for ongoing technical support
and product updates ratably over the term of the contract, which is typically
twelve months. We recognize training revenues as we perform the services.
In mid 1998, we began offering a money-back guarantee on our fixed-price
contracts, for which we recognize revenue using the percentage-of-completion
accounting method. As a result, in some
20
<PAGE>
of our contracts we have guaranteed that we will complete our projects within a
fixed-time period or we will refund the fees paid. This guarantee also requires
the customer to fulfill various responsibilities within a specified time
period, including reviewing and approving requirements, providing timely
feedback, and providing adequate staffing or the guarantee is voided.
Accordingly, we treat this as a conditional guarantee. None of our customers
has exercised its guarantee to date, nor was it probable as of the latest
balance sheet date that a current customer would exercise its guarantee. If
necessary, we make provisions for estimated refunds or losses on uncompleted
contracts on a contract by contract basis and recognize the provisions in the
period in which the refunds or losses are probable and we can reasonably
estimate them.
During 1998, Unitrin, Provident Companies, Crawford & Company, and Utica
National Insurance Group accounted for 20%, 15%, 13%, and 10% of total
revenues, respectively. In 1997, Indus International, Unitrin, and Board of
Trading Clearing Corporation accounted for 39%, 31%, and 11% of total revenues,
respectively. In 1996, Board of Trading Clearing Corporation and CS First
Boston accounted for 87% and 11% of total revenues, respectively. Provident
Companies, Unitrin, and Indus International are also stockholders of TenFold
Corporation. In December 1998, Provident Companies and Unitrin each purchased
200,000 shares of common stock from us at a purchase price of $5.00 per share
and entered into additional license and service agreements with us. We
subsequently determined that the fair market value of a share of common stock
at December 30, 1998 equaled $9.88. As a result, we have allocated $2.0 million
of amounts paid in the licensing and service agreements to the common stock
transactions, and are recognizing the balance of the amounts paid, $6.1
million, in the licensing and service agreements as revenue in the appropriate
periods.
The timing and amount of cash received from customers can vary significantly
depending on specific contract terms and can therefore have a significant
impact on the amount of deferred revenue and unbilled accounts receivable in
any given period. We record cash received in excess of revenue earned as
deferred revenue. Our deferred revenue balance at March 31, 1999 was
$3.0 million, which we expect to recognize as revenue within the next twelve
months. Our deferred revenue balance generally results from contractual
commitments made by customers to pay amounts to us in advance of revenues
earned. Our unbilled accounts receivable represents revenue that we have earned
but which we have not yet billed. We bill customers for this revenue as
payments become due under the terms of the customer's contract. Our unbilled
accounts receivable balance at March 31, 1999 was $4.0 million and we expect to
bill and collect this amount within twelve months.
We organize TenFold into discrete Vertical Business Groups to tailor
marketing, selling, product development, and business strategies for our target
vertical industries. As each Vertical Business Group grows in size, gains
multiple customers, and develops multiple resellable products, it achieves an
increasing level of autonomy. We offer employee incentives, including equity,
tied to the performance of these Vertical Business Groups, to attract,
motivate, and retain our Vertical Business Group staff. We may also offer
Vertical Business Group equity to strategic industry partners. Eventually,
these Vertical Business Groups may gain substantial autonomy and raise capital
independently or be spun off from TenFold. TenFold has agreed that it will
grant to Mr. Mazon, President of TenFold Insurance Systems Group, an option to
acquire three percent of the outstanding shares of capital stock of a TenFold
subsidiary to be formed during 1999 from which TenFold intends to operate its
insurance business. The exercise price of these options will equal the fair
market value, at the time of grant, of the subsidiary's common stock, as
determined by TenFold's board of directors.
21
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of selected items from TenFold's statement of operations to total
net revenues.
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended December 31, March 31,
----------------------------- -----------
1996 1997 1998 1998 1999
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
License.............................. 9% 37% 33% 24% 35%
Services............................. 91 63 67 76 65
------- ------- ------- --- ---
Total revenues..................... 100 100 100 100 100
------- ------- ------- --- ---
Operating expenses:
Cost of revenues..................... 12 33 36 42 39
Sales and marketing.................. 3 20 28 28 30
Research and development............. 76 34 24 35 21
General and administrative........... 13 10 7 9 5
Amortization of deferred
compensation........................ -- -- -- -- 2
Other charge......................... -- 10 -- -- --
------- ------- ------- --- ---
Total operating expenses........... 104 106 95 114 97
------- ------- ------- --- ---
Income (loss) from operations.......... (4) (6) 5 (14) 3
Interest and other income, net......... 1 1 1 2 1
------- ------- ------- --- ---
Income (loss) before income taxes...... (3) (5) 6 (12) 4
Provision (benefit) for income taxes... -- (1) 1 (4) 1
------- ------- ------- --- ---
Net income (loss)...................... (3)% (4)% 4% (8)% 2%
======= ======= ======= === ===
</TABLE>
Three Months Ended March 31, 1998 and 1999
Revenues
Total revenues increased 208% from $5.2 million for the three months ended
March 31, 1998 to $16.0 million for the comparable period in 1999. License
revenues represented 24% of total revenues for the three months ended March 31,
1998, and 35% for the comparable period in 1999.
License Revenues. Our license revenues increased 349% from $1.3 million for
the three months ended March 31, 1998 to $5.7 million for the comparable period
in 1999. The growth in our license revenues resulted from an increase in the
number of customer contracts.
Service Revenues. Our service revenues increased 163% from $3.9 million for
the three months ended March 31, 1998 to $10.4 million for the comparable
period in 1999. The growth in our services revenues resulted primarily from an
increase in the number of customer contracts.
Operating Expenses
Cost of Revenues. Our cost of revenues consists primarily of compensation
and other related costs of personnel to provide applications development and
implementation, support, and training services. Cost of license revenues,
including product packaging, documentation, and reproduction have been
insignificant. Cost of revenues increased from $2.2 million for the
three months ended March 31, 1998 to $6.2 million for the comparable period in
1999. Our cost of revenues as a percentage of total revenues was 42% for the
three months ended March 31, 1998 and 39% for the comparable period in 1999.
The increase in cost of revenues in absolute dollars was due to increased costs
associated with the increase in the number of customer contracts. The decrease
in
22
<PAGE>
the cost of revenues as a percentage of total revenues was due mainly to an
increase in our total revenues and a decrease in our service revenues as a
percentage of total revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation, travel, and other related expenses for sales and marketing
personnel, as well as advertising and other marketing expenses. Sales and
marketing expenses increased from $1.4 million for the three months ended March
31, 1998 to $4.7 million for the comparable period in 1999. Our sales and
marketing expenses as a percentage of total revenues was 28% for the three
months ended March 31, 1998 and 30% for the comparable period in 1999. The
increase in absolute dollars and as a percentage of total revenues was
primarily the result of hiring additional sales and marketing personnel and
expanding advertising and other marketing programs in connection with the
growth of our business.
Research and Development. Research and development expenses consist
primarily of compensation and other related costs of personnel dedicated to
development and enhancement of the Universal Application and TenFold
ComponentWare. Research and development expenses increased from $1.8 million
for the three months ended March 31, 1998 to $3.4 million for the comparable
period in 1999. Our research and development expenses as a percentage of total
revenues was 35% for the three months ended March 31, 1998 and 21% for the
comparable period in 1999. Our research and development expenses grew in
absolute dollars due to the addition of personnel required to support our
expanded development efforts.
General and Administrative. General and administrative expenses consist
primarily of the costs of executive management and finance and administrative
staff, recruiting, business insurance, and professional fees. General and
administrative expenses increased from $471,000 for the three months ended
March 31, 1998 to $820,000 for the comparable period in 1999. Our general and
administrative expenses decreased as a percentage of total revenues from 9% for
the three months ended March 31, 1998 to 5% for the comparable period in 1999.
Amortization of Deferred Compensation. We recorded total deferred
compensation of $5.9 million in connection with stock options granted during
the three months ended March 31, 1999. Our amortization of deferred
compensation increased from $13,000 for the three months ended March 31, 1998
to $305,000 for the comparable period in 1999 due to amortizing this additional
total deferred compensation over the vesting period of the applicable options.
We expect to incur deferred compensation amortization expense of approximately
$1.5 million in 1999, and approximately $1.6 million annually thereafter until
fully amortized.
Interest and Other Income, Net. Our net interest income decreased from
$102,000 for the three months ended March 31, 1998 to $88,000 for the
comparable period in 1999. Although we had higher interest income for the three
months ended March 31, 1999 than for the comparable period in 1998, this
increase was more than offset by the increase in interest expense from the
issuance of debt and bank borrowings to finance fixed asset purchases for the
three months ended March 31, 1999.
Provision (Benefit) for Income Taxes. Income tax expense for the three
months ended March 31, 1999 was $234,000 compared to an income tax benefit for
the three months ended March 31, 1998 of $207,000. This reflects an effective
tax rate of 34% in 1998 and 39% in 1999. The increase in the effective tax rate
is due mainly to a decrease in our research and development credits as a
percentage of our income (loss) before income taxes in 1999, compared to 1998.
23
<PAGE>
Fiscal Years Ended December 31, 1996, 1997 and 1998
Revenues
Total revenues increased 368% from $3.0 million in 1996 to $14.1 million in
1997 and increased an additional 184% to $40.2 million in 1998. License
revenues represented 9% of total revenues in 1996, 37% in 1997, and 33% in
1998. In 1998, we also generated approximately $1.7 million in license and
service revenues from the resale of our first vertical applications product,
TenFold Revenue Manager. We anticipate that license revenues will represent an
increasing percentage of total revenues over time as we introduce more vertical
applications products.
License Revenues. Our license revenues increased from $271,000 in 1996 to
$5.2 million in 1997 and increased an additional 155% to $13.4 million in 1998.
The growth in our license revenues from 1996 to 1997 and to 1998 resulted
primarily from an increase in the number of customer contracts. Our 1996
revenues were concentrated in the investment management vertical market. As we
began to grow in 1997, we entered into customer contracts in the insurance,
investment management, telecommunications, and utilities and energy vertical
markets. During 1998, we continued to increase our customer base in each of our
vertical markets and entered into our first customer contract in the healthcare
vertical market. See Note 11 of Notes to Consolidated Financial Statements for
more information about our vertical business group revenues.
Service Revenues. Our services revenues increased 224% from $2.7 million in
1996 to $8.9 million in 1997 and increased an additional 202% to $26.8 million
in 1998. The growth of our service revenues from 1996 to 1997 and to 1998
resulted primarily from an increase in the number of customer contracts. Our
1996 revenues were concentrated in the investment management vertical market.
As we began to grow in 1997, we entered into customer contracts in the
insurance, investment management, telecommunications, and utilities and energy
vertical markets. During 1998, we continued to increase our customer base in
each of our vertical markets and entered into our first customer contract in
the healthcare vertical market. See Note 11 of Notes to Consolidated Financial
Statements for more information about our vertical business group revenues.
Operating Expenses
Cost of Revenues. Our cost of revenues increased from $370,000 in 1996 to
$4.7 million in 1997 and to $14.5 million in 1998. Our cost of revenues as a
percentage of total revenues was 12% in 1996, 33% in 1997, and 36% in 1998. The
increases in the cost of revenues in absolute dollars were due to additional
costs associated with the increase in the number of customer contracts, and
building the applications development organization and infrastructure to
support business growth. The increases in the cost of revenues as a percentage
of total revenues were primarily due to the cost of building the applications
development organization and infrastructure to support business growth.
Sales and Marketing. Our sales and marketing expenses increased from $87,000
in 1996 to $2.8 million in 1997 and to $11.1 million in 1998. Sales and
marketing expenses represented 3% of total revenues in 1996, 20% in 1997, and
28% in 1998. The increases in absolute dollars and as a percentage of revenues
were primarily the result of hiring additional sales and marketing personnel
and expanding advertising and other marketing programs in connection with the
growth of our business.
Research and Development. Software development costs incurred between
achieving technological feasibility and release of the product to our customers
have been insignificant and therefore have been expensed as incurred. Our
research and development expenses increased from $2.3 million in 1996 to
$4.7 million in 1997 and to $9.7 million in 1998. Research and development
expenses represented 76% of total revenues in 1996, 34% in 1997, and 24% in
1998. Our research and development expenses grew in absolute dollars between
the comparison periods primarily due to the addition of personnel required to
support our expanded development efforts. We anticipate that we
24
<PAGE>
will continue to devote substantial resources to research and development and
that these costs will continue to increase in absolute dollars, but continue to
decrease as a percentage of total revenues.
General and Administrative. Our general and administrative expenses
increased from $396,000 in 1996 to $1.4 million in 1997 and to $2.9 million in
1998. These increases were primarily the result of hiring executive and finance
and administrative personnel to manage and support the increased scale of our
operations. In addition, general and administrative expenses in 1998 included a
$500,000 provision for bad debts, mostly related to one customer's
creditworthiness. Because of the nature of our customer base, the bad debt
provisions in prior periods have not been significant. General and
administrative expenses as a percentage of total revenues decreased from 13% in
1996, to 10% in 1997, and to 7% in 1998. We believe that our general and
administrative expenses will continue to increase in absolute dollars as a
result of the need to add additional finance and administrative staff to
support growing operations, and from costs related to being a publicly-held
company.
Amortization of Deferred Compensation. We recorded total deferred
compensation of $251,000 in 1997 and $2.2 million in 1998 in connection with
stock options granted during 1997 and 1998. These amounts represent the
difference between the exercise price of stock option grants and the deemed
fair value of our common stock at the time of these grants. We are amortizing
these amounts over the vesting periods of the applicable options, resulting in
amortization expense of $34,000 in 1997 and $153,000 in 1998.
Other Charge. In March of 1997, we entered into a transaction where we sold
1,460,399 shares of Series A preferred stock and a software license to Indus
International. In the same transaction, a major stockholder sold 1,460,400
shares of our common stock to Indus International. Simultaneously, we granted
Indus International an option to exchange the 1,460,400 shares of common stock
for Series A preferred stock. Indus International exercised this exchange
option during 1997. Indus International paid a total of $8.0 million as
consideration for this transaction. Based on an independent valuation of our
common stock and preferred stock, we allocated the total consideration received
from Indus International based on the respective fair market values of the
preferred stock, common stock and software license. As a result of the
transaction, the major stockholder received a premium on the sale of common
stock. We have reflected that premium as an other charge in our statement of
operations.
Interest and Other Income, Net. Our net interest income increased from
$28,000 in 1996 to $179,000 in 1997 and to $375,000 in 1998. The increases
between the comparison periods was primarily the result of higher cash balances
resulting from preferred stock financings and cash flow from operations.
Provision (Benefit) for Income Taxes. We account for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Our effective tax rate was 0% for 1996, 16% for 1997, and 22%
in 1998. The effective income tax rate differs from the statutory income tax
rate in each year primarily due to the use of research and development credits,
and permanent differences between the tax and financial accounting treatment of
various items. Our effective tax rate may vary from period to period based on
our future expansion into areas with varying country or state income tax rates.
As of December 31, 1998, we had foreign net operating loss carryforwards of
$890,000 that generally carryforward indefinitely. In addition, as of
December 31, 1998, we had credits for increasing research activities of
$264,000 for federal and $336,000 for state income tax purposes. The federal
credit carryover will begin to expire in 2012. The state credit carries over
until exhausted. The Internal Revenue Code contains provisions that limit the
use in any future period of credit carryforwards upon the occurrence of
specified events, including a significant change in ownership interests. We had
net deferred tax assets of $451,000 as of December 31, 1998. We recorded a
valuation allowance of $701,000 for a portion of the deferred tax asset due to
uncertainties regarding the realization of the asset balance. See Note 7 of
Notes to Consolidated Financial Statements for more information concerning
taxes.
25
<PAGE>
Quarterly Results of Operations
The following tables set forth unaudited quarterly results of our operations
for each of the nine quarters ended March 31, 1999. This information has been
derived from our unaudited financial statements, which, in management's
opinion, have been prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the quarters presented. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this prospectus. The operating results in any quarter are
not necessarily indicative of the results for any future period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------
Mar 31, June 30, Sep 30, Dec 31, Mar 31, June 30, Sep 30, Dec 31, Mar 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
------- -------- ------- ------- ------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License................ $ 601 $1,365 $1,014 $2,264 $1,259 $1,515 $4,089 $6,519 $5,656
Services............... 1,289 2,365 1,903 3,322 3,940 6,104 6,946 9,795 10,371
------- ------ ------ ------ ------ ------ ------ ------ ------
Total revenues....... 1,890 3,730 2,917 5,586 5,199 7,619 11,035 16,314 16,027
------- ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Cost of revenues....... $ 449 $ 953 $1,389 $1,870 $2,176 $2,761 $4,370 $5,222 6,246
Sales and marketing.... 335 471 675 1,284 1,442 2,127 2,942 4,559 4,736
Research and
development........... 780 968 1,399 1,592 1,807 2,349 2,442 3,092 3,401
General and
administrative........ 193 307 414 450 471 507 539 1,365 820
Amortization of
deferred
compensation.......... -- 8 13 13 13 11 11 118 305
Other charge........... 1,449 -- -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 3,206 2,707 3,890 5,209 5,909 7,755 10,304 14,356 15,508
------- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (1,316) 1,023 (973) 377 (710) (136) 731 1,958 519
Interest and other
income, net............ 28 66 46 39 102 110 113 50 88
------- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (1,288) 1,089 (927) 416 (608) (26) 844 2,008 607
Provision (benefit) for
income taxes........... -- -- -- (110) (207) (9) 287 424 234
------- ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(1,288) $1,089 $ (927) $ 526 $ (401) $ (17) $ 557 $1,584 $ 373
======= ====== ====== ====== ====== ====== ====== ====== ======
As a Percentage of Total
Revenues:
Revenues
License................ 32% 37% 35% 41% 24% 20% 37% 40% 35%
Services............... 68 63 65 60 76 80 63 60 65
------- ------ ------ ------ ------ ------ ------ ------ ------
Total revenues....... 100 100 100 100 100 100 100 100 100
------- ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Cost of revenues....... 24 26 48 34 42 36 40 32 39
Sales and marketing.... 18 13 23 23 28 28 27 28 30
Research and
development........... 41 26 48 29 35 31 22 19 21
General and
administrative........ 10 8 14 8 9 7 5 8 5
Amortization of
deferred
compensation.......... -- -- -- -- -- -- -- 1 2
Other charge........... 77 -- -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 170 73 133 93 114 102 93 88 97
------- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (70) 27 (33) 7 (14) (2) 7 12 3
Interest and other
income, net............ 2 2 2 1 2 1 1 -- 1
------- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (68) 29 (32) 7 (12) -- 8 12 4
Provision (benefit) for
income taxes........... -- -- -- (2) (4) -- 3 3 1
------- ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... (68)% 29% (32)% 9% (8)% -- 5% 10% 2%
======= ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE>
We experienced fluctuations in quarterly license and service revenues during
the quarters of 1997 and 1998, due principally to our limited customer base.
The decrease in revenues in the third quarter of 1997 was mainly due to a
longer sales cycle for some customers than we had previously experienced due in
part to personnel changes in our sales organization. Several contracts which we
had expected to close in the third quarter were not closed until the fourth
quarter. Because our operating expenses are relatively fixed in advance of each
quarter, the decrease in revenue in the third quarter of 1997 caused our
operating expenses to represent a greater percentage of revenues during the
quarter. Similarly, operating expenses represented a greater percentage of our
revenue during the first quarter of 1998. We also experienced quarterly
fluctuations between our license and service revenue as a percentage of total
revenue, due in part to variations in the relative size of our contracts and
the mix of license and service revenues in those contracts.
Our cost of revenues, sales and marketing, and research and development
expenses have increased in absolute dollars during each of the nine quarters
ended March 31, 1999, due to increases in personnel, our growing sales and
marketing organization, and building our infrastructure to support business
growth. The fluctuations in these expenses as a percentage of revenue were due
mainly to fluctuations in our total revenues. The large increase in general and
administrative expenses in the fourth quarter of 1998 compared to prior
quarters was primarily due to an increase in the provision for bad debts,
mostly related to one customer's creditworthiness.
We expect to continue to experience significant fluctuations in our future
quarterly and annual results of operations due to a variety of factors, many of
which are outside our control. See "Risk Factors--There are many factors that
may cause fluctuations in our quarterly financial results, and if these results
are below the expectations of securities market analysts, our stock price will
likely decline" for a discussion of these factors.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through cash flow
from operations, private sales of capital stock totaling $13.4 million, and, to
a lesser extent, various types of equipment loans and lease lines of credit. At
March 31, 1999, our principal source of liquidity was $13.2 million of cash and
cash equivalents.
On January 18, 1999, we entered into an unsecured revolving line of credit
providing for borrowings of up to $5.0 million. Borrowings under the line of
credit, which expires on January 17, 2000, bear interest at the bank's prime
rate or LIBOR plus 250 basis points. The line of credit includes covenants
relating to the maintenance of financial ratios and limits the payment of
dividends. We have not borrowed against this line of credit to date.
Net cash generated by (used in) operating activities was $(92,000) in 1996,
$822,000 in 1997, $6.1 million in 1998, and $(3.8 million) during the three
months ended March 31, 1999. Net cash used for investing activities was
$423,000 in 1996, $1.4 million in 1997, $5.5 million in 1998, and $842,000
during the three months ended March 31, 1999. Net cash used for investing
activities in these periods was almost entirely the result of capital
expenditures for computer equipment, leasehold improvements, furniture and
fixtures, and other equipment to support business growth.
Net cash provided by financing activities was $1.0 million in 1996, $8.4
million in 1997, $5.7 million in 1998, and $2.5 million during the three months
ended March 31, 1999. The $8.4 million provided in 1997 resulted from the
issuance of preferred stock, net of issuance costs. In 1998, $3.8 million of
cash provided by financing activities resulted from the issuance of debt, bank
borrowings, and a sale-leaseback fixed asset financing offset by principal
payments. In 1998, we also raised $2.3 million from the issuance of common
stock.
27
<PAGE>
As of March 31, 1999, our aggregate payment commitments under bank
borrowings, debt and capital lease obligations, and noncancellable operating
leases were $3.8 million in 1999, $4.0 million in 2000, $3.6 million in 2001,
$905,000 in 2002, and $845,000 thereafter.
We believe that the net proceeds from this offering, together with existing
cash balances, anticipated cash flows from operations, and available borrowings
should be sufficient to meet our capital requirements for at least the next
twelve months. However, there can be no assurance that we will be successful in
generating anticipated levels of cash from operations or borrowings. If we are
unable to generate sufficient cash flow from operations, or additional
equipment loans or equipment and working capital lines of credit, we may be
required to scale down our operations and expansion plans, refinance all or a
portion of our existing indebtedness, or obtain other sources of financing
earlier than planned, any of which could have a material adverse effect on our
business, results of operations, and financial condition. There can be no
assurance that any refinancing would be available on commercially reasonable
terms, or at all. See "Use of Proceeds" and Notes 4 and 6 of Notes to
Consolidated Financial Statements for more information concerning our proposed
use of the proceeds of this offering and our obligations under various
financial commitments.
Year 2000
With respect to our internal information technology systems, including
information technology-based office facilities such as data and voice
communications, and building management and security systems, our year 2000
internal readiness program primarily covers taking inventory of hardware,
software and embedded systems, assessing business risks associated with these
systems, creating action plans to address known risks, executing and monitoring
action plans, and contingency planning. We currently are in the process of
requesting compliance certificates from vendors and service providers to
certify year 2000 readiness and conducting ongoing risk analysis. We expect to
substantially complete year 2000 readiness preparations at the end of May 1999
with respect to our core business and software systems and at the end of June
1999 with respect to our hardware systems. In each case, we expect to continue
extensive testing through calendar 1999.
Although we do not believe that we will incur any material costs or
experience material disruptions in our business associated with preparing our
internal systems for the year 2000, there can be no assurance that we will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in our internal
systems. These systems include the hardware and third-party software products
that our applications developers and research and development staff use in
their day-to-day activities, as well as our management information systems. The
most likely worst case scenarios include:
. hardware or software failures that would prevent our applications
developers and research and development staff from effectively
performing their duties;
. corruption of data contained in our internal information systems; and
. the failure of infrastructure services provided by government agencies
and other third parties, including public utilities and internet
services.
We are in the process of completing our contingency planning for high risk
areas at this time and are scheduled to commence contingency planning for
medium to low risk areas in June 1999. We expect our contingency plans to
include, among other things, manual "work-arounds" for software and hardware
failures, as well as substitution of systems, if necessary.
We have designed and tested the current versions of our products to be year
2000 compliant. We believe that none of our customers is currently using prior
versions of our products, and, as a result, we have not assessed whether these
prior versions are year 2000 compliant. However, there can be no assurance that
current or prior versions of our products do not contain undetected errors
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or defects associated with year 2000 date functions that may result in material
costs to TenFold. Some commentators have stated that a significant amount of
litigation will arise out of year 2000 compliance issues, and we are aware of a
growing number of lawsuits against other software vendors. Because of the
unprecedented nature of this litigation, the extent to which it will affect
TenFold is uncertain.
We have experienced demand for our applications in recent years that may
have been generated by customers replacing and upgrading applications in order
to accommodate the change in date to the year 2000. Once these customers have
completed their year 2000 projects, the software industry and TenFold may
experience a significant deceleration in the annual growth rates recently
experienced in the applications software marketplace.
As the end of 1999 approaches, there is a risk that orders for our products
will be reduced or delayed as our customers or potential customers focus their
resources on preparing for the year 2000. If this reduction in orders occurs,
it could significantly impact our operating results which could cause our stock
price to materially decline.
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. We must adopt SFAS No. 133
by July 1, 1999. We do not believe the adoption of SFAS No. 133 will have a
material effect on the financial position or results of operations of the
Company.
Disclosures About Market Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices, and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the Risk Factors section.
As of March 31, 1999, TenFold had short-term investments of $12.7 million.
Substantially all of these short-term investments consist of highly liquid
investments with remaining maturities at the date of purchase of less than
ninety days. These investments are subject to interest rate risk and will
decrease in value if market interest rates increase. A hypothetical increase or
decrease in market interest rates by 10 percent from the March 31, 1999 rates
would cause the fair value of these short-term investments to decline by an
insignificant amount. We have the ability to hold these investments until
maturity, and therefore we do not expect the value of these investments to be
affected to any significant degree by the effect of a sudden change in market
interest rates. Declines in interest rates over time will, however, reduce our
interest income.
TenFold does not own any equity investments. Therefore, we do not currently
have any direct equity price risk.
Substantially all of our revenues are realized currently in U.S. dollars and
are from customers in the United States. Therefore, we do not believe that we
currently have any significant direct foreign currency exchange rate risk.
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BUSINESS
Overview
TenFold is an innovative software and services company that builds and
implements large-scale, complex applications rapidly and for a fixed price. We
offer the TenFold Guarantee, the industry's first money-back guarantee for
large-scale software applications. We deliver applications on time, for a fixed
price, and on target--or we refund our customer's money. Typical design,
development, and delivery of completed, tested, and documented applications is
four to eight months. We also offer the TenFold Guarantee when customers choose
our optional FastStart program to implement TenFold applications.
Our mission is to become the leading provider of industry-specific, or
"vertical", software applications in multiple industries. We intend to
accomplish this by developing innovative applications for customers and
reselling these applications to other companies in the same industry. Our
customers include industry leaders in insurance, investment management,
telecommunications, utilities and energy, healthcare, banking and credit, and
other industries. TenFold customers include Ameritech, Barclays Global
Investors, Crawford & Company, Enron, Mercy Health Services, Provident, and
Unitrin.
Using our unique TenFold Way methodology, combined with our Universal
Application and TenFold ComponentWare technologies, we deliver innovative
applications for these industries that are feature-rich, flexible, and high
quality. Often, these applications fill voids where packaged software solutions
lack functionality, lack flexibility, or simply do not exist. Our applications
support multi-tiered and Web-based environments, as well as leading database
platforms and operating systems.
We believe that our fixed-time, fixed-price business model, our Universal
Application and TenFold ComponentWare technologies, and our unique TenFold
Guarantee provide a significant benefit to customers who want to reduce risk
and achieve rapid time to market when developing and implementing mission-
critical applications.
Industry Challenge
Organizations worldwide face increasing pressure to install new software
applications and to replace their outdated applications with new systems as
they seek to increase productivity, leverage distributed computing environments
and the Internet, and address changing business and competitive demands.
Recently, many organizations have spent large amounts of money patching
existing systems to solve their year 2000 issues, without adding applications
functionality or business benefits. In many instances, these companies still
need new or replacement applications that are critical to their operations, if
not their survival. To obtain new or replacement applications, companies face a
"buy vs. build" dilemma: 1) they can buy packaged software; or 2) they can
build custom software, either internally or by hiring a services firm.
Companies generally turn to independent software vendors, such as Enterprise
Resource Planning (ERP) vendors or vertical software providers, when looking
for packaged applications. ERP vendors primarily offer horizontal applications
that address general business processes, such as accounting, human resources,
and manufacturing, but offer limited industry-specific functionality outside of
manufacturing. Traditional vertical software vendors provide more industry
functionality, but often with products built on aging technology. In general,
packaged applications promise proven quality and relatively quick
implementation, but lack the flexibility and customization that many companies
need and can force companies to alter their business processes. In addition,
customizing a packaged application can be costly and time-consuming, and also
makes it difficult to accept future software upgrades.
Alternatively, companies can build custom applications, either internally or
with third parties. This approach may give them the functionality and
flexibility they seek, but it carries a high risk of failure.
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According to research from The Standish Group, a software industry research
firm, most large-scale applications development projects significantly exceed
budgets and schedules. Even after these excesses, many of these projects are
canceled without ever reaching production. This Standish Group research shows
that only 8 percent of applications development projects costing $6-10 million
succeed--delivered on time, on budget, and according to original
specifications. This research also indicates that in 1998 cost and time
overruns for project failures amounted to almost $100 billion in the United
States.
TenFold believes that cost overruns and unsuccessful projects do not
necessarily reflect a lack of skilled personnel, but typically result from the
flawed process and technology used to develop large-scale applications. In many
cases, it takes six months to a year just to define requirements. It then takes
a large team of programmers two to three years to build the application, and
another year to test and deploy it. By the time the application is finished,
requirements may have changed dramatically. Ultimately, few projects are
completed on time, on budget, and with the promised capabilities.
Companies often hire software integration or services firms to build and
implement mission-critical applications. These firms generally work on a time-
and-materials basis, require large numbers of consultants who may remain on
site for years, and may exceed budgets and schedules without producing
significantly better results than internal development organizations. In
addition, these firms typically do not offer ongoing product enhancements
because they build custom solutions for a single customer.
Some services firms, such as Cambridge Technology Partners and Sapient,
offer fixed-time, fixed-price development, often linked to structured
methodologies that shorten development and increase predictability by breaking
large projects into multiple, smaller projects or phases. While this approach
delivers some benefits, it can lead to costly change orders for customers as
their requirements change during applications development. In addition, these
firms generally lack unique technology to significantly improve applications
development time frames.
Today's software purchasers want the best of both the "buy" and "build"
options: the rapid time-to-market and quality benefits of packaged
applications, with the tailored-to-their-business features of custom-built
software. They need flexible solutions that integrate with existing systems and
that can adapt as they grow. Most of all, they want assurance that applications
will arrive on time, for a fixed cost, and on target.
TenFold Solution
TenFold builds and implements large-scale, complex applications for a fixed
price in months, not years. We offer the TenFold Guarantee, the industry's
first money-back guarantee for large-scale software applications. We deliver
applications on time, for a fixed price, and on target--or we refund our
customer's money. We believe that it is the combination of our TenFold Way
methodology and our unique Universal Application and TenFold ComponentWare
technologies that lets us develop applications significantly faster than
alternative approaches. We also offer the TenFold Guarantee when customers
choose our optional FastStart program--we implement applications into
production on time, for a fixed price, or we refund their money. In addition,
we are beginning to license applications that we built for one customer to
other companies in the same industry.
Customer Benefits
We build applications that deliver rich functionality, offer significant
flexibility and quality, and solve the complex, expensive, and time-consuming
problems of replacing outdated systems and meeting today's business challenges.
We offer these customer benefits:
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Guaranteed, Fixed-time, Fixed-price Delivery. Our straightforward promise is
that we successfully deliver large-scale applications on time, for a fixed
price, and on target, or we refund our customer's money. We deliver software
solutions that we believe reduce risk by meeting business requirements quickly,
reliably, and for a fixed price.
Rapid Development. We have re-engineered the process of building complex
software applications. Our unique development methodology, the TenFold Way,
lets us rapidly build complex applications. We show clear, visible results
within weeks and typically deliver completed, tested, and documented
applications in four to eight months. Our Universal Application and TenFold
ComponentWare automate and accelerate applications development and testing, and
let us build large-scale, sophisticated applications quickly and reliably with
little or no programming.
Rapid Implementation. Our optional FastStart program automates much of the
data conversion, data cleanup, applications interfacing, and parallel testing
needed to attain rapid production. We often begin FastStart concurrent with
applications development to shorten the time from the start of development to
production. We also offer FastStart with a fixed-time, fixed-price guarantee.
Lower Overall Cost. Because TenFold can deliver complex applications in
relatively short time frames, we believe that our applications typically cost
less than those offered by competitors. By reducing the overall development and
delivery time frame, we help customers avoid expensive projects that exceed
budgets and schedules. In addition, because we can easily enhance and modify
applications as customer needs evolve, we believe that our products can lower
the overall cost of owning and operating complex applications.
Custom Applications that Meet True Needs. We deliver applications that meet
precise business needs and adapt as needs change, rather than force companies
to alter their businesses to conform to packaged applications. We work closely
with customers through rapid, multiple iterations to develop applications that
meet true needs. True needs emerge when customers see what they asked for and
then realize what they really need. The TenFold Way accommodates multiple,
interim customer revisions and feedback, followed by successive applications
improvements.
Continuous Innovation and Product Enhancement. We design and build
applications with functionality and capabilities that not only meet the needs
of an individual customer, but are also intended to meet the needs of other
companies in the same vertical industry. We typically maintain intellectual
property rights to the original applications we build, so we can license them
as applications products to other companies. Because we expect many of our
applications to become resellable products, rather than individual solutions
for a single customer, we believe that customers will receive benefits not
typically offered by traditional service providers or custom applications
developers such as continuous innovation and enhancement, regular upgrades,
ongoing support, training, and certification.
TenFold Differentiators
We successfully deliver complex applications through four key
differentiators. While we believe that each is significant, it is the
combination of the four that lets us build and implement large-scale
applications rapidly and lets us offer real business value to our customers.
The TenFold Way. The TenFold Way is a start-to-finish approach to working
closely with our customers to design, develop, test, deliver, and evolve custom
applications. We use the TenFold Way to identify requirements in four to eight
weeks, and typically deliver the complete, fully tested application in four to
eight months. The TenFold Way organizes a project into phases, each with well-
defined activities and deliverables. The TenFold Way combines continuous
communication and customer feedback with rapid, iterative development to keep
projects on target.
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Universal Application. We have invented a unique technology--the Universal
Application--for building complex applications dramatically faster than
current industry practice. The Universal Application is a sophisticated and
powerful applications architecture that reduces design effort and automates
and accelerates applications development and testing. The Universal
Application lets TenFold begin applications development projects having pre-
built significant functionality and having already solved many complex
applications design and implementation problems. Our applications developers
spend time describing business requirements and desired functionality--not
programming.
TenFold ComponentWare. TenFold ComponentWare is a library of components,
reusable across multiple applications and industries, that lets us add
complex, business-specific functionality to an application and lets us
virtually eliminate applications-specific programming. TenFold ComponentWare
includes capabilities such as billing, scoring, and workflow, as well as
integration engines. Each component contains features to serve many different
types of applications, across multiple vertical industries.
FastStart. FastStart provides both technology and implementation services
to quickly put TenFold applications into production. These services include
converting and cleansing existing data, integrating with other applications,
running a parallel, and managing the implementation project. We offer
FastStart with the same fixed-time, fixed-price, money-back guarantee that we
offer for applications development.
We believe that the integration of our unique applications development
process and innovative technology lets us provide significant business value
for our customers.
[ARTWORK: PROCESS & TECHNOLOGY = BUSINESS VALUE]
Three boxes with headings: Process + Technology = Business Value. Contents of
boxes as follows:
Process: TenFold Way, Requirements in weeks, Rapid iterative development,
Continuous automated testing, FastStart Services.
Technology: Universal Application; TenFold ComponentWare; FastStart
Application Portable, scalable, Web-enabled; Automated development with little
or no programming.
Business Value: Guaranteed, fixed-time, fixed-price delivery; Rapid
development and implementation; Lower overall cost; Custom applications that
meet true needs; Continuous innovation and product enhancement.
TenFold Strategy
Our mission is to become the leading provider of vertical software
applications by pursuing these strategies:
Create Resellable Products from Custom Development Projects. We design and
build applications to meet the needs of an original customer, with the
intention to license these applications as packaged products within vertical
industries. We typically maintain intellectual property rights to applications
that we design and build. For example, we built and delivered an application
for Barclays Global Investors that we have packaged and licensed as TenFold
Revenue Manager to other institutional investment management companies. While
revenue from resales of packaged products has not been significant to date, we
expect this activity to become an increasingly important aspect of our
business in the future.
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Organize into Vertical Business Groups. TenFold is organized into discrete
Vertical Business Groups to tailor marketing, selling, product development, and
business strategies for our target vertical industries. As each Vertical
Business Group grows in size, gains multiple customers, and develops multiple,
resellable products, it achieves increasing autonomy. We offer employee
incentives, including equity, tied to the performance of these Vertical
Business Groups. We may also offer Vertical Business Group equity to strategic
industry partners.
Further Penetrate Multiple Vertical Markets. We build mission-critical
applications that address under-served needs in large, multi-billion-dollar
vertical markets. By significantly reducing time to market, we believe we can
compete in industries such as insurance, investment management,
telecommunications, utilities and energy, healthcare, and banking and credit,
and attract market-leading customers as reference accounts. We intend to
further penetrate these industries by continuing to identify, build, and sell
additional, industry-specific applications.
Enter New Vertical Markets. We believe that we can also offer new and
replacement applications for additional vertical industries in the future. Our
strategy as we enter and compete in new vertical industries is to recruit
industry veterans with substantial domain knowledge and skills, and target
sales and marketing efforts at high-potential prospective customers.
Leverage Innovative Technology. The Universal Application and TenFold
ComponentWare automate and accelerate applications development and testing, and
let us build large-scale, sophisticated applications quickly and reliably. The
Universal Application speeds development, enforces consistency, and enables
extensive, automated testing throughout the applications life cycle. We
continually enhance and update the Universal Application and TenFold
ComponentWare to add functionality, improve performance and scalability, and
increase our applications development productivity. For example, in 1998 we
improved performance dramatically, Web-enabled the Universal Application, and
introduced a more intuitive and versatile user interface. As of March 31, 1999,
we had 89 people dedicated to enhancing and improving our technology.
Leverage Alternative Distribution Channels. We believe third parties can
successfully use the TenFold Way, the Universal Application, TenFold
ComponentWare, and FastStart to rapidly develop and implement applications. We
plan to establish relationships with applications service providers, value-
added resellers (VARs), and software distributors in the U.S. and international
markets, and we hope to broaden distribution of TenFold products and increase
software license revenues through these third-party relationships.
Practice Precision Execution. TenFold employees aspire to a well-defined
company culture and set of core values. We see TenFold as more than our company
name; it is a culture statement. Each employee attends an initial "Boot Camp"
and ongoing training to learn the TenFold Way, our technology, and our company
values. We strive for Precision Execution in all facets of our business, and
constantly monitor and improve our individual, team, and company productivity
and performance. We strive to continuously increase employee productivity and
product quality by enhancing our processes and technology.
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Technology
A TenFold application is any application that TenFold or others build using
TenFold technology. A TenFold application consists of the Universal
Application, selected business-rule components from TenFold ComponentWare, and
a description of the desired functionality and attributes of the specific
application. Applications developers use the Universal Application to build
TenFold applications without programming.
[ARTWORK: UNIVERSAL APPLICATION RUNNING A TENFOLD APPLICATION]
Heading: Universal Application Running a TenFold Application
Graphic of layered technology architecture with following layers, from top to
bottom:
TenFold Application
TenFold ComponentWare
ApplicationXpress
Universal Application Client/Universal Application Server
LogicXpress
Universal Application Kernel
Universal Application
The Universal Application is a carefully layered applications architecture,
written in C and C++ programming languages, that lets applications developers
build an application by describing its semantic--desired functionality and
attributes--without programming. Since describing an application is
considerably different than traditional programming and does not require
programming skills, an applications development team can typically describe a
complex application in weeks. Once applications developers describe an
application or part of an application, the Universal Application reads the
description and becomes the described application. Thus, for many large,
complex applications, the Universal Application is a complete, already-written,
ready-to-execute application lacking only a specific definition of the desired
functionality and attributes. The Universal Application delivers these
benefits:
. little or no programming to create a complex application;
. significant automation of applications development by virtually
eliminating traditional programmer tasks such as writing SQL, writing
logic functions, converting business rules into logic, and designing
user interface screens;
. improved consistency, quality, and performance because programmers often
vary in their ability to achieve a high level of consistency, quality,
and performance;
. carefully layered architecture to facilitate portability, future
maintenance, feature additions, and migration to new or emerging
industry standards;
. already-solved, significant applications features such as
SecurityByValue, TimeRelational, ExoticUpdate, Hierarchies, cascading
defaults, and context-sensitive behavior;
. extensibility to add programmed logic if an application requires
capabilities that are unavailable from the Universal Application;
. demonstrated scalability as customers add users and computing capacity;
and
. typically sub-second performance when properly configured.
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Describing an Application Using the Universal Application. Applications
developers use the ApplicationXpress portion of the Universal Application to
describe and test an application. Applications developers describe the
semantic--desired features and functionality--of the application without
programming.
[ARTWORK: "APPLICATION XPRESS"]
Heading: ApplicationXpress
Graphic of layered technology architecture with the following layers, from top
to bottom:
TenFold Librarian/TenFold Dictionary/TenFold Reporter/TenFold Analyzer/TenFold
Autotest
Universal Application Client/Universal Application Server
LogicXpress
Universal Application Kernel
ApplicationXpress contains the following:
. TenFold Librarian lets applications developers describe the application
that they are building. TenFold Librarian provides menus, transactions,
and screens that applications developers use to describe the
application, and store the application description, or semantic, in the
TenFold Dictionary.
. TenFold Dictionary is a relational database that contains the semantic
of the application. The semantic precisely describes the application.
. TenFold Reporter is a powerful reporting system that applications
developers use to define, execute, and manage the production,
requesting, and distribution of reports--including outputs to print,
view interactively, or distribute via e-mail or fax--for an application.
. TenFold Analyzer is a powerful On-line Analytical Processing (OLAP)
engine that applications developers use to describe interactive analyses
to include in the application.
. TenFold AutoTest is an integrated testing system that applications
developers use to test individual applications components as they
complete them, and fully test the completed application. TenFold
AutoTest also lets applications developers regression test their
application to detect inadvertent errors that they might introduce into
one part of an application as they modify another part, or as they
change underlying technologies such as a database version.
Executing an Application. When end-users execute a TenFold application, they
are executing the Universal Application which points to the TenFold Dictionary
containing the applications semantic for their application. The Universal
Application automatically reads the applications semantic from the TenFold
Dictionary at the appropriate time and becomes the application described in the
applications semantic.
Configuring an Application. Customers can run the Universal Application on
the hardware and software, as well as the client and server configurations, of
their choice within the following environments and platforms:
. Relational databases--Sybase, Oracle, and DB2.
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. Server operating systems--Microsoft Windows NT, Sun Solaris, IBM AIX,
Sequent Dynix, and HP UX.
. Client operating and windowing systems--Microsoft Windows NT, Windows
95, and Windows 98.
. Communications systems--TCP/IP, TIB.
. Client configurations include: StandardClient--database connections
occur directly from the client to a relational database; NonSQLClient--
database connections occur only from a server to the relational
database; UIClient--only display and validation logic exists on the
client computer; and BrowserClient--all transactions are available
through a browser such as Microsoft Internet Explorer or Netscape
Navigator.
. Server configurations include: single-tier--the entire application runs
on a single computer such as a portable computer; two-tier--many clients
and one server that also contains a relational database; three-tier--
many clients, one applications server, and one database server; n-tier--
many clients, many applications servers, and one database server; and
distributed--many clients, many applications servers, and many database
servers.
It is relatively easy for TenFold to support additional relational
databases, server operating systems, client operating and windowing systems,
and communications systems.
TenFold ComponentWare
TenFold ComponentWare is a family of pre-written applications components
that easily plug into the Universal Application to extend its functionality
without programming. TenFold ComponentWare delivers these benefits:
. no programming required to add complex processing capabilities to an
application;
. robust applications functionality as each component contains features to
serve many different types of applications, across multiple vertical
industries; and
. carefully layered architecture to facilitate portability, future
maintenance, feature additions, and migration to new or emerging
industry standards.
[ARTWORK: TENFOLD COMPONENT WARE]
Heading: TenFold ComponentWare
Graphic of layered technology architecture with following layers, from top to
bottom:
PowerImport/PowerAccounting/PowerScoring/PowerWorkflow/PowerBilling
ApplicationXpress
Universal Application Client/Universal Application Server
LogicXpress
Universal Application Kernel
TenFold ComponentWare currently includes these components:
. PowerImport automates most file and record inputs into a TenFold
application. PowerImport automates many application-to-application
integration activities.
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. PowerExport automates most file and record outputs from a TenFold
application. PowerExport automates many application-to-application
integration activities.
. PowerAlert automates TenFold application exception reporting such as
automatic e-mail notification when an event occurs.
. PowerAccounting automates TenFold application integration with a
customer's existing general ledger system.
. PowerScoring lets end-users define and evolve business rules that
control applications behavior. PowerScoring is particularly useful in
regulated industries such as insurance where regulators change business
rules and companies must implement new business rules quickly.
. PowerWorkFlow lets end-users define and evolve workflow rules that
change applications behavior. PowerWorkFlow is particularly useful in
process-intensive industries where various departments, managers, or
staff need to approve or process transactions in sequence and in accord
with business rules.
. PowerBilling provides invoicing, statements, billing, collections and
other related functionality.
FastStart
FastStart provides both technology and implementation services to quickly
put TenFold applications into production. Our TenFold FastStart application
uses the capabilities of the Universal Application and TenFold ComponentWare to
rapidly:
. cleanse, convert, import, and export data;
. configure applications, including client-based workflows, business
rules, and system security;
. conduct parallel testing; and
. create internal and external applications interfaces.
Services
TenFold builds and implements large-scale, complex applications rapidly and
for a fixed price. Our services, which have historically accounted for a
majority of our revenues, can be divided into three elements: building
applications, implementing applications, and post-implementation training and
support.
Building Applications--The TenFold Way
We call our unique process for rapidly delivering sophisticated applications
the "TenFold Way". We organize projects into phases, each with well-defined
activities and deliverables.
Executive Overview. In the Executive Overview phase, we write and deliver a
30-50 page executive overview that describes the application's scope and
functionality. We use applications research, detailed interviews with end-users
and senior managers familiar with applications needs, and our applications
expertise to prepare the executive overview. Our customers review and approve
each section. We typically deliver the completed document in three weeks.
Requirements. In the Requirements phase, we define and confirm requirements
and cross check them for accuracy and completeness. Requirements deliverables
are applications concepts training, an applications concepts manual, a
demonstration script, an acceptance tests book, a
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<PAGE>
reports book, and a database design book. Our customers review and approve
each deliverable. We typically complete requirements in four to eight weeks.
InitialPrepare and Grazing. In the InitialPrepare phase, we use the
Universal Application to rapidly build the first version of an application,
including end-user responsibilities, menus, transactions, reports, analyses,
and business engines. We build, test, and deliver a first release of the
application for customer feedback, a process we call "Grazing", and
incorporate this feedback into subsequent releases. End-users provide better
feedback after they have hands-on experience, and their Grazing comments help
us fine-tune the application's design. Interim releases of TenFold
applications are not applications prototypes, but are actual, working versions
of the entire application that customers can install and use.
FinishProject. During multiple Grazing cycles, we conduct the FinishProject
phase to complete the application on schedule and on target. During
FinishProject, the application passes all acceptance tests and we deliver the
completed application to our customers.
[ARTWORK: TENFOLD WAY TIMELINE]
Heading: TenFold Way and FastStart
Graphic of TenFold Way and FastStart timelines showing key phases of
applications development and implementation over a typical six-month
timeframe.
Text: Timing may vary based on applications scope. Although we have yet to
complete a FastStart implementation, the above timeline projects a typical
FastStart schedule.
Implementing Applications--FastStart--Fixed-Time, Fixed-Price Implementation
We offer FastStart--which is both a process and a technology--to
successfully install TenFold applications into production for a fixed price
and on a fixed schedule. FastStart services include converting and cleansing
legacy data, integrating with other applications, running a parallel, and
managing the implementation project. We often begin FastStart concurrent with
applications development to shorten the time from the start of development to
production. Although we have not yet completed a FastStart implementation, we
expect to deliver FastStart services in the following phases:
Executive Overview. In the Executive Overview phase, we write and deliver
an executive overview that describes implementation scope, conversion plans,
end-user training plans, parallel
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testing plans, go-live plans, and ongoing support plans. We use detailed
interviews with IT staff and senior managers familiar with legacy applications,
reviews of record layouts, and our implementation expertise to prepare the
executive overview. Our customers review and approve each section. We typically
deliver the completed document in three weeks.
Requirements. In the Requirements phase, we define and confirm
implementation requirements and cross check them for accuracy and completeness.
We produce a FastStart reference manual to describe data conversion, data
cleanup, imports, exports, database mapping, parallel testing details, and go-
live details as the basis for quickly deploying the application into
production. Our customers review and approve each section. We typically deliver
the completed document in about four weeks.
InitialPrepare. In the InitialPrepare phase, we use the TenFold FastStart
application to cleanse legacy-system data and convert it to the new
applications database. We prepare imports, exports, database mappings, and
alerts to integrate the new application with other existing applications.
PracticeParallel. In the PracticeParallel phase, we run the new TenFold
application in parallel with the legacy application to verify that the new
application efficiently processes daily workloads and produces results that
match legacy application outputs. In each practice parallel, we convert the
legacy beginning-of-day data to the new applications database, capture legacy
inputs for a day, manually enter those inputs, extract and compare the legacy
end-of-day data to the new applications end-of-day database, and resolve
differences. We use our AutoCapture technology to record TenFold application
inputs so that we can rerun a practice parallel multiple times until we resolve
differences. We run multiple practice parallel sessions until the customer is
confident that the application is ready for production.
QuietProduction. In the QuietProduction phase, we help the customer go live
on the new application, get their end-users productive, and evolve to long-term
support. We deliver to our customers a completed, production implementation.
Training and Support
We believe that superior customer service is critical to selling our
products and services to our customers. We offer training and support so that
customers can successfully operate, maintain, and evolve their applications.
Education and Certification. TenFold Education offers professional
certification programs to TenFold applications developers, end-users,
information technology professionals, and training professionals who need to
understand the TenFold Way, the Universal Application, TenFold ComponentWare,
FastStart, and TenFold applications products. Training programs include
classroom instruction, detailed courseware, and on-site training.
Customer and Technical Support. Our support arrangements provide customers
with new releases of their TenFold applications, new releases of the Universal
Application, on-site support immediately following project completion,
additional support when their applications go into production, and applications
consulting to adapt their applications.
Applications Products
Our strategy is to create resellable products from custom development
projects. We use the Universal Application to build all the applications we
develop for our customers. We believe that we can license many of the
applications we develop for individual customers as applications products to
other companies in the same vertical industry. While we have derived the
majority of our license
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revenue to date from custom applications that we have developed for specific
customers, we have successfully resold TenFold Revenue Manager, and we plan to
resell other applications products to other customers. Current TenFold
applications products that we offer to customers are:
TenFold Revenue Manager. TenFold Revenue Manager is a flexible, multi-
currency invoicing and revenue accounting system for institutional investment
managers. TenFold Revenue Manager automates invoicing tasks, ensures accuracy,
and produces complex invoices quickly and reliably so that investment managers
can improve cash flow and reduce operating costs. It lets decision-makers
define new fee structures for clients, easily change fee calculations, analyze
fee data to identify patterns and trends, and use "what-if" analyses to
proactively determine the revenue impact of proposed fee strategies. TenFold
Revenue Manager easily integrates with other applications such as accounts
receivable, general ledger, and asset management. We built TenFold Revenue
Manager for Barclays Global Investors and have licensed it to Dresdner RCM
Global Investors, Loomis Sayles & Company, and Oppenheimer Capital.
TenFold CardioTrac. TenFold CardioTrac is a Web-enabled, scalable
cardiovascular outcomes application that captures encounter and outcomes
information, patient demographics, lab data, and other procedure results for
physicians and researchers. Clinicians use TenFold CardioTrac to consistently
capture, validate, maintain, and access high-quality cardiovascular outcomes
data from multiple locations that may use different, customized interfaces.
TenFold CardioTrac delivers timely, accurate, and accessible cardiovascular
outcome data that healthcare providers can use to pinpoint effective
treatments. We built TenFold CardioTrac for Mercy Health Services and have not
yet licensed it to other customers.
TenFold Energy Data Manager. TenFold Energy Data Manager integrates multiple
sources of customer, meter, usage, and billing data into one source of
consistent, quality data. The application automatically obtains meter and usage
information, validates and edits the information, and exports settlement-ready
data to designated recipients. TenFold Energy Data Manager is rules-based, so
that energy and utilities companies can change the way they collect, validate,
and send data without programming. We built TenFold Energy Data Manager for
Enron and have not yet licensed it to other customers.
We are currently developing a number of applications with customers. We
expect to license the following applications currently under development as
resellable applications products:
TenFold Commercial Lines Manager. TenFold Commercial Lines Manager will be a
property and casualty insurance policy administration application that will
provide rules-based solutions for product definition, rating, expert
underwriting, line-and class-of-business-specific workflows, out-of-sequence
endorsements, and automated policy renewals. We believe that TenFold Commercial
Lines Manager will offer customers significantly faster processing of new and
renewal business, better risk selection capabilities, and enhanced customer
service. We expect to finish development of this application in the fourth
quarter of 1999.
TenFold Global Loan Manager. TenFold Global Loan Manager will be a global
securities lending management application that will automate negotiation,
initiation, collateral management, settlement, recall, returns, and overall
management of securities lending. We believe that TenFold Global Loan Manager
will help improve client service and lending profitability for our customers.
We expect to finish development of this application in the third quarter of
1999.
In many cases, the agreement with the original customer for a particular
application requires us to pay that original customer royalties, or restricts
in various ways our rights to resell the application
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to third parties. With respect to TenFold Global Loan Manager, Barclays Global
Investors' permission is required for resales of this application during a
five-year period.
Customers
As of March 31, 1999, we have earned revenues from more than 30 customers.
Some of our customers accounted for more than 10% of total annual revenues
during the past three years. Three of these customers, Indus, Provident, and
Unitrin, are stockholders of TenFold. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" for
additional information regarding our revenues from these customers. We also
are offering to Westfield Companies and Utica National Insurance Group the
opportunity to purchase 250,000 and 70,000 shares of common stock,
respectively, in the offering at the initial offering price. The following
customers each accounted for more than $500,000 in total revenue (license and
service) to TenFold since January 1, 1997:
Insurance Services Investment Management Telecommunications
Crawford & Company Barclays Global Ameritech
Provident Companies Investors
TIG Insurance Dresdner RCM Global
Trinity (subsidiary of Investors
Unitrin) Franklin Templeton
United Casualty (subsidiary Loomis, Sayles &
of Unitrin) Company
Utica National Insurance
Group
Westfield Companies
Energy Healthcare Other
Enron Mercy Health Services NAI Block
Nielsen Media
Research
For financial information about TenFold's industry segments, see Note 11 of
Notes to Consolidated Financial Statements.
Sales and Marketing
TenFold products and services require a substantial financial commitment by
our customers. Sales cycles typically range from three to twelve months from
the time we initially meet with a prospective customer until the customer
hires TenFold to build an application. Decision-makers are primarily senior
executives of large companies in our target industries. The TenFold Guarantee
is an important selling point to executives experiencing significant problems
with their large-scale applications.
A significant amount of our business comes from additional projects from
existing customers, referrals from existing customers, and from relationships
within our target industries. To build demand for TenFold products, we
identify, educate, and qualify high-potential sales prospects through a
variety of marketing activities, including attendance at targeted conferences
and trade shows, mailings to senior business and information technology
executives, advertising, private briefings with individual companies, and
seminars that demonstrate our unique capabilities. We have an active public
relations program to create marketplace awareness and communicate our value
proposition to key audiences such as press, analysts, and other industry
influencers.
We primarily sell TenFold products and services through our direct sales
force, which includes seasoned applications sales staff. We incent the sales
force based on successful achievement of revenue and other targets. In
addition, we expect to broaden distribution of TenFold products through
relationships with applications service providers, value-added resellers
(VARs), and software distributors in the U.S. and international markets.
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We organize TenFold into Vertical Business Groups to tailor our marketing
and selling strategies for our target vertical industries. As each Vertical
Business Group grows, gains multiple customers, and begins to develop
resellable products, we add dedicated product marketing and sales staff with
vertical domain expertise and sales experience.
Research and Development
Our research and development organization consists of teams of development
engineers and product managers. The research and development organization uses
a "documentation-centric" development process that includes planning and
documenting deliverables in advance, rigorously adhering to coding standards,
and performing nightly acceptance tests of all technology. We continuously
monitor quality, analyze the root-cause of defects, report daily and weekly
status, and regularly communicate individual and team performance and adherence
to schedule and functionality requirements.
Our development infrastructure and processes produce documentation, quality
assurance, platform certification, release management, and delivery
capabilities (in addition to design and implementation functions) for our
technology and products. Notably, we do not employ traditional quality
assurance engineers or technical writers. Developers use TenFold AutoTest--our
integrated testing technology--to perform nightly acceptance tests on all
products, components, and technologies under development. We believe that these
approaches yield significantly higher quality than employing large teams of
software testers and technical documentation writers.
Research and development expenses were $9.7 million for the year ended
December 31, 1998. As of March 31, 1999, we had 89 dedicated research and
development staff. We intend to continue to make substantial investments in
research and development to maintain and enhance the TenFold Way, the Universal
Application, TenFold ComponentWare, and TenFold FastStart.
Competition
The principal competitive factors in our markets include quality of services
and products, speed of development and implementation, price, project
management capability, and technical and business expertise. We believe that we
compete favorably with respect to these factors and that our focus on providing
high-quality solutions to meet customer business needs and our guaranteed
delivery of fixed-time, fixed-price applications distinguishes us from our
competitors. We compete primarily with the following:
Vertical Packaged Software Vendors. We face competition from packaged
software vendors in our target industries such as Policy Management Systems
Corporation (PMSC) in insurance, and McKesson HBOC in healthcare. Vertical
packaged software vendors typically have domain expertise and an established
user base within a particular industry and their applications provide industry-
specific functionality.
ERP Packaged Software Vendors. We occasionally face competition from ERP
vendors who are beginning to offer industry-specific applications. Customers
primarily license software packages to limit the risks associated with new
software development and improve time to market. However, packaged ERP
applications often require modification or force companies to alter their
business processes. We believe that TenFold applications generally complement
our customers' ERP solutions, rather than compete directly with them.
Consulting and Software Integration Firms. We face competition from
consulting and software integration firms, such as Andersen Consulting and EDS,
who build applications for hire. These firms generally work on a time-and-
materials basis and typically do not offer fixed-time, fixed-price services.
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Fixed-Time, Fixed-Price Service Firms. We compete with services firms that
offer fixed-time, fixed-price applications development, such as Cambridge
Technology Partners and Sapient. These companies use structured methodologies
to shorten development time frames and often break large projects into
multiple, smaller ones. While this approach delivers some benefits, it can lead
to costly change orders for customers as their requirements change during
application development. We believe that TenFold's unique technology and our
money-back TenFold Guarantee give us an advantage over these competitors for
delivering large, complex applications for a fixed price.
Internal Development. We face competition from internal information
technology (IT) organizations that aim to develop and implement applications.
The skill level of IT professionals varies by customer, and the current IT
labor shortage makes it difficult for companies to attract and retain skilled
IT professionals. In addition, internal IT departments have limited resources
and few have the ability to devote staff exclusively to applications
development.
For information concerning risks associated with competition, see "Risk
Factors--We face significant competition from companies with greater resources
than we have and may face additional competition in the future".
Intellectual Property Rights
We rely primarily on a combination of copyright, trade secret and trademark
laws, and nondisclosure and other contractual restrictions on copying and
distribution to protect our proprietary technology. We have applied for two
separate patents in the United States and intend to continue to seek patents on
our inventions where appropriate. We have seven trademark applications pending
in the United States and counterparts in various foreign jurisdictions for
distinct marks, including our distinctive TenFold logo.
In addition, as part of our confidentiality procedures, we generally enter
into nondisclosure agreements with our employees, customers, consultants and
corporate partners, and limit access to and distribution of our software,
documentation, and other proprietary information.
We retain ownership of the Universal Application, TenFold ComponentWare, and
TenFold FastStart. We generally retain ownership of the applications we
develop. In some cases we are obligated to pay royalties on future sales of
specific applications, or are prohibited from licensing applications for
specified periods of time or to specified third parties.
For information concerning risks associated with intellectual property
rights, see "Risk Factors--If we cannot protect or enforce our intellectual
property rights, our competitive position may be impaired".
Employees
We believe that our growth and success are attributable in large part to
high-caliber employees and an experienced management team, many with years of
industry experience in building, implementing, and selling mission-critical
applications. We focus on maintaining a strong corporate culture tied to key
values; namely, speed, integrity, customer satisfaction, commitment, employee
growth, long-term strategy, and precision execution. Each employee attends an
initial "Boot Camp" and ongoing training to learn the TenFold Way, our
technology, and our company values. To encourage these company values, we
recognize and reward employees who demonstrate them in their everyday work. We
intend to continue teaching and promoting our values and believe this will
provide us with a sustainable competitive advantage. We offer a work
environment that lets employees make meaningful contributions, as well as
incentive programs to continue to motivate and reward our employees.
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As of March 31, 1999, we had 349 employees, including 174 in applications
development and support, 89 in research and development, 48 in sales and
marketing, and 38 in finance, administrative, and information technology
support functions. None of our employees is represented by a labor union. We
believe that our employee relations are good.
Facilities
Our principal executive offices are located near Salt Lake City, Utah where
we lease approximately 25,000 square feet under a lease that expires in
December 2001. We also lease office space (averaging approximately 10,000
square feet, and typically with 5-year lease terms) in Atlanta, Baltimore,
Chicago, Dallas, Raleigh, and San Francisco which we use for applications
development, research and development, sales, and vertical business management.
We also maintain smaller offices (typically less than 1,000 square feet and
with 1 year or less lease terms) in Austin, Boston, London, and New York which
we use for sales activities. We believe that our current facilities are
adequate to meet our needs and that additional space will be available as we
need it.
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MANAGEMENT
Officers and Directors
The following table sets forth information regarding the officers and
directors of TenFold as of March 31, 1999:
<TABLE>
<CAPTION>
Name Age Position(s)
--------------------------- --- ---------------------------------------------
<C> <C> <S>
Gary D. Kennedy............ 45 President, Chief Executive Officer and
Director
Jeffrey L. Walker.......... 56 Chairman, Executive Vice President and Chief
Technology Officer
William M. Conroy.......... 39 Executive Vice President and Chief Operating
Officer
Max P. Brough.............. 57 Senior Vice President and Chief Information
Officer
Kyle E. Fowles............. 38 Senior Vice President of Customer Services
Robert P. Hughes........... 39 Senior Vice President and Chief Financial
Officer
Glen D. Mella.............. 41 Senior Vice President of Marketing
Sameer E. Shalaby.......... 30 Senior Vice President of Architecture
Development
Adam Slovik................ 32 Senior Vice President of Worldwide
Applications Development
Laurence F. Stevens........ 45 Senior Vice President of Technical Products
Richard W. VanderDrift..... 52 Senior Vice President of Applications
Products
Neil T. Brigham............ 43 President of TenFold Utilities and Energy
Group
Scott E. Calder............ 46 President of TenFold E-Commerce
Bernard C. Mazon........... 49 President of TenFold Insurance Systems Group
Michele W. McGovern........ 37 President of TenFold Investment Management
Group
James S. Smith............. 57 President of TenFold Healthcare Group
Charles R. Stucki.......... 35 President of TenFold Banking and Credit Group
H. Raymond Bingham(2)...... 54 Director
Robert W. Felton(1)........ 59 Director
Ralph W. Hardy, Jr.(1)..... 58 Director
Kay R. Whitmore(2)......... 66 Director
</TABLE>
- --------
(1) Member of compensation committee
(2) Member of audit committee
Gary D. Kennedy joined TenFold in September 1996 as its President and Chief
Executive Officer. Prior to joining TenFold, from 1993 to 1996, Mr. Kennedy
served a three-year mission in Brazil for The Church of Jesus Christ of Latter-
day Saints. From 1990 to 1993, except during periods of personal illness, he
served as President, Chief Executive Officer, and Chairman of PRC Incorporated,
a systems integrator company and wholly owned subsidiary of Black & Decker, an
appliance and tool company. Prior to joining PRC Incorporated, Mr. Kennedy
served in various sales and management positions at Oracle Corporation, a
database software company, from 1982 until 1990, including President of Oracle
USA during 1990. Prior to joining Oracle, Mr. Kennedy served as Marketing
Manager for Intel Corporation, a semiconductor company. Mr. Kennedy holds a BA
in finance from the University of Utah and an MBA from Northwestern University,
Kellogg Graduate School of Management.
Jeffrey L. Walker founded TenFold in February 1993 and has served as its
Chairman, Executive Vice President, and Chief Technology Officer since October
1996. From TenFold's inception to October 1996, Mr. Walker served as TenFold's
Chairman, President, Chief Executive Officer, and Chief Technology Officer.
Prior to founding TenFold, from 1991 to 1993, Mr. Walker was an independent
consultant. From 1985 to 1991, Mr. Walker held several management positions at
Oracle Corporation, including Executive Vice President from 1987 to 1991,
General Manager Applications Division from 1985 to 1991, Chief Financial
Officer from 1987 to 1991, and Senior Vice President of Marketing during 1986.
Prior to joining Oracle, Mr. Walker founded and served as Chief Executive
Officer of Walker Interactive Products, an application software company, from
1980 to 1985. Mr. Walker holds a BA in mathematics from Brown University.
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<PAGE>
William M. Conroy joined TenFold in November 1997 and has served as its
Executive Vice President and Chief Operating Officer since October 1998. From
November 1997 to October 1998, Mr. Conroy served as TenFold's Senior Vice
President of Sales. Prior to joining TenFold, from 1986 to 1997, Mr. Conroy
held several sales and management positions at Oracle Corporation, a database
software company, including Group Vice President in the U.S. Sales Division in
1996 and 1997, and Area Vice President of Sales from 1990 to 1996. Prior to
joining Oracle, Mr. Conroy worked at IBM in various account management
positions. Mr. Conroy holds a BA in marketing from Bowling Green State
University.
Max P. Brough joined TenFold in April 1998 as its Senior Vice President and
Chief Information Officer. Prior to joining TenFold, from 1996 to 1998 and from
1980 to 1985, Mr. Brough served as Director of Information Technology for the
University of Utah. From 1993 to 1996, Mr. Brough served a three-year mission
in Baton Rouge, Louisiana for The Church of Jesus Christ of Latter-day Saints.
From 1985 to 1993, Mr. Brough served as Vice President of Information Systems
at First Health, Inc., a health benefits company. Mr. Brough holds a BS in
education from the University of Utah.
Kyle E. Fowles joined TenFold in December 1997 as its Vice President of
Operations--Applications Development and has served as TenFold's Senior Vice
President of Customer Services since February 1999. Prior to joining TenFold,
from 1995 to 1997, Mr. Fowles served as Director of Consulting and Development
for Telos Bioinformatics, Inc., a healthcare and pharmaceuticals software
applications company. From 1994 to 1995, Mr. Fowles served as Director of
Information Systems for GE Capital Realty Group, Inc., a realty advisory
company. From 1991 to 1994, Mr. Fowles served as Senior Strategic Account
Consultant for The Softa Group, Inc., a property and asset management products
company. From 1987 to 1991, Mr. Fowles served as Vice President of Finance for
Glenwood Financial Group, Inc., a real estate syndications and asset management
company. Mr. Fowles holds a BA and MA in accountancy and an MaCC in Information
Systems from Brigham Young University.
Robert P. Hughes joined TenFold in February 1995 as its Chief Financial
Officer and has served as a Senior Vice President of TenFold since October
1998. Prior to joining TenFold, Mr. Hughes served in various finance and
administrative capacities at Oracle Corporation, a database software company,
from 1989 to 1995, including Senior Director of USA Revenue Administration and
Accounting from 1993 to 1995, Director of Revenue Accounting, Credit and
Collections from 1992 to 1993, and Director of Internal Audit from 1989 to
1992. Prior to joining Oracle, from 1982 to 1989, Mr. Hughes served in various
audit positions for KPMG LLP, a public accounting firm, including Audit
Manager. Mr. Hughes holds a BA in business administration from the Haas School
of Business, University of California, Berkeley, and is a Certified Public
Accountant.
Glen D. Mella joined TenFold in January 1997 as its Vice President of
Marketing and has served as TenFold's Senior Vice President of Marketing since
October 1998. Prior to joining TenFold, from 1996 to 1997, Mr. Mella served as
Vice President of Marketing for CyberPath Inc., a provider of electronic data
interface solutions for the Internet. From 1994 to 1996, Mr. Mella served as
Vice President of Marketing for Novell, Inc., a network software company. From
1993 to 1994, Mr. Mella served as Vice President of Marketing Communications
for WordPerfect Corporation, a business and office software products company.
From 1991 to 1993, Mr. Mella served as Marketing Director for Dial Corporation,
a personal and household products company. From 1987 to 1991, Mr. Mella served
as a Product Manager for the Frito-Lay division of PepsiCo., a beverage and
foods company. Mr. Mella holds a BA in business management from Brigham Young
University and an MBA from Northwestern University, Kellogg Graduate School of
Management.
Sameer E. Shalaby joined TenFold in August 1993 and has served as its Senior
Vice President of Architecture Development since October 1998. From August 1993
to October 1998, Mr. Shalaby served in various development and technical
capacities at TenFold, including its Vice President of
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Technical Architecture. Prior to joining TenFold, from 1991 to 1993, Mr.
Shalaby served in various development and technical capacities in the Network
Products Division at Oracle Corporation, a database software company. From 1988
to 1989, Mr. Shalaby served as a Software Engineer at Security Survival
Distributed Systems, a network infrastructure and applications company. During
1988, Mr. Shalaby served as a member of NASA's Advanced Technology Unit's
Technical Staff at PRC Incorporated, a systems integrator company and wholly
owned subsidiary of Black & Decker, an appliance and tool company. Mr. Shalaby
holds a BS in electrical engineering and computer science from The George
Washington University and an MS in electrical engineering and computer science
from the Massachusetts Institute of Technology.
Adam Slovik joined Jeffrey L. Walker to found TenFold in February 1993 and
has served as its Senior Vice President of Worldwide Applications Development
since October 1998. From February 1993 to October 1998, Mr. Slovik served in
various development and technical capacities at TenFold, including its Vice
President of Applications Architecture. Prior to joining TenFold, Mr. Slovik
served in various development and technical capacities in the Applications
Division of Oracle Corporation, a database software company, from 1988 to 1992,
including Product Manager from 1991 to 1992, Architect from 1990 to 1991,
Senior Development Manager from 1989 to 1990, and Senior Developer from 1988 to
1989. Mr. Slovik holds a BS in electrical engineering from the California
Institute of Technology.
Laurence F. Stevens joined TenFold in October 1998 as its Senior Vice
President of Technical Products. Prior to joining TenFold, Mr. Stevens held
several management positions at Oracle Corporation, a database software
company, including Vice President of Product Strategy for the On-Line
Analytical Processing Products Division from 1994 to 1998, Vice President of
Multimedia and Document Products from 1993 to 1994, Vice President of Office
Products from 1989 to 1992, Product Marketing Director from 1987 to 1989, New
Products Director from 1986 to 1987, and Senior Product Manager from 1985 to
1986. Mr. Stevens holds a BA in economics from the University of Kansas.
Richard W. VanderDrift joined TenFold in November 1996 and has served as its
Senior Vice President of Applications Products since October 1998. From
November 1997 to October 1998, Mr. VanderDrift served as TenFold's Vice
President of ComponentWare. From November 1996 to November 1997, Mr.
VanderDrift served as TenFold's Vice President of Applications. Prior to
joining TenFold, from 1992 to 1996, Mr. VanderDrift served as President of
Squire Systems, a software company he founded. From 1987 to 1992 Mr.
VanderDrift held various management positions at Oracle Corporation, a database
software company, including Vice President of Applications Architecture and
Design from 1988 to 1991, and Vice President of Financial Applications Research
and Development from 1991 to 1992. Mr. VanderDrift holds a BA in business from
the University of Texas, Austin and an MBA from the Haas School of Business,
University of California, Berkeley.
Neil T. Brigham joined TenFold in July 1997 and has served as its President
of TenFold Utilities and Energy Group since July 1998. From July 1997 to July
1998, Mr. Brigham served as Vice President of TenFold's Eastern U.S.
Applications Development. Prior to joining TenFold, from 1995 to 1997, Mr.
Brigham served as Vice President and Chief Information Officer at Northeast
Utilities System, an electric utilities company. From 1981 to 1995, Mr. Brigham
served in several management positions at Andersen Consulting, a business
consulting company, including equity partner from 1992 to 1995, associate
partner from 1990 to 1992, and manager from 1985 to 1990. Mr. Brigham holds a
BS in management and in architecture from Syracuse University.
Scott E. Calder joined TenFold in March 1999 as the President of TenFold E-
Commerce. Prior to joining TenFold, from 1985 to 1999, Mr. Calder held several
management positions at Mainstream Data, Inc., an information services company
which he co-founded, and its successor company, WavePhone Networks, including
Chief Executive Officer from 1992 to 1998, President from 1990 to
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1992, and Executive Vice president and Chief Operating Officer from 1985 to
1990. Mr. Calder also served as a director of Mainstream from 1988 to 1998.
From 1982 to 1985, Mr. Calder served as Vice President of Marketing at
Bonneville Telecommunications Company, a satellite video and data
communications services company. Prior to joining Bonneville, from 1979 to
1982, Mr. Calder served as a consultant at Bain and Company, a management
consulting firm. Mr. Calder holds BA degrees in english and economics from the
University of Utah and an MBA from the Harvard University Graduate School of
Business.
Bernard C. Mazon joined TenFold in July 1998 and has served as the President
of TenFold Insurance Systems Group since October 1998. From July 1998 to
October 1998, Mr. Mazon served as TenFold's Vice President of Sales for the
Insurance Group. Prior to joining TenFold, from 1994 to 1998, Mr. Mazon served
as Executive Vice President in the Financial Services Group at Computer
Sciences Corporation, an information technology and services company. Mr. Mazon
served as Executive Vice President Group Manager (Information Services) at
Policy Management Systems Corporation, a provider of enterprise applications
and services (PMSC), from 1987 to 1994. Mr. Mazon holds a BA in business from
Duquesne University.
In February 1997, in connection with Mr. Mazon's role as Executive Vice
President Group Manager (Information Services) at PMSC, Mr. Mazon, and four
other executive officers of PMSC, entered into a stipulation and consent to
final judgment of permanent injunction with the Securities and Exchange
Commission. Mr. Mazon consented to the entry of a final judgment permanently
restraining and enjoining him from violating the internal control provisions of
the Securities Exchange Act of 1934 and ordering him to pay civil penalties in
the amount of $20,000. The SEC alleged in its complaint that, from January 1991
through March 1993, PMSC and various of its employees engaged in a number of
improper accounting practices which materially misstated PMSC's results of
operations. Mr. Mazon neither admits nor denies the allegations contained in
the SEC's complaint.
Michele W. McGovern joined TenFold in July 1997 and has served as President
of the TenFold Investment Management Group since July 1998. From July 1997 to
July 1998, Ms. McGovern served as Vice President of TenFold's Investment
Management Group. Prior to joining TenFold, from 1988 to 1997, Ms. McGovern
founded and served as President of McGovern Group, a technology project
management consulting firm serving the investment management industry. From
1987 to 1988, Ms. McGovern served as Assistant Controller in the International
Banking Group at Wells Fargo Bank. From 1984 to 1987, Ms. McGovern served as an
audit manager in the investment management practice at Pricewaterhouse Coopers
LLP. Ms. McGovern is a Certified Public Accountant and holds a BS in finance
and accounting from Northeastern University.
James S. Smith joined TenFold in February 1998 and has served as President
of the TenFold Healthcare Group since July 1998. From February 1998 to July
1998, Mr. Smith served as Vice President of TenFold's Healthcare Group. Prior
to joining TenFold, from 1995 to 1998, Mr. Smith served as President and Chief
Executive Officer at Telos Bioinformatics Inc., a healthcare and
pharmaceuticals software applications company. From 1990 to 1994, Mr. Smith
served as Director and General Manager of Financial Industry Software at Texas
Instruments Inc., a semiconductor company. From 1974 to 1990, Mr. Smith held
several management positions at Control Data Corporation, a systems integration
services and solutions company, including Vice President and General Manager of
its Business Information Services Division from 1988 to 1990, Vice President of
North American Sales from 1986 to 1988, Area Sales Manager from 1984 to 1986,
Director of Marketing from 1981 to 1984, District Manager from 1978 to 1981,
General Manager for a Japanese subsidiary from 1976 to 1978, and Marketing
Programs Manager from 1974 to 1976. Mr. Smith holds a BA in political science
from Stanford University and an MBA from the University of Southern California.
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Charles R. Stucki joined TenFold in June 1997 and has served as the
President of the TenFold Banking and Credit Group since October 1998. From June
1997 to October 1998, Mr. Stucki served as TenFold's Vice President of
WorldWide Applications Development. Prior to joining TenFold, Mr. Stucki served
as a principal at McKinsey & Company Inc., a business consulting company, from
1996 to 1997, and as an associate from 1990 to 1996. Mr. Stucki served as a
staff auditor at Arthur Andersen & Company, a public accounting firm, from 1986
to 1988. Mr. Stucki holds a BS in accounting from Brigham Young University and
an MBA from the Harvard University Graduate School of Business.
H. Raymond Bingham has served as a member of TenFold's board of directors
since March 1999. Mr. Bingham has served as Executive Vice President and Chief
Financial Officer of Cadence Design Systems, an electronic design automation
software company, since 1993 and has served as a director of Cadence since
1997. Prior to joining Cadence, from 1985 to 1993, Mr. Bingham served as
Executive Vice President and Chief Financial Officer of Red Lion Hotels and
Inns, an owner and operator of a chain of hotels. Mr. Bingham currently serves
as a director of Sunstone Hotel Investors, Inc., a real estate investment
trust, Integrated Measurement Systems, Inc., a hardware and software company,
Legato Systems, Inc., a network storage management software company, and Onyx
Software Corporation, an enterprise relationship management software company.
Mr. Bingham holds a BA in economics from Weber State University and an MBA from
the Harvard University Graduate School of Business.
Robert W. Felton has served as a member of TenFold's board of directors
since March 1997. Mr. Felton has served as a member of the board of directors
of Indus International, Inc., a software applications company, since its
inception in 1988. Indus is a stockholder of TenFold. From 1988 to January
1999, Mr. Felton served as Indus's Chairman, President, and Chief Executive
Officer. Mr. Felton holds a BS in mechanical engineering from Cornell
University and an MS in nuclear engineering from the University of Washington.
Ralph W. Hardy, Jr., has served as a member of TenFold's board of directors
since February 1998. Mr. Hardy is a principal of First Media TF Holdings, LLC,
a stockholder of TenFold, and is the principal operating officer, director and
a stockholder of First Media Corporation, a company which, directly or through
its subsidiaries, holds investments in broadcasting, telecommunications, and
software companies, as well as in the five publicly-traded Marriott companies,
and which is the ultimate parent of First Media TF Holdings, LLC. First Media
Corporation is substantially owned by the Richard E. Marriott family of
Washington, D.C. Mr. Hardy has served as a member of the law firm of Dow,
Lohnes & Albertson PLLC since 1974. Mr. Hardy holds a BS in political science
from the University of Utah and a JD from the University of California at
Berkeley School of Law (Boalt Hall).
Kay R. Whitmore has served as a member of TenFold's board of directors since
February 1998. Mr. Whitmore served in various senior management capacities at
Eastman Kodak, a consumer and commercial imaging products company, including
Chairman, President and Chief Executive Officer from 1990 to 1993, and
President from 1983 to 1993. Mr. Whitmore is presently retired. Mr. Whitmore
holds a BS in chemistry from the University of Utah and an MS in management
science from the Sloan School of Management, Massachusetts Institute of
Technology.
Officers and Executive Officers
TenFold's officers and executive officers are appointed by, and serve at the
discretion of, the board of directors. Each officer and executive officer is a
full-time employee of TenFold. The board has determined that Messrs. Kennedy,
Walker, Conroy, Mazon, Mella, Hughes, and Slovik are the executive officers of
TenFold.
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<PAGE>
Board Composition
TenFold currently has authorized six directors. There are no family
relationships among any of the directors, executive officers, or key employees
of TenFold.
TenFold's board of directors will be divided into two classes effective upon
the closing of this offering. The Class I directors, Messrs. Felton, Hardy and
Kennedy, will serve an initial term until the 2000 annual meeting of
stockholders, and the Class II directors, Messrs. Bingham, Walker, and
Whitmore, will serve an initial term until the 2001 annual meeting of
stockholders. Each member of the Class will be elected for two-year terms
following his or her respective initial term.
Director Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board and committee meetings, employee directors are not
compensated for their services as directors. Nonemployee directors receive
compensation for their services as directors at a rate of $2,000 for each board
meeting they attend, and $2,000 per board committee meeting they attend, if not
on the same day as a board meeting. Employee directors are eligible to
participate in TenFold's 1993 flexible stock incentive plan and, after this
offering, will also be eligible to participate in TenFold's 1999 stock plan and
1999 employee stock purchase plan. After this offering, nonemployee directors
of TenFold will be eligible to participate in TenFold's 1999 stock plan. In
connection with his appointment to the board of directors in February 1998, Kay
Whitmore, a nonemployee director of TenFold, purchased 10,000 shares of common
stock from TenFold at a price of $2.50 per share. In October 1997, TenFold
granted Mr. Whitmore an option for 25,000 shares of common stock at a per share
exercise price of $0.89. In March 1999, TenFold granted Mr. Bingham an option
to purchase 40,000 shares of common stock and granted Mr. Whitmore an option to
purchase 15,000 shares of common stock, each at a per share exercise price of
$12.60. See "Stock Plans" for descriptions of the material terms of the 1993
stock plan, 1999 stock plan, and 1999 purchase plan.
Board Committees
The board of directors has established three committees, an audit committee,
a compensation committee and a committee to grant options to employees under
the 1993 Stock Incentive Plan of an option exercisable for up to 10,000 shares
of common stock per employee. The board's audit committee currently consists of
Messrs. Whitmore and Bingham. The audit committee reviews TenFold's annual
audit and meets with TenFold's independent auditors to review TenFold's
internal accounting procedures and financial management practices. The
compensation committee currently consists of Messrs. Felton and Hardy. The
compensation committee to the board recommends compensation and benefits for
TenFold's executive officers, reviews general policy relating to compensation
and benefits of employees of TenFold, and administers TenFold's stock plans.
The board also has created a committee, consisting solely of Mr. Kennedy,
authorized to grant options under the 1993 Flexible Stock Incentive Plan and
the 1999 Stock Plan of up to 10,000 shares of common stock per employee.
TenFold does not have a nominating committee or a committee that performs the
functions of a nominating committee.
Compensation Committee Interlocks and Insider Participation
The compensation committee currently consists of Messrs. Felton and
Whitmore. None of the members of the compensation committee of the board is
currently or has been, at any time since the formation of TenFold, an officer
or employee of TenFold. No interlocking relationship exists between any of
TenFold's executive officers, directors or members of TenFold's compensation
committee and any executive officers or members of any other company's board of
directors or compensation committee.
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<PAGE>
Limitation of Liability and Indemnification Matters
TenFold's certificate of incorporation limits the liability of directors to
the fullest extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of directors for monetary damages for breach
of their fiduciary duties as directors, except for liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
TenFold's bylaws provide that TenFold shall indemnify its directors and
officers and may indemnify its employees and agents to the fullest extent
permitted by law. TenFold believes that indemnification under its bylaws covers
at least negligence and gross negligence on the part of indemnified parties.
TenFold has entered into indemnification agreements with its directors and
Robert P. Hughes, Senior Vice President and Chief Financial Officer. These
agreements, among other things, indemnify directors and the executive officer
for expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by such persons in any action or proceeding, including any
action by or in the right of TenFold, arising out of such person's services as
a director or officer of TenFold, any subsidiary of TenFold or any other
company or enterprise to which the person provides services at the request of
TenFold. TenFold believes that these provisions and agreements are necessary to
attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of TenFold where indemnification will be
required or permitted. TenFold is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table provides summary information
concerning the compensation received for services rendered to TenFold in all
capacities during the fiscal year ended December 31, 1998 by the Chief
Executive Officer and each of the next four most highly compensated executive
officers, each of whose total compensation during TenFold's last fiscal year
exceeded $100,000. The executive officers listed below are sometimes referred
to as "named officers."
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ ------------
Number of
Securities
Other Annual Underlying
Name and Principal Position Salary Bonus Compensation Options
- --------------------------- -------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Gary D. Kennedy.................... $188,500 -- $1,900 --
President and Chief Executive
Officer
William M. Conroy.................. 206,000 $75,000 -- --
Executive Vice President and
Chief Operating Officer
Bernard C. Mazon................... 70,958 100,000 -- 150,000
President of TenFold Insurance
Systems Group
Glen D. Mella...................... 140,400 11,938 1,680 --
Senior Vice President of Marketing
Robert P. Hughes................... 139,700 11,938 943 --
Senior Vice President and
Chief Financial Officer
</TABLE>
During 1998, Mr. Mazon was granted options to acquire 150,000 shares of
common stock, subject to a five-year vesting schedule. Pursuant to a letter
agreement between TenFold and Mr. Mazon, TenFold has agreed that it will grant
Mr. Mazon an option to acquire three percent of the outstanding shares of
capital stock of a TenFold subsidiary to be formed during 1999 from which
TenFold intends to operate its insurance business, at a per share exercise
price equal to the fair market value, at the time of grant of such subsidiary's
common stock, as determined by TenFold's board. Such option shall vest over
five years and have a vesting commencement date of July 20, 1998.
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<PAGE>
Option Grants in Last Fiscal Year. The following table provides summary
information regarding stock options granted to the named officers during the
fiscal year ended December 31, 1998. TenFold did not grant any stock options to
Messrs. Kennedy, Conroy, Mella and Hughes during the fiscal year ended December
31, 1998.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration ---------------------
Name Granted Fiscal Year ($/Share)) Date 5% 10%
- ---- ---------- ------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Bernard C. Mazon........ 150,000 3.69% $4.49 7/20/08 $ 423,000 $ 1,073,000
</TABLE>
Mr. Mazon received the individual grant described above under TenFold's 1993
Flexible Stock Incentive Plan. Mr. Mazon's stock option vests at the rate of
20% of the shares issuable upon exercise of such option on the first
anniversary of the vesting commencement date and on each annual anniversary
thereafter until fully vested. See "Stock Plans--1993 Flexible Stock Incentive
Plan" for additional information regarding the terms and conditions of TenFold
stock options. Mr. Mazon's option grant as a percent of total options granted
to employees in fiscal year 1998 is based on a total of 4,065,000 options
granted to employees, consultants, and directors during the fiscal year ended
December 31, 1998. The exercise price per share of Mr. Mazon's stock option is
equal to the fair value of the common stock on the date of grant as determined
by the TenFold board of directors based upon such factors as the purchase
prices paid by investors for shares of TenFold's preferred stock, independent
appraisals, the absence of a trading market for TenFold's securities, and
TenFold's financial outlook and results of operations. See Note 8 of Notes to
Consolidated Financial Statements for additional information regarding
TenFold's capital stock. The 5% and 10% assumed annual rates of compounded
stock price appreciation for Mr. Mazon's stock option set forth above are
mandated by the rules of the Securities Exchange Commission. There can be no
assurance that the actual stock price appreciation over the ten-year option
term will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the common stock appreciates over the option term,
no value will be realized from Mr. Mazon's stock option grant. The potential
realizable value set forth above is calculated by assuming that the stock price
on the date of grant appreciates at the indicated rate for the entire term of
the option and that the option is exercised at the exercise price and sold on
the last day at the appreciated price.
Fiscal Year-End Option Values. The following table provides summary
information concerning the shares of common stock represented by outstanding
stock options held by each of the named officers as of December 31, 1998. Mr.
Kennedy had no outstanding stock options as of December 31, 1998.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
December 31, 1998 at December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William M. Conroy........... 72,000 216,000
Bernard C. Mazon............ -- 150,000 --
Glen D. Mella............... -- 80,000 --
Robert P. Hughes............ -- 80,000 --
</TABLE>
There was no public trading market for TenFold's common stock as of December
31, 1998. Accordingly, the value of unexercised in-the-money options as of such
date was calculated on the basis of an assumed initial public offering price of
$ per share.
54
<PAGE>
Employment Agreements
None of the named officers, other than Mr. Kennedy, has an employment
agreement with TenFold.
In September 1996, TenFold and Mr. Kennedy entered into an employment
agreement providing for Mr. Kennedy's employment as President and Chief
Executive Officer of TenFold for a period of eight years, subject to the right
of either party to terminate the agreement with or without cause upon 30 days'
prior written notice. The agreement provides for an annual base salary of
$168,000, subject to increase in the discretion of the TenFold board of
directors, and provides that Mr. Kennedy shall be entitled to up to six months'
severance pay in the event that he is terminated without cause. The agreement
includes a non-competition agreement which provides that, for a period of six
months after Mr. Kennedy's termination of employment, he will not compete with
TenFold or solicit its customers or employees.
Stock Plans
1999 Stock Plan. TenFold's 1999 Stock Plan was adopted by the board of
directors in March 1999 and was approved by the stockholders in March 1999. A
total of 6,500,000 shares of common stock has been reserved for issuance under
the 1999 stock plan, plus an automatic annual increase on the first day of
TenFold's fiscal years beginning in 2000, 2001, 2002, 2003, and 2004. This
automatic annual increase will be equal to the lesser of 1,000,000 shares or 3%
of TenFold's outstanding common stock on the last day of the immediately
preceding fiscal year, or such lesser number of shares as the board of
directors determines. The 1999 stock plan becomes effective upon the effective
date of this prospectus. As of the effective date of this prospectus, no shares
of common stock or options to purchase common stock have been issued under the
plan. Unless terminated earlier, the 1999 stock plan will terminate in March
2009.
The purposes of the 1999 stock plan are to attract and retain the best
available personnel, to provide additional incentives to TenFold's employees
and consultants, and to promote the success of TenFold's business. The 1999
stock plan provides for the granting to employees, including officers and
directors, of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for the granting to employees
and consultants, including nonemployee directors, of nonstatutory stock options
and stock purchase rights. If an optionee would have the right in any calendar
year to exercise, for the first time, one or more incentive stock options for
shares having a total fair market value under all plans of TenFold in excess of
$100,000, any such excess options shall be treated as nonstatutory stock
options. In calculating the $100,000 threshold, the fair market value of the
underlying shares is determined as of the grant date of each option. TenFold
has historically granted only nonstatutory stock options rather than incentive
stock options.
The 1999 stock plan may be administered by the board of directors or a
committee of the Board. The 1999 stock plan's current plan administrator is the
compensation committee. The plan administrator determines the terms of options
and stock purchase rights granted under the 1999 stock plan, including the
number of shares subject to an option or purchase right, the exercise or
purchase price, and the term and exercisability of options. No individual
employee may receive option grants or stock purchase rights under the 1999
stock plan which would allow the employee to purchase more than 1,000,000
shares of common stock during any single fiscal year. The exercise price of all
incentive stock options granted under the 1999 stock plan must at least equal
the fair market value of the common stock of TenFold on the date of grant. The
exercise price of any incentive stock option granted to an optionee who owns
stock representing more than 10% of the voting power of the outstanding capital
stock of TenFold must equal at least 110% of the fair market value of the
common stock on the date of grant. The exercise price of any nonstatutory stock
option and the purchase price of any stock purchase right granted to TenFold's
named officers will generally equal at least 100% of the fair market value of
the common stock on the date of grant.
55
<PAGE>
Payment of the option exercise or stock purchase price may be made in cash or
other consideration as determined by the plan administrator.
The plan administrator determines the term of all options, which may not
exceed 10 years, or 5 years in the case of an incentive stock option granted to
a 10% stockholder. No option may be transferred by the optionee other than by
will or the laws of descent or distribution, except that the plan administrator
has limited discretion to grant nonstatutory stock options that may be
transferred to affiliates and other entities or persons without consideration.
Generally, each option may be exercised during the lifetime of the optionee
only by such optionee. The plan administrator determines when options vest and
become exercisable. TenFold currently expects that options granted under the
1999 stock plan generally will vest at the rate of 20% of the total number of
shares subject to the options each year for five years following the date of
grant.
Stock issued upon exercise of stock purchase rights granted under the 1999
stock plan will generally be subject to a repurchase right exercisable by
TenFold upon termination of the holder's employment or consulting relationship
with TenFold for any reason, including death or disability.
In the event of the sale of all or substantially all of the assets of
TenFold, or the merger or consolidation of TenFold with or into another
corporation, outstanding options under the 1999 stock plan shall be assumed or
equivalent options substituted by the successor corporation, unless the
successor corporation does not agree to such assumption or substitution. In the
event the successor corporation does not so agree, the vesting of outstanding
options will accelerate so that the options will be fully exercisable and will
terminate if not exercised, and any repurchase rights in favor of TenFold
applicable to stock issued under the 1999 stock plan will lapse in their
entirety, in each case prior to consummation of the transaction. The board of
directors has the authority to amend or terminate the 1999 stock plan as long
as such action does not materially and adversely affect any outstanding option
and so long as stockholder approval for any amendments to the 1999 stock plan
shall be obtained if required by applicable law.
1993 Flexible Stock Incentive Plan. TenFold's 1993 Flexible Stock Incentive
Plan was adopted by the board of directors and approved by TenFold's
stockholders in February 1993. 10,000,000 shares of common stock are reserved
for issuance under the 1993 stock plan. The 1993 stock plan is administered by
the board of directors and, with respect to option grants to purchase up to
10,000 shares to any one employee, by a committee of the board. The 1993 stock
plan provides for the issuance of incentive stock options to employees,
including officers and employee directors, and of nonstatutory stock options,
stock purchase rights, stock bonus awards, and stock appreciation rights to
employees, including officers and directors, consultants and non-employee
directors.
As of March 31, 1999, options to purchase 2,084,500 shares of common stock
with a weighted average exercise price of $0.35 had been exercised, options to
purchase a total of 7,125,000 shares at a weighted average exercise price of
$3.14 per share were outstanding, and 790,500 shares remained available for
future grant. Unless terminated earlier, the 1993 stock plan will terminate in
February 2003. To date, TenFold has not issued any stock bonus or stock
appreciation rights under the 1993 stock plan.
The terms of options and stock purchase rights issued under the 1993 stock
plan are generally the same as those that may be issued under the 1999 stock
plan, except with respect to the following features. The 1993 stock plan does
not impose an annual limitation on the number of shares of stock subject to
options and stock purchase rights which may be issued to any individual
employee during a fiscal year. The 1993 stock plan does not allow for the
granting of nonstatutory stock options with any transferability rights. In
addition, stockholder approval must be sought with respect to any amendments to
the 1993 stock plan involving an increase in the maximum number of shares that
may be issued upon exercise of incentive stock options granted, or to change
the class of persons eligible to receive incentive stock options under the
plan.
56
<PAGE>
Generally, upon a sale of all or substantially all of TenFold's assets in a
liquidation or dissolution, or a merger or consolidation of TenFold with or
into another corporation, all outstanding awards under the 1993 stock plan
shall vest and become exercisable in their entirety and, with respect to any
shares of stock subject to a right of repurchase in favor of TenFold, such
right shall lapse in its entirety. However, if the successor corporation
assumes such awards, no change will occur with respect to vesting or repurchase
rights applicable to awards under the plan.
1999 Employee Stock Purchase Plan. TenFold's 1999 Employee Stock Purchase
Plan was adopted by the board of directors in March 1999 and was approved by
the stockholders in March 1999. A total of 1,000,000 shares of common stock has
been reserved for issuance under the purchase plan. In addition, the number of
shares reserved for issuance under the purchase plan automatically increases on
the first day of each of TenFold's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004 equal to the lesser of 300,000 shares, 0.75% of TenFold's
outstanding common stock on the last day of the immediately preceding fiscal
year, or such lesser number of shares as the board of directors shall
determine. The purchase plan becomes effective upon the date of this prospectus
and, unless terminated earlier by the board of directors, shall terminate
twenty years from such date.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, will be implemented in two six-month offering periods
each year, with new offering periods (other than the first offering period)
commencing on February 1 and August 1 of each year. The initial offering period
will commence on the date of this offering and end on January 31, 2000. At the
end of each six-month offering period an automatic purchase will be made for
participants. The purchase plan will be administered by the board of directors
or by a committee appointed by the board of directors. Employees (including
officers and employee directors) of TenFold, or of any majority-owned
subsidiary designated by the board, are eligible to participate in the purchase
plan if they are employed by TenFold or any such subsidiary for at least 20
hours per week and more than five months per year. The purchase plan permits
eligible employees to purchase common stock through payroll deductions, up to
10% of an employee's compensation, at a price equal to 85% of the lower of the
fair market value of the common stock at the beginning of the offering period
or at the end of such period. The board of directors shall have the discretion
to increase, prior to the beginning of an offering period, the percentage of
participants' compensation that may be withheld through the purchase plan,
provided that such percentage may not exceed 20%. Employees may end their
participation in the purchase plan at any time during an offering period, and
participation ends automatically on termination of employment.
No employee may purchase more than 3,000 shares of common stock under the
purchase plan in any single offering period. No employee may purchase shares in
an offering period if the purchase would cause such employee to own stock
and/or hold outstanding stock options equal to or in excess of 5% of the total
voting power of all classes of TenFold stock. In addition, no employee shall be
granted an option under the purchase plan if the option would permit an
employee to purchase stock under all employee stock purchase plans of TenFold
at a rate that exceeds $25,000 of fair market value of the stock for each
calendar year in which the option is outstanding.
The purchase plan provides that in the event of a merger or consolidation of
TenFold with or into another corporation or a sale of all or substantially all
of TenFold's assets, each right to purchase stock under the purchase plan will
be assumed or an equivalent right substituted by the successor corporation,
unless the successor corporation does not agree to assume or substitute
outstanding rights, in which case the offering period then in progress shall be
shortened so that employees' rights to purchase stock under the purchase plan
are exercised prior to the transaction. The board of directors has the power to
amend or terminate the purchase plan and to change or terminate offering
periods as long as such action does not adversely affect any outstanding rights
to purchase stock thereunder, provided however that the board of directors may
amend or terminate the Plan or an offering period even if it would adversely
affect outstanding options in order to avoid TenFold's incurring adverse
accounting charges.
57
<PAGE>
401(k) Retirement Plan
Effective January 1996, TenFold established a 401(k) defined contribution
retirement plan covering all eligible employees who are employed by TenFold on
applicable plan entry dates, which are the first day of each calendar quarter.
All employees except those who are non-resident alien employees with no U.S.-
source income, or who have not reached at least 21 years of age are eligible to
participate as of the first plan entry date following their date of hire. The
401(k) Plan provides for voluntary compensation deferrals between 1% and 15% of
annual eligible compensation, subject to a maximum limit allowed under the
Internal Revenue Code, which is $10,000 for 1999. Each pay period, TenFold
makes a matching contribution to each participant's account equal to 20% of the
first 6% of that participant's compensation deferrals for that pay period, up
to a maximum of $2,000 per participant per year. TenFold's matching
contributions vest according to a graduated vesting schedule over three years,
except in the case of death, disability, or reaching age 65 while employed, in
which instances such contributions are fully vested. In addition, TenFold may
make additional discretionary contributions to the accounts of plan
participants at the end of each plan year, which are subject to the same
vesting rules as matching contributions. Participant compensation deferrals and
rollover contributions accepted by the 401(k) Plan are at all times fully
vested. The trustee under the 401(k) Plan, at the direction of each
participant, invests the assets of the 401(k) Plan in any of a number of
investment options allowable under the standardized prototype plan.
Participants are eligible for a distribution from the 401(k) Plan upon reaching
age 65 (normal retirement), death, disability, or separation from service with
TenFold, in the form of a lump sum payment or installments.
58
<PAGE>
CERTAIN TRANSACTIONS
On October 31, 1996, TenFold sold 4,530,104 shares of common stock to Gary
D. Kennedy, President, Chief Executive Officer and director, for a total
purchase price of $1,000,000 under a restricted stock purchase agreement
entered into in connection with an employment agreement between TenFold and Mr.
Kennedy dated September 1, 1996. Of the total shares sold, 3,397,578 are
subject to a repurchase right in favor of TenFold that lapses ratably over a
seven and one-half year period beginning August 31, 1996. As of March 31,1999,
2,491,558 shares are subject to the repurchase right. If TenFold achieves a
$200 million market capitalization, this accelerates the lapsing of the
repurchase right on 453,010 shares by one year. If TenFold achieves a $500
million market capitalization, this accelerates the lapsing of the repurchasing
right on 679,517 shares by one and one-half years. TenFold anticipates that it
will achieve a market capitalization of greater than $500 million upon the
closing of this offering. However, all of Mr. Kennedy's shares shall be
released from the repurchase right in the event of a change of control of
TenFold, including an acquisition of TenFold by merger or the sale of all or
substantially all of the assets of TenFold. For a description of Mr. Kennedy's
employment agreement, see "Management--Employment Agreements".
On March 4, 1997, TenFold sold The Indus Group, Inc. (the predecessor to
Indus International, Inc.) 1,460,399 shares of Series A preferred stock and
entered into a software license agreement with The Indus Group. On the same
date, Jeffrey L. Walker, TenFold's Chairman, Executive Vice President and Chief
Technology Officer, and the Walker Children's Trust each sold The Indus Group
730,200 shares of common stock. In connection with these transactions, TenFold
granted The Indus Group an option to purchase one share of Series A preferred
stock in exchange for each share of common stock that The Indus Group purchased
from either Mr. Walker or the Walker Children's Trust. The Indus Group paid a
total of $2,497,284 for the shares of common stock it purchased from Mr. Walker
and the Walker Children's Trust, and paid TenFold a total of $5,500,000 for the
shares of Series A preferred stock it purchased from TenFold, the option to
exchange the shares of common stock for shares of Series A preferred stock, and
for software license rights it acquired. On November 17, 1997, The Indus Group
exercised its option and exchanged the common stock it had purchased from
Mr. Walker and the Walker Children's Trust for shares of Series A preferred
stock. Each share of Series A preferred stock is convertible into one share of
common stock and will automatically convert into common stock upon the closing
of this offering.
On October 30, 1997, TenFold granted William M. Conroy, Executive Vice
President and Chief Operating Officer, an option to purchase 360,000 shares of
common stock. Twenty percent of the total number of shares issued or issuable
upon the exercise of Mr. Conroy's option vested on each of November 10, 1997
and 1998. Twenty percent of the total number of shares issued or issuable upon
the exercise of Mr. Conroy's option shall vest on each of November 10, 1999,
2000, and 2001. If Mr. Conroy is involuntarily terminated by TenFold, other
than for cause, then 50% of the then-unvested shares subject to the option
shall become immediately exercisable. On February 5, 1998, Mr. Conroy exercised
72,000 of these options at an exercise price of $0.89 per share. On April 14,
1999, TenFold granted Mr. Conroy an option to purchase 240,000 additional
shares of common stock at a per share exercise price of $12.60. This option
vests over five years beginning April 14, 1999.
On November 24, 1997, TenFold sold Winter Harbor, LLC 3,340,330 shares of
TenFold's Series B preferred stock at a price of $2.10 per share. Each share of
Series B preferred stock is convertible into one share of common stock and will
automatically convert into common stock upon the closing of this offering.
Ralph W. Hardy, Jr., a director of TenFold, is a principal of Winter Harbor,
LLC. In March 1999, Winter Harbor, LLC transferred all of its shares of Series
B preferred stock to First Media TF Holdings, LLC, an affiliate of Winter
Harbor, LLC.
On February 2, 1998, Adam Slovik, Senior Vice President of Worldwide
Applications Development, exercised options to purchase 100,000 shares and
150,000 shares of common stock at exercise prices of $0.02 per share and $0.22
per share, respectively. In connection with these
59
<PAGE>
option exercises, TenFold loaned Mr. Slovik $119,919. This full-recourse loan
is due December 12, 2001, bears interest at an annual rate of 5.69%, and is
secured by the related shares. Also in connection with his February 1998 option
exercise, in March 1999, TenFold loaned Mr. Slovik $50,000. The second full-
recourse loan is due December 13, 2001, bears interest at an annual rate of
4.99%, and is secured by the related shares. On February 25, 1999, Mr. Slovik
exercised options to purchase 20,000 shares of common stock at an exercise
price of $2.50 per share. In connection with Mr. Slovik's February 1999 option
exercise, TenFold loaned Mr. Slovik $70,523. This full recourse loan is due
August 25, 2000, bears interest at an annual rate of 4.62%, and is secured by
the related shares.
On July 22, 1998, TenFold granted Bernard C. Mazon, President of TenFold
Insurance Systems Group, an option to purchase 150,000 shares of common stock,
subject to vesting requirements. Pursuant to a letter agreement between TenFold
and Mr. Mazon, TenFold has agreed that it will grant to Mr. Mazon an option to
acquire three percent of the outstanding shares of capital stock of a TenFold
subsidiary to be formed during 1999 from which TenFold intends to operate its
insurance business, at a per share exercise price equal to the fair market
value, at the time of grant, of such subsidiary's common stock, as determined
by TenFold's board. This option vests over five years beginning July 20, 1998.
See "Option Grants in Last Fiscal Year" for additional information regarding
Mr. Mazon's stock option grants.
On February 22, 1999, Robert P. Hughes, Senior Vice President and Chief
Financial Officer, exercised options to purchase 40,000 shares of common stock
at an exercise price of $0.02 per share. In connection with such option
exercise, TenFold loaned Mr. Hughes $75,024. This full recourse loan is due
August 22, 2000, bears interest at an annual rate of 4.62%, and is secured by
the related shares.
On April 14, 1999, TenFold granted Glen D. Mella, Senior Vice President of
Marketing, an option to purchase 50,000 shares of common stock at a per share
exercise price of $12.60. This option vests over five years beginning April 14,
1999.
The Company has entered into indemnification agreements with its directors
and Robert P. Hughes, Senior Vice President and Chief Financial Officer,
containing provisions which may require TenFold, among other things, to
indemnify its directors and the executive officer against liabilities that may
arise by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability
and Indemnification Matters" for additional information regarding TenFold's
indemnification obligations.
Voting Agreements
TenFold and Mssrs. Walker and Kennedy are parties to a voting agreement
dated September 1, 1996, as amended on March 4, 1997, under which Mr. Kennedy
is given the power to vote that number of shares of common stock held of record
by Mr. Walker which would permit Mr. Kennedy to vote 50% of the aggregate
number of shares of common stock held by Mr. Walker and Mr. Kennedy on all
matters on which the holders of TenFold common stock are entitled to vote.
Under the voting agreement, Mr. Kennedy retains such voting rights with respect
to shares held by Mr. Walker for so long as Mr. Kennedy is employed by TenFold
as its President and Chief Executive Officer.
TenFold, Indus International, Inc., First Media TF Holdings, LLC and Messrs.
Walker and Kennedy are parties to a voting agreement dated November 24, 1997
which provides that, with respect to proposed change of control transactions of
TenFold, Indus and First Media will each vote all shares of preferred stock
then held by them in the same manner and in the same percentage as the holders
of TenFold common stock, in the aggregate, vote their shares on such matter.
Both voting agreements described above shall terminate by their respective
terms upon the closing of this offering.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth (1) information regarding the beneficial
ownership of TenFold's common stock as of March 31, 1999 after giving pro forma
effect to the automatic conversion of all outstanding preferred stock and
redeemable common stock into common stock upon completion of this offering and
(2) such pro forma ownership information as adjusted to reflect the sale of
TenFold common stock offered by this prospectus, in each case reflecting the
common stock beneficially held by the following individuals or groups:
. each of TenFold's directors and named officers;
. all directors and executive officers as a group; and
. each person who is known by TenFold to own beneficially more than 5% of
TenFold's common stock, including the selling stockholder.
Unless otherwise indicated, the address of each of the individuals listed
below is the address of TenFold's principal executive offices, which is 180
West Election Road, Draper, Utah 84020.
The information in the table assumes no exercise of the underwriters' over-
allotment option. In the event the underwriters exercise their over-allotment
option in full, Jeffrey L. and Cassandra M. Walker will sell
shares, the Walker Children's trust will sell shares, Indus
International, Inc. will sell shares, and the Company will sell
shares. Except as provided under applicable community property laws or as
indicated in the footnotes to this table, TenFold believes that each
stockholder identified in the table possesses sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by such
stockholder. The percentage ownership listed for each stockholder is based on
31,825,333 shares of common stock outstanding as of March 31, 1999 together
with applicable options for such stockholder. 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. Shares of common stock subject to options under the 1993 stock plan
that are exercisable within 60 days of March 31, 1999 are deemed outstanding
for the purpose of computing the percentage ownership of the person holding
such options but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Number Owned
Prior to Offering of After Offering
------------------ Shares ------------------
Name and Address Number Percent Offered Number Percent
- ---------------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Jeffrey L. & Cassandra M. Walk- 14,229,800 44.7% 14,229,800 %
er.............................
Gary D. Kennedy(1).............. 4,442,174 14.0 4,442,174
Walker Children's Trust(2)...... 4,269,800 13.4 4,269,800
First Media TF Holdings, 3,340,330 10.5
LLC(3).........................
Ralph W. Hardy, Jr
11400 Skipwith Lane
Potomac, MD 20854
Indus International, Inc.(4).... 2,920,799 9.2
Robert W. Felton
60 Spear Street
San Francisco, CA 94105
Robert P. Hughes................ 160,000 * 160,000
William M. Conroy (5)........... 144,000 * 144,000
Glen D. Mella................... 40,000 * 40,000
Kay R. Whitmore (6)............. 15,000 * 15,000
Bernard C. Mazon................ -- -- -- --
Scott E. Calder................. -- -- -- --
H. Raymond Bingham.............. -- -- -- --
All Directors and Executive Of-
ficers as a Group (12 persons)
(7)............................ 25,562,103 80.1% 22,843,384 67.4%
</TABLE>
- --------
* Less than one percent of the outstanding shares of common stock.
61
<PAGE>
(1) Includes 40,080 shares owned by Star Valley LLC, a limited liability
company in which Mr. Kennedy is a co-managing member and as such exercises
shared voting and investment power with respect to the shares. Mr. Kennedy
disclaims beneficial ownership of the shares held by Star Valley LLC.
(2) The Walker Children's Trust is an irrevocable trust in which Mr. Walker,
Mr. Walker's wife, and Paul M. Ginsburg are co-trustees. Mr. Ginsburg has
sole voting and investment power with respect to shares of TenFold held by
the trust.
(3) Mr. Hardy, a member of TenFold's board of directors, is a principal of
First Media TF Holdings, LLC, a wholly owned subsidiary of First Media
Corporation. Mr. Hardy is an officer, director, and stockholder of First
Media Corporation. Mr. Hardy disclaims beneficial ownership of the shares
held by First Media TF Holdings, LLC except to the extent of his pecuniary
interest in such shares.
(4) Mr. Felton, a member of TenFold's board of directors, is a member of the
board of directors of Indus International, Inc. Mr. Felton disclaims
beneficial ownership of the shares held by Indus International, Inc.
except to the extent of his pecuniary interest in such shares.
(5) Includes 72,000 shares issuable upon exercise of vested options.
(6) Includes 5,000 shares issuable upon exercise of vested options.
(7) Includes 40,080 shares held by an entity affiliated with Mr. Kennedy as
described in Note (1) above and 77,000 shares issuable upon exercise of
vested options. Does not include the 4,269,800 shares held by the Walker
Children's Trust.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of
TenFold will consist of 120,000,000 shares of common stock, $0.001 par value
per share, and 2,000,000 shares of undesignated preferred stock, $0.001 par
value per share. The following description of capital stock sets forth the
material provisions of the capital stock of TenFold.
Common Stock
As of March 31, 1999, there were 31,825,533 shares of common stock
outstanding (as adjusted to reflect the conversion of all outstanding shares of
Series A preferred stock, Series B preferred stock, and redeemable common stock
into common stock upon the completion of this offering), held of record by
approximately 130 stockholders, and options outstanding to purchase a total of
7,065,000 shares of common stock. After giving effect to the sale of the shares
of common stock to the public offered by this prospectus, there will be
shares of common stock outstanding, assuming no exercise of the underwriter's
over-allotment option and no exercise of options outstanding under TenFold's
stock plans after March 31, 1999.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding preferred stock, holders of
common stock are entitled to receive ratably such dividends as may be declared
by the board of directors out of funds legally available for such purpose. In
the event of liquidation, dissolution or winding up of TenFold, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities and satisfaction of preferential rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. The outstanding shares of common stock
are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 6,261,129 shares of common stock. Thereafter, the board
of directors is authorized to issue 2,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
of the preferred stock, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of TenFold without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock. This
issuance could have the effect of decreasing the market price of the common
stock. As of the closing of this offering, no shares of preferred stock will be
outstanding. TenFold currently has no plans to issue any shares of preferred
stock.
Registration Rights
Following this offering, the holders of 26,974,184 shares of common stock
will be entitled to registration under the Securities Act with respect to such
shares. Under the applicable agreement, at any time after six months following
the effective date of this prospectus, upon the request of the holders of a
majority of the shares of common stock entitled to registration rights, TenFold
must use its best efforts to effect, within 60 days of the receipt of such
request, the registration for public resale under the Securities Act of all of
the then-outstanding shares of common stock entitled to registration
63
<PAGE>
rights. In addition, the holders of not less than 25% of the shares of common
stock entitled to registration rights may require TenFold, not more than twice
in any twelve-month period, to register all or a portion of such shares on Form
S-3 when use of such form becomes available to TenFold, as long as the proposed
total selling price of the shares to be registered under the applicable Form S-
3, net of any underwriters' discounts or commissions, is at least $1,000,000.
TenFold must pay all registration expenses, other than underwriting discounts
and commissions, relating to the shares entitled to registration rights.
Antitakeover Effect of Provisions in Our Certificate of Incorporation and
Bylaws
Provisions of Delaware General Corporation Law and TenFold's certificate of
incorporation could make more difficult the acquisition of TenFold by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions are expected to discourage coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of TenFold to first negotiate with the board of
directors of TenFold. TenFold believes that the benefits of increased
protection of its board members' potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
TenFold outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals could result in an
improvement of their terms.
Approval for Business Combinations. TenFold will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute 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 that the person became an interested stockholder unless
the business combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, either owns, or within three years prior, did own, 15% or more of
the corporation's voting stock. These provisions may have the effect of
delaying, deferring or preventing a change in control of TenFold without
further action by TenFold's stockholders.
Election and Removal of Directors. Commencing upon the closing of this
offering, the certificate of incorporation of TenFold will provide for the
board of directors to be divided into two classes, with staggered two-year
terms. As a result, only one class of directors will be elected at each annual
meeting of stockholders of TenFold, with the other class continuing for the
remainder of its respective two-year term. Upon the closing of this offering,
stockholders shall not have cumulative voting rights and TenFold's stockholders
representing a majority of the shares of common stock outstanding will be able
to elect all of the directors. The classification of the board of directors and
elimination of cumulative voting make it more difficult for TenFold's existing
stockholders to replace the board of directors as well as for another party to
obtain control of TenFold by replacing the board of directors. Since the board
of directors has the power to retain and discharge officers of TenFold, these
provisions could also make it more difficult for existing stockholders or
another party to effect a change in management.
Restrictions on Stockholder Actions and Meetings. TenFold's certificate of
incorporation will provide that, effective upon the closing of this offering,
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The bylaws will provide
that special meetings of stockholders can be called only by the board of
directors, the chairman of the board, if any, and the President of TenFold.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting by the board
of directors, the chairman of the board, if any, or the President of TenFold.
The bylaws set forth an advance notice procedure with regard to the nomination,
other than by or at the
64
<PAGE>
direction of the board of directors, of candidates for election as directors
and with regard to business to be brought before an annual meeting of
stockholders of TenFold.
TenFold's certificate of incorporation will contain a provision requiring
the affirmative vote of the holders of at least two-thirds of the voting stock
of TenFold to amend the foregoing provisions of the certificate of
incorporation or bylaws.
Transfer Agent and Registrar
The transfer agent and registrar for TenFold common stock is First Chicago
Trust Company of New York. The transfer agent's address and telephone number is
150 Royall Street, Canton, MA 02021, (781) 575-2514.
Nasdaq Stock Market Listing
TenFold has applied to have its common stock quoted on The Nasdaq Stock
Market under the symbol "TENF".
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock of
TenFold. Future sales of substantial amounts of common stock in the public
market could adversely affect prevailing market prices. Furthermore, since only
a limited number of shares will be available for sale shortly after this
offering because of contractual and legal restrictions on resale, as described
below, sales of substantial amounts of common stock of TenFold in the public
market after the restrictions lapse could adversely affect the prevailing
market price and the ability of TenFold to raise equity capital in the future.
Upon completion of this offering, TenFold will have outstanding shares
of common stock. Of these shares, shares sold in this offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by "affiliates" of TenFold as that term is defined in Rule 144 under the
Securities Act.
The remaining shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144, 144(k) or 701 promulgated
under the Securities Act, which are summarized below. Sales of the Restricted
Shares in the public market, or the availability of such shares for sale, could
adversely affect the market price of the common stock.
The directors, officers, and stockholders of TenFold have entered into lock-
up agreements generally providing that they will not offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of a total of
shares of common stock of TenFold or any securities exercisable for or
convertible into TenFold's common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed for this offering without the prior written consent of a designated
representative of the underwriters. As a result of these contractual
restrictions, and despite possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
will not be saleable until such agreements expire or are waived by the
designated underwriters' representative. Taking into account the lock-up
agreements, and assuming the designated underwriters' representative does not
release stockholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:
. beginning on the effective date of the registration statement, the
shares sold in this offering and additional shares will be
immediately available for sale in the public market;
. beginning 90 days after the effective date, additional shares will
be available for sale in the public market;
. beginning 180 days after the effective date, additional shares will
be eligible for sale under Rule 144; and
. after the date 180 days following the date of this prospectus,
additional shares will become eligible for sale under Rule 144 at
various times.
Shares eligible to be sold by affiliates under Rule 144 are subject to
volume restrictions as described below.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for
at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
66
<PAGE>
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
TenFold. Under Rule 144(k), a person who is not deemed to have been an
affiliate of TenFold at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation, or notice provisions of Rule 144.
Under Rule 701 as currently in effect, beginning 90 days after the effective
date, officers, directors, employees, consultants, and others who purchase
shares under a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates of TenFold to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell such shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation, or notice provisions of
Rule 144. In addition, TenFold intends to file registration statements under
the Securities Act as promptly as possible after the effective date to register
shares to be issued under TenFold's employee benefit plans. As a result, any
options exercised under the 1993 stock plan, the 1999 stock plan, or any other
benefit plan after the effective date of the registration statement will also
be freely tradable in the public market, except that shares held by affiliates
will still be subject to the volume limitation, manner of sale, notice, and
public information requirements of Rule 144 unless otherwise resaleable under
Rule 701. As of March 31, 1999, there were outstanding options for the purchase
of 7,065,000 shares, of which 425,200 were exercisable as of that date. No
shares have been issued to date under TenFold's 1999 stock plan or TenFold's
purchase plan. See "Risk Factors--Future sales of our common stock may depress
our stock price", "Management--Stock Plans" and "Description of Capital Stock--
Registration Rights" for additional information regarding TenFold's capital
stock.
67
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
TenFold by Venture Law Group, A Professional Corporation, Menlo Park,
California. Donald M. Keller, Jr., a director of Venture Law Group, is the
Secretary of TenFold. Certain legal matters will be passed upon for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The consolidated financial statements and schedule of TenFold Corporation
and subsidiary as of December 31, 1997 and 1998, and for each of the years in
the three-year period ended December 31, 1998, have been included herein and in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to TenFold and the
common stock offered in this offering, we refer you to the registration
statement and to the attached exhibits and schedules. With respect to each such
document filed as an exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information about public reference rooms. You may obtain copies of all or any
part of our registration statement from the Securities and Exchange Commission
upon payment of prescribed fees. You may also inspect reports, proxy, and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission without charge at a
Web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
68
<PAGE>
TENFOLD CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998, and March 31,
1999 (unaudited).......................................................... F-3
Consolidated Statements of Operations for the three years ended December
31, 1998, and the three months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 31, 1998, and the three months ended March 31, 1999
(unaudited)............................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1998, and the three months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
TenFold Corporation
We have audited the consolidated financial statements of TenFold Corporation
and subsidiary as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TenFold
Corporation and subsidiary as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the years in the three years
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Salt Lake City, Utah
January 21, 1999,
except as to Note 13,
which is as of
March 29, 1999
F-2
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, Pro-forma
---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 9,022 $15,373 $13,171 $13,171
Accounts receivable (net of
allowance for doubtful accounts of
$0 in 1997, $500 in 1998 and as of
March 31, 1999).................... 1,149 1,691 3,200 3,200
Unbilled accounts receivable........ -- 3,258 4,046 4,046
Due from stockholder................ -- 1,976 -- --
Prepaid expenses and other assets... 123 389 692 692
Income tax receivable............... 149 -- -- --
Deferred income taxes............... -- 536 536 536
Deferred costs...................... -- -- 107 107
------- ------- ------- -------
Total current assets................ 10,443 23,223 21,752 21,752
Property and equipment, net......... 1,569 6,157 6,458 6,458
Other assets........................ 32 186 185 185
------- ------- ------- -------
Total assets........................ $12,044 $29,566 $28,395 $28,395
======= ======= ======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................... $ 344 $ 941 $ 1,213 $ 1,213
Income taxes payable................ -- 498 94 94
Accrued liabilities................. 827 3,306 3,617 3,617
Deferred revenue.................... 1,750 5,505 3,020 3,020
Current installments of obligations
under capital leases............... -- 525 525 525
Current installments of notes
payable............................ -- 718 976 976
------- ------- ------- -------
Total current liabilities........... 2,921 11,493 9,445 9,445
Long-term liabilities:
Deferred income taxes............... -- 85 85 85
Obligations under capital leases,
excluding current installments..... -- 1,116 1,034 1,034
Notes payable, excluding current
installments....................... -- 1,593 1,874 1,874
------- ------- ------- -------
Total long-term liabilities......... -- 2,794 2,993 2,993
Redeemable preferred stock........... 8,640 9,555 9,803 --
Redeemable common stock.............. -- 1,976 1,976 --
Stockholders' equity:
Common stock, $0.001 par value:
Authorized: 43,800,000 shares;
issued and outstanding:
23,603,704 shares in 1997,
25,074,404 shares in 1998, and
25,364,204 shares as of March 31,
1999............................... 24 25 25 32
Additional paid-in capital.......... 1,087 5,906 12,178 23,950
Notes receivable from stockholders.. -- (329) (678) (678)
Deferred compensation............... (217) (2,258) (7,856) (7,856)
Retained earnings (accumulated
deficit)........................... (412) 396 521 521
Accumulated other comprehensive
income (loss)...................... 1 8 (12) (12)
------- ------- ------- -------
Total stockholders' equity.......... 483 3,748 4,178 15,957
------- ------- ------- -------
Total liabilities and stockholders'
equity............................. $12,044 $29,566 $28,395 $28,395
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- --------------------
1996 1997 1998 1998 1999
------- -------- -------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License.................. $ 271 $ 5,244 $ 13,382 $ 1,259 $ 5,656
Services................. 2,744 8,879 26,785 3,940 10,371
------- -------- -------- --------- ---------
Total revenues......... 3,015 14,123 40,167 5,199 16,027
------- -------- -------- --------- ---------
Operating expenses:
Cost of revenues......... 370 4,661 14,529 2,176 6,246
Sales and marketing...... 87 2,765 11,070 1,442 4,736
Research and
development............. 2,289 4,739 9,690 1,807 3,401
General and
administrative.......... 396 1,364 2,882 471 820
Amortization of deferred
compensation............ -- 34 153 13 305
Other charge............. -- 1,449 -- -- --
------- -------- -------- --------- ---------
Total operating
expenses.............. 3,142 15,012 38,324 5,909 15,508
------- -------- -------- --------- ---------
Income (loss) from
operations................ (127) (889) 1,843 (710) 519
Other income (expense):
Interest income.......... 28 179 395 102 159
Interest expense......... -- -- (20) -- (71)
------- -------- -------- --------- ---------
Total other income..... 28 179 375 102 88
------- -------- -------- --------- ---------
Income (loss) before income
taxes..................... (99) (710) 2,218 (608) 607
Provision (benefit) for
income taxes.............. -- (110) 495 (207) 234
------- -------- -------- --------- ---------
Net income (loss).......... $ (99) $ (600) $ 1,723 $ (401) $ 373
======= ======== ======== ========= =========
Accretion of Series A and B
preferred stock........... -- (274) (915) (218) (248)
------- -------- -------- --------- ---------
Net income (loss)
applicable to common
stock..................... $ (99) $ (874) $ 808 $ (619) $ 125
======= ======== ======== ========= =========
Basic earnings (loss) per
common share.............. $ (0.00) $ (0.04) $ 0.04 $ (0.03) $ 0.01
======= ======== ======== ========= =========
Diluted earnings (loss) per
common share.............. $ (0.00) $ (0.04) $ 0.03 $ (0.03) $ 0.00
======= ======== ======== ========= =========
Weighted average common and
common equivalent shares
used to calculate earnings
(loss) per share:
Basic.................... 20,285 21,542 21,551 21,031 22,765
======= ======== ======== ========= =========
Diluted.................. 20,285 21,542 26,663 21,031 28,361
======= ======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Note Accumulated
Common Stock Additional Comprehensive Receivable Retained Other
------------------ Paid-in Income Deferred from Earnings/ (Accumulated Comprehensive
Shares Amount Capital (Loss) Compensation Stockholders Deficit) Income (Loss)
---------- ------ ---------- ------------- ------------ ------------ ---------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............ 20,076,000 $20 $ 96 $ -- $ -- $ 287 $ --
---------- --- ------- ------- ----- ----- ----
Common stock
issued for
cash............ 4,530,104 5 996 -- -- -- --
Common stock
issued upon
exercise of
options......... 44,000 -- 1 -- -- -- --
Net loss........ -- -- -- $ [(99)] -- -- (99) --
-------
Comprehensive
loss............ -- -- -- $ [(99)] -- -- -- --
---------- --- ------- ======= ------- ----- ----- ----
Balance at
December 31,
1996............ 24,650,104 25 1,093 -- -- 188 --
---------- --- ------- ------- ----- ----- ----
Conversion of
Common Stock for
Series A
redeemable
convertible
preferred
stock........... (1,460,400) (1) -- -- -- -- --
Common stock
issued upon
exercise of
options......... 414,000 -- 17 -- -- -- --
Deferred
compensation
related to
grants of stock
options......... -- -- 251 (251) -- -- --
Amortization of
deferred
compensation.... -- -- -- 34 -- -- --
Accretion of
redeemable
convertible
preferred
stock........... -- -- (274) -- -- -- --
Net loss........ -- -- -- $ [(600)] -- -- (600) --
Foreign currency
translation
adjustments..... -- -- -- 1 -- -- -- 1
-------
Comprehensive
loss............ -- -- -- $ [(599)] -- -- -- --
---------- --- ------- ======= ------- ----- ----- ----
Balance at
December 31,
1997............ 23,603,704 24 1,087 (217) -- (412) 1
---------- --- ------- ------- ----- ----- ----
Common stock
issued upon
exercise of
options......... 1,260,700 1 326 -- -- -- --
Common stock
issued for
cash............ 210,000 -- 2,000 -- -- -- --
Notes receivable
from
stockholders'... -- -- -- -- (329) -- --
Deferred
compensation
related to
grants of stock
options......... -- -- 2,230 (2,230) -- -- --
Amortization of
deferred
compensation.... -- -- -- 153 -- -- --
Cancellation of
stock options... -- -- (36) 36 -- -- --
Accretion of
redeemable
convertible
preferred
stock........... -- -- -- -- -- (915) --
Tax benefit from
exercise of
stock options... -- -- 664 -- -- -- --
Tax charge
related to the
reallocation of
revenue to
equity.......... -- -- (365) -- -- -- --
Net income...... -- -- -- $[1,723] -- -- 1,723 --
Foreign currency
translation
adjustments..... -- -- -- 7 -- -- -- 7
-------
Comprehensive
income.......... -- -- -- $[1,730] -- -- -- --
---------- --- ------- ======= ------- ----- ----- ----
Balance at
December 31,
1998............ 25,074,404 $25 $ 5,906 $(2,258) $(329) $ 396 $ 8
---------- --- ------- ------- ------- ----- ----- ----
Common stock
issued upon
exercise of
options
(unaudited)..... 289,800 -- 369 -- -- -- --
Notes receivable
from
stockholders'
(unaudited)..... -- -- -- -- (349) -- --
Deferred
compensation
related to
grants of stock
options
(unaudited)..... -- -- 5,915 (5,915) -- -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- -- 305 -- -- --
Cancellation of
stock options
(unaudited)..... -- -- (12) 12 -- -- --
Accretion of
redeemable
convertible
preferred stock
(unaudited)..... -- -- -- -- (248) --
Net income
(unaudited)..... -- -- -- $ [373] -- -- 373 --
Foreign currency
translation
adjustment
(unaudited)..... -- -- -- (20) -- -- -- (20)
Comprehensive
income
(unaudited)..... -- -- -- $ [353] -- -- -- --
---------- --- ------- ======= ------- ----- ----- ----
Balance at March
31, 1999
(unaudited)..... 25,364,204 $25 $12,178 $(7,856) $(678) $ 521 $(12)
========== === ======= ======= ===== ===== ====
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance at
December 31,
1995............ $ 403
-------------
Common stock
issued for
cash............ 1,001
Common stock
issued upon
exercise of
options......... 1
Net loss........ (99)
Comprehensive
loss............ --
-------------
Balance at
December 31,
1996............ 1,306
-------------
Conversion of
Common Stock for
Series A
redeemable
convertible
preferred
stock........... (1)
Common stock
issued upon
exercise of
options......... 17
Deferred
compensation
related to
grants of stock
options......... --
Amortization of
deferred
compensation.... 34
Accretion of
redeemable
convertible
preferred
stock........... (274)
Net loss........ (600)
Foreign currency
translation
adjustments..... 1
Comprehensive
loss............ --
-------------
Balance at
December 31,
1997............ 483
-------------
Common stock
issued upon
exercise of
options......... 327
Common stock
issued for
cash............ 2,000
Notes receivable
from
stockholders'... (329)
Deferred
compensation
related to
grants of stock
options......... --
Amortization of
deferred
compensation.... 153
Cancellation of
stock options... --
Accretion of
redeemable
convertible
preferred
stock........... (915)
Tax benefit from
exercise of
stock options... 664
Tax charge
related to the
reallocation of
revenue to
equity.......... (365)
Net income...... 1,723
Foreign currency
translation
adjustments..... 7
Comprehensive
income.......... --
-------------
Balance at
December 31,
1998............ $3,748
-------------
Common stock
issued upon
exercise of
options
(unaudited)..... 369
Notes receivable
from
stockholders'
(unaudited)..... (349)
Deferred
compensation
related to
grants of stock
options
(unaudited)..... --
Amortization of
deferred
compensation
(unaudited)..... 305
Cancellation of
stock options
(unaudited)..... --
Accretion of
redeemable
convertible
preferred stock
(unaudited)..... (248)
Net income
(unaudited)..... 373
Foreign currency
translation
adjustment
(unaudited)..... (20)
Comprehensive
income
(unaudited)..... --
-------------
Balance at March
31, 1999
(unaudited)..... $4,178
=============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
--------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).............. $ (99) $ (600) $ 1,723 $ (401) $ 373
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation.................. 53 305 1,147 148 541
Provision for bad debt........ -- -- 500 -- --
Change in deferred income
taxes........................ (121) -- (302) -- --
Tax benefit from exercise of
stock options................ -- -- 664 -- --
Tax charge related to the
reallocation of revenue to
equity....................... -- -- (365) -- --
Amortization of deferred
compensation associated with
stock options................ -- 34 153 13 305
Changes in operating assets
and liabilities:
Accounts receivable.......... (42) (984) (1,042) (1,137) (1,509)
Unbilled accounts
receivable.................. -- -- (3,258) (415) (788)
Prepaid expenses............. (28) (123) (266) (101) (302)
Deferred costs............... -- -- -- -- (107)
Other assets................. -- 1 (154) -- --
Accounts payable............. 100 245 597 155 272
Accrued liabilities.......... 16 781 2,479 (117) 311
Income taxes................. 91 (239) 498 (207) (404)
Deferred revenues............ (62) 1,402 3,755 1,883 (2,485)
------- -------- -------- ------- -------
Net cash provided by (used
in) operating activities... (92) 822 6,129 (179) (3,793)
Cash flows from investing
activities:
Additions to property and
equipment..................... (423) (1,393) (5,464) (769) (842)
------- -------- -------- ------- -------
Net cash used in investing
activities................. (423) (1,393) (5,464) (769) (842)
Cash flows from financing
activities:
Proceeds from issuance of
preferred stock, less issuance
costs......................... -- 8,365 -- -- --
Proceeds from issuance of
common stock.................. 1,001 -- 25 -- --
Proceeds from issuance of
redeemable common stock....... -- -- 1,976 -- 1,976
Exercise of common stock
options....................... 1 17 327 201 369
Notes receivable from
stockholders.................. -- -- (329) (329) (349)
Proceeds from notes payable.... -- -- 2,425 -- 733
Principal payments on notes
payable....................... -- -- (114) -- (194)
Proceeds from sales-leaseback.. -- -- 1,424 -- --
Principal payments on capital
lease obligations............. -- -- (54) -- (82)
------- -------- -------- ------- -------
Net cash provided by (used
in) financing activities... 1,002 8,382 5,680 (128) 2,453
------- -------- -------- ------- -------
Effect of exchange rate
changes........................ -- 1 7 (3) (20)
------- -------- -------- ------- -------
Net increase (decrease) in cash
and cash equivalents........... 487 7,812 6,352 (1,079) (2,202)
Cash and cash equivalents at
beginning of period............ 723 1,210 9,022 9,022 15,373
------- -------- -------- ------- -------
Cash and cash equivalents at end
of period...................... $ 1,210 $ 9,022 $ 15,373 $7,943 $13,171
======= ======== ======== ======= =======
Supplemental disclosure of cash
flow information:
Cash paid for income taxes..... $ 2 $ 129 -- -- $ 638
Cash paid for interest......... -- -- $ 20 -- 69
Supplemental schedule of noncash
investing and financing
activities:
Issuance of common stock in
exchange for receivable due
from stockholder.............. -- -- $ 1,976 -- --
Deferred compensation related
to grants of stock options.... -- $ 251 $ 3,264 -- $ 5,915
Equipment purchased with
capital leases................ -- -- $ 272 -- --
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (UNAUDITED AS TO
MARCH 31, 1998 AND 1999 AND FOR THE THREE MONTHS THEN ENDED)
1. Organization and Summary of Significant Accounting Policies
Organization
TenFold Corporation (the "Company"), develops, markets, supports, and
resells large-scale software applications. The Company provides the majority of
its services on a fixed-price and fixed-time basis. The Company was
incorporated in the state of Delaware in February 1993.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary in the United Kingdom. All intercompany
accounts and transactions have been eliminated.
Revenue Recognition
The Company derives its revenues from license fees, application development
and implementation services, support, and training services. License revenues
consist of fees for licensing the Universal Application and license fees for
the applications that the Company develops for its customers. The Company also
derives license revenues from the resale of vertical applications products.
Service revenues consist of fees for application development and
implementation, support and training.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, Software Revenue
Recognition, which supersedes SOP 91-1, Software Revenue Recognition.
Additionally, in 1998 the AICPA issued SOP 98-9 Modification of SOP 97-2 with
Respect to Certain Transactions. Effective January 1, 1998, the Company adopted
the provisions of SOP 97-2 as modified by SOP 98-9. Revenue was recognized in
accordance with SOP 97-2 in 1998, and SOP 91-1 in prior years.
SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements such as software products, enhancements, post-
contract customer support, installation and training to be allocated to each
element based on the relative fair values of the elements. The fair value of an
element must be based on evidence which is specific to the vendor. The revenue
allocated to software products is generally recognized upon delivery of the
products. The revenue allocated to unspecified upgrades and updates and post
contract customer support is generally recognized as the services are
performed.
For fixed-price contracts, the Company recognizes license fees related to
the application and the application development service fees over time as
services are performed, using the percentage-of-completion accounting method
based on costs incurred relative to total estimated costs. Full provision is
made for any anticipated losses. On a limited basis, the Company also provides
application development and implementation services on a time and materials
basis. The Company recognizes revenue on time and material contracts as
services are performed.
The Company recognizes license revenues from applications products sales and
Universal Application development licenses (whether sold separately or with an
application development project) that do not require significant production,
modification, or customization of software when the following criteria are met:
the Company has signed a noncancellable license agreement; the Company has
shipped the software product; there are no uncertainties surrounding product
acceptance; the fees are fixed and determinable; and collection is considered
probable.
F-7
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company recognizes support revenue from contracts for ongoing technical
support and product updates, ratably over the term of the contract, which is
typically twelve months. The Company recognizes training revenues as services
are performed.
In mid 1998, the Company began offering a money-back guarantee on its fixed-
price contracts for which the Company recognizes revenue using the percentage-
of-completion accounting method. As a result, in certain contracts the Company
guaranteed project completion within a fixed time period or the customer may
return the software and receive a refund of fees paid. This guarantee also
requires the customer to fulfill certain responsibilities within a specified
time period, including reviewing and approving requirements, providing timely
feedback and providing adequate staffing; or the guarantee is voided.
Accordingly, this is considered a conditional money-back guarantee. None of the
Company's customers has exercised its guarantee to date, nor was it probable as
of the latest balance sheet date that a current customer would exercise its
guarantee. If necessary, the Company makes provisions for estimated refunds or
losses on uncompleted contracts on a contract by contract basis and recognizes
the provisions in the period in which such refunds or losses are probable and
can be reasonably estimated.
The timing and amount of cash received from customers can vary significantly
depending on specific contract terms and can therefore have a significant
impact on the amount of deferred revenue and unbilled accounts receivable in
any given period. The Company records cash received in excess of revenue earned
as deferred revenue. The deferred revenue balance at December 31, 1998 was $5.5
million. The Company's deferred revenue balance generally results from
contractual commitments made by customers to pay amounts to us in advance of
revenues earned. Unbilled accounts receivable represents revenue that the
Company has earned but not yet billed for. The Company bills customers for this
revenue as payments become due under the terms of the customer's contract. The
unbilled accounts receivable balance at December 31, 1998 was $3.3 million, and
is expected to be billed and collected within twelve months.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents. The Company
generally invests its cash and cash equivalents in money market accounts and
certificates of deposit.
Due from Stockholder
The due from stockholder amount represents an outstanding balance resulting
from a sale of 200,000 shares of common stock on December 28, 1998. The amount
was received in January 1999.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to five years, or the
life of the lease, whichever is shorter.
Accounting for Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of their carrying amount or fair value
less cost to sell.
F-8
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cost of Revenues
Cost of revenues consists primarily of the compensation and other related
cost of services personnel. Costs of license revenues, including product
packaging, documentation, and reproduction have not been significant.
Research and Development Costs
Research and development expenses consist primarily of costs for development
and enhancement of the Universal Application and TenFold ComponentWare.
Software development costs incurred between achieving technology feasibility
and release of the product to our customers have been insignificant and
therefore have been expensed as incurred.
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement basis
amounts of existing assets and liabilities and their respective income tax
bases. Future tax benefits, such as net operating loss carryforwards, and tax
credits, are recognized to the extent that realization of such benefits are
more likely than not. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred income tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Stock-Based Compensation
The Company adopted the footnote disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages entities to
adopt a fair-value based method of accounting for stock options or similar
equity instruments. However, it also allows an entity to continue measuring
compensation cost for stock-based compensation using the intrinsic-value method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has elected to continue
to apply the provisions of APB 25 and provide pro forma footnote disclosures
required by SFAS No. 123.
Foreign Currency Translation
For non-U.S. operations, the functional currency is the applicable local
currency. The translation of the functional currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using average rates
of exchange prevailing during the reporting period. Adjustments resulting from
the translation of foreign currency financial statements are included in
accumulated other comprehensive income as a component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are included in
the results of operations and have not been significant to date.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from these estimates.
Advertising
Advertising costs are expensed as incurred. Advertising costs amounted to
$460,000 in 1998. The Company did not incur advertising costs in prior years.
F-9
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warranty Expense
The Company provides reserves for warranty costs expected to be incurred. To
date the Company has not incurred significant warranty costs.
Financial Instruments
The carrying value of accounts receivable, unbilled accounts receivable,
accounts payable, and accrued expenses approximates their estimated fair value
due to the relative short maturity of these instruments.
Recent Accounting Pronouncements
The FASB recently issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company must adopt SFAS No. 133 by
July 1, 1999. Management does not believe the adoption of SFAS No. 133 will
have a material effect on the financial position or results of operations of
the Company.
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements as of
March 31, 1999, and for the three months ended March 31, 1998 and 1999, have
been prepared on substantially the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth herein.
2. Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
--------------- ---------------
1997 1998 1999
------ ------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Computer equipment under capital lease.. $ -- $ 1,695 $ 1,695
Computer equipment...................... 1,241 3,427 3,736
Software................................ 52 571 772
Furniture and fixtures.................. 414 1,107 1,326
Leasehold improvements.................. 72 354 391
Office equipment........................ 170 531 607
------ ------- -------
Total cost............................ 1,949 7,685 8,527
Less accumulated depreciation and
amortization........................... (380) (1,528) (2,069)
------ ------- -------
$1,569 $ 6,157 $ 6,458
====== ======= =======
</TABLE>
F-10
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------------- -----------
(Unaudited)
<S> <C> <C> <C>
Accrued compensation.......................... $ 659 $ 2,043 $1,744
Other accrued expenses........................ 168 1,263 1,873
----- ------- ------
$ 827 $ 3,306 $3,617
===== ======= ======
</TABLE>
4. Notes Payable
Notes payable consists primarily of three year notes collateralized by fixed
assets with monthly payment terms. At December 31, 1998, the Company's notes
payable had an average interest rate of 7.0%. The aggregate maturities for
long-term debt for the three years ending December 31, 1999, 2000, and 2001 are
$718,000, $836,000, and $757,000, respectively. The fair values of the
Company's notes payable at December 31, 1998, approximate the carrying amounts.
5. Lease Commitments
The Company leases office space and equipment under non-cancelable lease
agreements, which expire at various dates through 2004. These leases generally
require the Company to pay all executory costs such as maintenance and
insurance. Future minimum lease payments under non-cancelable leases as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Total Operating Capital
------ --------- -------
<S> <C> <C> <C>
1999.............................................. $3,135 $2,561 $ 574
2000.............................................. 2,274 1,646 628
2001.............................................. 2,211 1,583 628
2002.............................................. 905 905 --
2003.............................................. 692 692 --
Thereafter........................................ 153 153 --
------ ------ ------
Total minimum lease payments.................... $9,370 $7,540 1,830
====== ======
Less: Amount representing interest................ (189)
------
Present value of net minimum capital lease
payments......................................... 1,641
Less: Current installments of obligations under
capital leases................................... (525)
------
Obligations under capital leases excluding current
installments..................................... $1,116
======
</TABLE>
Total rental expense under operating leases was approximately $142,000,
$514,000, and $1,420,000 for 1996, 1997 and 1998, respectively. Rent expense in
1997 and 1998 is net of sublease income of approximately $221,000 and $158,000,
respectively. The Company did not have sublease income in 1996.
At December 31, 1997 and 1998, the Company had issued stand-by letters of
credit for $100,000 and $406,000, respectively, as security for the Company's
office leases. These letters of credit will terminate by December 31, 2003.
These letters of credit had not been drawn upon at December 31, 1997 and 1998.
The Company sold certain fixed assets for $1.4 million in 1998. The assets
were leased back from the purchaser over a period of 3 years. There was no gain
or loss on this transaction and the resulting lease is being accounted for as a
capital lease.
F-11
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Commitments and Contingencies
The Company has entered into agreements with certain of its customers
requiring the Company to make royalty payments ranging from 10% to 15% of
specified future product sales. These royalties will become payable by the
Company if and when application products developed for these customers are
subsequently re-sold to other customers. Through December 31, 1998, no such
royalties have been paid.
The Company has agreed it will grant to a senior member of the TenFold
Insurance Business Group an option to acquire three percent of the outstanding
shares of capital stock of a subsidiary to be formed during 1999 from which
TenFold intends to operate its insurance business. The exercise price of such
options will equal the fair market value, at the time of grant, of such
subsidiary's common stock, as determined by the Company's Board of Directors.
The Company is involved with potential claims which have arisen in the
normal course of business. While the ultimate results of these matters cannot
be predicted with certainty, management does not expect them to have a material
adverse effect on the financial position or results of operations of the
Company.
7. Income Taxes
The components of the provision for income taxes for the years ended
December 31, 1996, 1997, and 1998, are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- ----
<S> <C> <C> <C>
Provision (benefit) for income taxes:
Current:
Federal.............................................. $ 122 $(111) $567
State................................................ 2 1 79
----- ----- ----
124 (110) 646
----- ----- ----
Deferred:
Federal.............................................. (110) -- (439)
State................................................ (14) -- (11)
----- ----- ----
(124) -- (450)
----- ----- ----
Charge in lieu of taxes attributable to employee stock
plans................................................. -- -- 664
Tax charge related to the re-allocation of revenue to
equity................................................ -- -- (365)
----- ----- ----
Total.............................................. $ -- $(110) $495
===== ===== ====
</TABLE>
The tax charge related to the reallocation of revenue to equity for
financial reporting purposes resulted from a transaction the Company entered
into for the sale of common and redeemable common stock simultaneously with the
sale of software products and services. This transaction created a difference
as indicated above for the difference between the contractual value (tax basis)
and fair value (book basis) of common stock and redeemable common stock on the
transaction date. The tax impact of this transaction was recorded as a debit to
paid-in-capital.
F-12
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's deferred tax assets are comprised of the following as of
December 31, 1997 and 1998, respectively (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals...................................... $ 98 $ 202
Allowance for receivables.................................. 20 190
Stock option compensation.................................. 13 68
Credits for research activities............................ 759 600
Foreign loss carryovers.................................... 40 277
U.S. loss carryovers....................................... 80 --
------ ------
Total deferred tax assets................................ 1,010 1,337
Valuation allowance........................................ (973) (701)
------ ------
Net deferred tax assets.................................. $ 37 $ 636
====== ======
Deferred tax liabilities:
Accelerated depreciation................................... $ 37 $ 185
------ ------
Total deferred tax liabilities........................... $ 37 $ 185
------ ------
Total net deferred tax asset............................. $ -- $ 451
====== ======
Deferred income tax asset--current........................... $ -- $ 536
Deferred income tax liability--long-term..................... -- (85)
------ ------
Total net deferred tax asset............................. $ -- $ 451
====== ======
</TABLE>
As of December 31, 1998, the Company had foreign net operating loss
carryforwards of approximately $890,000 that generally carryforward
indefinitely. In addition, as of December 31, 1998, the Company had federal and
state credits for increasing research activities of approximately $264,000 and
$336,000, respectively. The federal credit carryover will begin to expire in
2012. The state credit will carryover until exhausted.
During the year ended December 31, 1998, the valuation allowance decreased
approximately $272,000. The reduction is the result of the associated
utilization of research credits (a reduction of approximately $510,000), and
increasing the valuation allowance attributable to foreign loss carryovers (an
increase of approximately $238,000.) The valuation allowance is primarily
attributable to research credits and foreign loss carryovers. The Company
believes that it is more likely than not that the remaining deferred tax assets
will be utilized.
The table below reconciles the U.S. federal statutory income tax rate (34%)
to the recorded income tax provision (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ----- ----
<S> <C> <C> <C>
Tax at U.S. statutory rates............................... $(34) $(241) $754
State tax, net of federal tax benefit..................... -- -- 113
Meals & entertainment..................................... 14 39 88
Credits for research activities........................... (109) (441) (253)
Change in valuation allowance............................. 138 502 (272)
Other..................................................... (9) 31 65
---- ----- ----
$ -- $(110) $495
==== ===== ====
</TABLE>
F-13
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Redeemable Convertible Preferred Stock, Redeemable Common Stock, and
Stockholders' Equity
Stock Split
In December 1996, the Board of Directors approved a two-for-one stock split
of the Company's common stock. The stock split was completed on February 2,
1997 in the form of a 100% stock dividend. Accordingly, all references to
applicable share and per share data, stock option data, and prices of the
Company's common stock, for all periods presented, have been retroactively
restated to reflect the stock split.
Redeemable Common Stock
On December 30, 1998, the Company issued 200,000 shares of Redeemable Common
Stock at a contractual purchase price of $5.00 per share and concurrently
entered into additional license and service agreements with the purchaser of
the shares. The Company subsequently determined that the fair market value of a
share of redeemable common stock equaled $9.88, and allocated $2.0 million of
the amounts paid in the licensing and service agreements to the purchase of the
shares. At any time after January 1, 2003, the holders of Redeemable Common
Stock have the right to cause the Company to redeem such shares at a redemption
amount of $8.00 per share. The redemption rights terminate upon completion of
an initial public offering.
Redeemable Convertible Preferred Stock
On March 4, 1997, the Company established a series of voting preferred
shares designated as Series A Preferred Stock, consisting of 2,920,799 shares
with $0.001 par value. On November 24, 1997, the Company increased the
authorized number of common shares to 44,000,000, and established a series of
voting preferred shares designated as Series B Preferred Stock, consisting of
3,340,330 shares with $0.001 par value, increasing the number of authorized
preferred shares to 6,261,129.
During March 1997, the Company entered into a transaction wherein the
Company sold 1,460,399 shares of Series A Preferred Stock and a software
license to a third party. The software license grants the third party the right
to develop applications using the Company's Universal Application. The license
restricts the Company from developing and licensing applications with similar
industry-specific functionality as this third party's existing applications
products (as of the effective date of the license agreement) within the
particular industry that this third party operates, and restricts the Company
from licensing the Universal Application to certain named competitors of the
third party. These licensing restrictions terminate upon the earlier of five
years or the third party reducing its ownership of the Company by 50%, which is
contemplated to occur in the Company's initial public offering, as described in
Note 13. In the same transaction, the majority stockholder of the Company sold
1,460,400 shares of common stock of the Company to the third-party.
Simultaneously, the Company granted the third party an option to exchange the
1,460,400 shares of common stock for an equal number of Series A Preferred
Stock. This conversion option was exercised during 1997. The third-party paid a
total of $8.0 million as consideration for this transaction, of which $2.5
million was received by the majority stockholder and $5.5 million was received
by the Company. Based on an independent valuation of the Company's common and
preferred stock, the Company allocated the total consideration paid by the
third party of $8 million based on the respective values of the preferred and
common shares. Based on these valuations, the Company allocated $1.4 million to
the Series A Preferred Stock and option, and $5.5 million to revenue. As a
result of the transaction, the
F-14
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
majority stockholder received a premium of $1.4 million on the sale of common
shares. The
Company has reflected that premium as an other charge in the 1997 Consolidated
Statements of Operations.
In November 1997, the Company issued 3,340,330 shares of Series B Preferred
Stock resulting in net proceeds to the Company of approximately $7.0 million.
The rights, preferences, and privileges of the Series A and Series B
preferred stockholders are as follows:
Dividends. The holders of Series A and Series B Preferred Stock are entitled
to non-cumulative dividends, in preference to any dividend on any other
outstanding shares of capital stock of the Company, when and if declared by the
Board of Directors at the rate of $0.14 and $0.17, per share per annum,
respectively. As of December 31, 1998, no dividends had been declared or paid.
Liquidation. Upon the liquidation of the Company, the holders of Series A
and Series B Preferred Stock are entitled to receive, prior and in preference
to any distribution of any of the assets of the Company to the holders of
shares of any other outstanding shares of capital stock, an amount equal to
$2.74 and $3.36 per share, respectively, plus declared but unpaid dividends.
After the per share amounts above, plus declared and unpaid dividends per share
on Series A and Series B Preferred Stock, have been paid in full, the holders
of Series A and Series B Preferred Stock participate pro rata in the funds
available for distribution, up to a maximum of $5.13 and $6.30 per share,
respectively.
Redemption. At any time after January 1, 2003 and October 1, 2003, the
holders of more than 66.66% of the Series A and Series B Preferred Stock,
respectively, will have the right to cause the Company to redeem such portion
of the issued and outstanding shares of such series as are held by the holders
exercising such right. The redemption amount will be paid in four quarterly
installments to the holders of Series A and Series B Preferred Stock, at $2.74
and $3.36 per share, respectively. The Company will redeem as many shares of
Preferred Stock as possible out of funds legally available, on a pro rata basis
among the holders of Preferred Stock in proportion to the Preferred Stock then
held by them and the respective redemption amounts to which they are entitled.
The difference between the carrying amount of the preferred stock and the
redemption amount is being accreted, using the interest method, so the carrying
amount will equal the redemption amount at the redemption date. During 1997 and
1998, the Company increased the carrying amount of Series A Preferred Stock by
$227,000 and $328,000, respectively; and increased the carrying amount of
Series B Preferred Stock by $47,000 and $587,000, respectively. The Company
estimates accretion for 1999 through 2003 for Series A and B Preferred Stock as
$1.1 million, $1.3 million, $2.0 million, $4.6 million, and $700,000,
respectively. Upon successful completion of a public offering, the Company's
Series A and B Preferred Stock will convert into common stock, which would
eliminate any future accretion.
Conversion. The preferred stock is convertible, at the option of the holder,
at any time after the date of issuance into common stock on a one-for-one
basis. Conversion is automatic upon the closing of a public offering of the
Company's common stock in which the aggregate proceeds equal or exceed $15.0
million and the per share common offering price is not less than $4.00.
Voting. Each holder of shares of preferred stock shall be entitled to the
number of votes equal to the number of whole shares of common stock into which
such shares of preferred stock are then convertible. In addition, each holder
of preferred stock shall have full voting rights and powers similar to those of
the common stockholders.
F-15
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other. There are 6,261,129 shares of redeemable, $0.001 par value, preferred
stock authorized. Additionally, there are 200,000 shares of redeemable $0.001
par value, common shares authorized. The following table summarizes the issued
and outstanding shares and related amounts from December 31, 1995 through
December 31, 1998 and for the three months ended March 31, 1999 (unaudited) for
these classes of stock (in thousands, except share data):
<TABLE>
<CAPTION>
Series A Series B Redeemable
Preferred Stock Preferred Stock Common Stock
---------------- ---------------- --------------
Shares Amount Shares Amount Shares Amount
--------- ------ --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995
and 1996 ................... -- $ -- -- $ -- -- $ --
Issuance of Series A
redeemable convertible
preferred stock, net of
issuance costs of $52....... 1,460,399 1,380 -- -- -- --
Conversion of Common Stock
for Series A redeemable
convertible preferred
stock....................... 1,460,400 1 -- -- -- --
Issuance of Series B
redeemable convertible
preferred stock, net of
issuance costs of $30....... -- -- 3,340,330 6,985 -- --
Accretion of redeemable
convertible preferred
stock....................... -- 227 -- 47 -- --
--------- ------ --------- ------ ------- ------
Balance at December 31,
1997........................ 2,920,799 1,608 3,340,330 7,032 -- --
--------- ------ --------- ------ ------- ------
Redeemable common stock
issued for cash............. -- -- -- -- 200,000 1,976
Accretion of redeemable
convertible preferred
stock....................... -- 328 -- 587 -- --
--------- ------ --------- ------ ------- ------
Balance at December 31,
1998........................ 2,920,799 $1,936 3,340,330 $7,619 200,000 $1,976
--------- ------ --------- ------ ------- ------
Accretion of redeemable
convertible preferred stock
(unaudited)................. -- 94 -- 154 -- --
--------- ------ --------- ------ ------- ------
Balance at March 31, 1999
(unaudited)................. 2,920,799 $2,030 3,340,330 $7,773 200,000 $1,976
========= ====== ========= ====== ======= ======
</TABLE>
Restricted Stock
On October 31, 1996, the Company sold 4,530,104 shares of common stock to
the Chief Executive Officer ("CEO ") for an aggregate price of $1.0 million
pursuant to a restricted stock purchase agreement entered into in connection
with an employment agreement between the Company and the CEO dated September 1,
1996. Approximately 2,491,558 shares are currently subject to a repurchase
right in favor of the Company that expires over time. Of these shares, 453,010
shares subject to such repurchase right shall be immediately released from the
repurchase right in the event that the Company achieves a market capitalization
of $200 million or more, and an additional 679,517 shares subject to such
repurchase right shall be released from the repurchase right in the event that
the Company achieves a market capitalization of $500 million or more.
F-16
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Option Plans
Under the Company's 1993 Flexible Stock Incentive Plan (the "Plan"), the
Company may grant incentive stock options to employees (including officers and
directors who are employees) of the Company, and nonqualified stock options to
employees, officers, directors, independent contractors, and consultants of the
Company. The Plan provides for the sale or bonus of stock to eligible
individuals in connection with the performance of services for the Company. The
Plan also authorizes the grant of stock appreciation rights (SARs). The Board
of Directors administers the Plan. Options generally vest ratably over a five-
year period and expire ten years from the date of grant.
Stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Option Exercise Price
Shares Per Share
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1995.................... 1,320,000 $0.02
Granted........................................... 1,612,000 $0.21
Exercised......................................... 44,000 $0.02
Canceled.......................................... 111,000 $0.05
--------- -----
Outstanding at December 31, 1996.................... 2,777,000 $0.13
Granted........................................... 2,531,000 $0.84
Exercised......................................... 414,000 $0.05
Canceled.......................................... 440,800 $0.23
--------- -----
Outstanding at December 31, 1997.................... 4,453,200 $0.53
Granted........................................... 4,070,000 $3.88
Exercised......................................... 1,260,700 $0.26
Canceled.......................................... 845,200 $1.71
--------- -----
Outstanding at December 31, 1998.................... 6,417,300 $2.36
--------- -----
Granted (unaudited)............................... 1,047,300 $7.47
Exercised (unaudited)............................. 289,800 $1.29
Canceled (unaudited).............................. 109,800 $3.50
--------- -----
Outstanding at March 31, 1999 (unaudited)........... 7,065,000 $3.14
========= =====
</TABLE>
At December 31, 1996, 1997, and 1998, 546,000, 592,200, and 384,200 options
were vested and exercisable, respectively, under the Plan. In October 1998, the
Company's Board of Directors amended the Plan to increase the number of shares
of common stock authorized for issuance under the Plan from eight million to
ten million shares. Included in the table above were options granted to
consultants which were recorded at their estimated fair value. To date the
number of options granted to consultants and the related fair value of such
options has been insignificant.
F-17
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options under the
Plan outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Options Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Life Price at 12/31/98 Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02 to $0.05........ 234,900 6 Years $0.02 80,500 $0.02
$0.22 to $0.89........ 2,278,800 8 Years $0.55 275,200 $0.38
$1.78 to $2.84........ 1,835,100 9 Years $2.53 28,500 $2.47
$4.49........ 2,068,500 10 Years $4.49 -- $ --
--------- --------- ----- ------- -----
$0.02 to $4.49........ 6,417,300 8.9 Years $2.36 384,200 $0.46
========= ========= ===== ======= =====
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") in accounting for its
option plans. Had compensation expense for the Company's stock option plan been
determined based on the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, Accounting
for Stock Based Compensation, the Company's net income (loss) for the years
ended December 31, would have been as follows (in thousands except per share
information):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -----
<S> <C> <C> <C>
Net income (loss) applicable to common stock--as
reported........................................... $ (99) $ (874) $ 808
====== ====== =====
Pro forma net income (loss) applicable to common
stock.............................................. $ (101) $ (922) $ 435
====== ====== =====
Net income (loss) per share as reported:
Basic............................................. $(0.00) $(0.04) $0.04
====== ====== =====
Diluted........................................... $(0.00) $(0.04) $0.03
====== ====== =====
Pro forma net income (loss) per share:
Basic............................................. $(0.00) $(0.04) $0.02
====== ====== =====
Diluted........................................... $(0.00) $(0.04) $0.02
====== ====== =====
</TABLE>
The effect of SFAS 123 on pro forma net loss and net loss per share
disclosed for 1996, 1997, and 1998 may not be representative of the effects on
pro forma results in future years.
The weighted-average fair value of the options granted under the Plan in
1996, 1997, and 1998 was $0.08, $0.38, and $1.79, respectively. The fair value
for these options was estimated at the date of grant using the minimum value
method with the following weighted-average assumptions for 1996, 1997, and
1998: risk-free interest rate of 6.2% in 1996, 6.33% in 1997, and 5.35% in
1998; a dividend yield of 0%, and a weighted-average expected life of 7 years.
During 1997 and 1998, the Company recorded deferred compensation of $251,000
and $2.2 million, respectively, relating to stock options which were granted at
a price below the estimated fair market value of the underlying common stock,
pursuant to APB 25. The Company recognized compensation expense of $34,000 in
1997 and $153,000 in 1998.
F-18
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the three months ended March 31, 1999, the Company granted 1,047,300
(unaudited) stock options at a weighted average exercise price of $7.47
(unaudited). During the same period, the Company recorded compensation expense
of $193,000 (unaudited) related to options granted during the three months
ended March 31, 1999, which amount is included in the amortization of deferred
compensation of $305,000 in the Company's March 31, 1999 (unaudited)
Consolidated Statements of Operations.
9. Retirement Plan
The Company established a 401(k) retirement savings plan for employees in
January 1996. All employees age 21 and over are eligible to participate. Each
participant may elect to have amounts deducted from his or her compensation and
contributed to the plan. The Company matches 20% of the first 6% of the
employees contributions, up to a maximum of $2,000 per employee per year. Total
Company contributions for 1997 and 1998 were approximately $57,000 and
$157,000, respectively.
10. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands except per share data):
<TABLE>
<CAPTION>
Three Months
Ended March
Year ended December 31, 31,
------------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss).............. $ (99) $ (600) $ 1,723 $ (401) $ 373
Accretion of Series A and B
preferred stock............... -- (274) (915) (218) (248)
------- ------- ------- ------ ------
Numerator for basic earnings
(loss) per share-income (loss)
available to common
stockholders.................. $ (99) $ (874) $ 808 $ (619) $ 125
======= ======= ======= ====== ======
Numerator for diluted earnings
(loss) per share-income (loss)
available to common
stockholders after assumed
dilutive conversions.......... $ (99) $ (874) $ 808 $ (619) $ 125
======= ======= ======= ====== ======
Denominator:
Denominator for basic earnings
(loss) per share-weighted-
average shares................ 20,285 21,542 21,551 21,031 22,765
======= ======= ======= ====== ======
Employee stock and options..... -- -- 5,112 -- 5,596
------- ------- ------- ------ ------
Denominator for diluted
earnings (loss) per share-
adjusted weighted-average
shares and assumed
conversions................... 20,285 21,542 26,663 21,031 28,361
======= ======= ======= ====== ======
Earnings (loss) per common share:
Basic earnings (loss) per
common share.................. $ (0.00) $ (0.04) $ 0.04 $(0.03) $ 0.01
======= ======= ======= ====== ======
Diluted earning (loss) per
common share.................. $ (0.00) $ (0.04) $ 0.03 $(0.03) $ 0.00
======= ======= ======= ====== ======
</TABLE>
F-19
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The computation of diluted earnings per common share during 1997, 1998, and
for the three months ended March 31, 1998 (unaudited) and 1999 (unaudited)
excludes the assumed conversion of 6,261,129 shares of Series A and B
convertible preferred stock because the impact of the conversion, including the
assumed elimination of the accretion of such preferred stock, would be anti-
dilutive. No Series A or B Preferred Stock were outstanding in 1996.
Employee stock and options of 6,174,578, 7,397,768, and 7,441,768
outstanding during the periods ended December 31, 1996, 1997, and for the three
months ended March 31, 1998 (unaudited) respectively, that could potentially
dilute basic earnings per share in the future were not included in the
computation of diluted earnings per share because to do so would have been
anti-dilutive for the period.
11. Operating Segments
The Company has adopted the provisions of SFAS No. 131, Disclosure About
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on
the way that management organizes the operating segments within the Company for
making operating decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's CEO. The CEO reviews financial information presented on a
consolidated basis accompanied by disaggregated information about revenues by
Vertical Business Group for purposes of making operating decisions and
assessing financial performance. Revenues from operations outside of North
America were less than 1% of revenues for 1998 and zero in all prior years. The
consolidated financial information reviewed by the CEO is identical to the
information presented in the accompanying consolidated statement of operations.
Therefore, the Company operates in a single operating segment: applications
products and services.
F-20
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue information regarding operations for different products and services
is as follows (in thousands):
<TABLE>
<CAPTION>
Banking & Investment Tele- Utilities &
Credit Insurance Management Healthcare Communications Energy Other Total
--------- --------- ---------- ---------- -------------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999
(unaudited)
Licenses.............. $200 $ 4,662 $ 683 $ 27 $ 8 $ -- $ 76 $ 5,656
Services.............. 548 7,405 6,329 593 66 44 386 10,371
---- ------- ------ ------ ------ ------ ------ -------
$748 $12,067 $2,012 $ 620 $ 74 $ 44 $ 462 $16,027
==== ======= ====== ====== ====== ====== ====== =======
March 31, 1998
(unaudited)
Licenses.............. $ -- $ 275 $ 545 $ -- $ 214 $ -- $ 225 $ 1,259
Services.............. -- 1,861 191 -- 656 502 730 3,940
---- ------- ------ ------ ------ ------ ------ -------
$ -- $ 2,136 $ 736 $ -- $ 870 $ 502 $ 955 $ 5,199
==== ======= ====== ====== ====== ====== ====== =======
1998
Revenues:
Licenses.............. $ -- $ 9,524 $2,318 $ 351 $ 456 $ -- $ 733 $13,382
Services.............. -- 16,427 2,902 751 2,362 1,264 3,079 26,785
---- ------- ------ ------ ------ ------ ------ -------
$ -- $25,951 $5,220 $1,102 $2,818 $1,264 $3,812 $40,167
==== ======= ====== ====== ====== ====== ====== =======
1997
Revenues:
Licenses.............. $ -- $ 1,698 $ 561 $ -- $ 229 $2,750 $ 6 $ 5,244
Services.............. -- 2,790 1,742 -- 496 3,348 503 8,879
---- ------- ------ ------ ------ ------ ------ -------
$ -- $ 4,488 $2,303 $ -- $ 725 $6,098 $ 509 $14,123
==== ======= ====== ====== ====== ====== ====== =======
1996
Revenues:
Licenses.............. $ -- $ -- $ 271 $ -- $ -- $ -- $ -- $ 271
Services.............. -- -- 2,657 -- -- -- 87 2,744
---- ------- ------ ------ ------ ------ ------ -------
$ -- $ -- $2,928 $ -- $ -- $ -- $ 87 $ 3,015
==== ======= ====== ====== ====== ====== ====== =======
</TABLE>
F-21
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Concentration of Credit Risk
The Company's customers are generally large companies in the insurance,
investment management, utilities and energy, healthcare, and telecommunications
industries. The Company does not require collateral from its customers. The
following table provides customer concentration for the three years ended
December 31.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. -- -- 20%
Customer B.................................................. -- 31% 15%
Customer C.................................................. -- -- 13%
Customer D.................................................. -- -- 10%
Customer E.................................................. -- 39% --
Customer F.................................................. 87% 11% --
Customer G.................................................. 11% -- --
</TABLE>
13. Subsequent Event
On January 18, 1999, the Company entered into an unsecured Revolving Line of
Credit providing for borrowings of up to $5.0 million. Borrowings under the
line of credit, which expires on January 17, 2000, bear interest at the bank's
prime rate or LIBOR plus 250 basis points. The line of credit includes
covenants relating to the maintenance of certain financial ratios and limits
the payment of dividends.
On March 2, 1999 the Board of Directors approved an employee stock purchase
plan ("ESPP") and the 1999 stock option plan. Both plans were approved by the
stockholders on March 29, 1999. The Company reserved 1,000,000 shares of common
stock for future purchases by eligible employees under the ESPP. The Company
reserved 6,500,000 shares of common stock for issuance under the 1999 stock
option plan.
On March 2, 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public. If the offering
is consummated, all of the currently outstanding redeemable preferred and
redeemable common stock will automatically convert into 6,461,129 shares of
common stock.
F-22
<PAGE>
UNDERWRITING
TenFold, the selling stockholders and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each underwriter has
agreed to purchase the number of shares indicated in the following table.
Goldman, Sachs & Co., BT Alex. Brown Incorporated and U.S. Bancorp Piper
Jaffray Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
BT Alex. Brown Incorporated.................................
U.S. Bancorp Piper Jaffray Inc. ............................
----
Total.....................................................
====
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from TenFold and up to an additional shares from the selling
stockholders to cover such sales. They may exercise that option for 30 days. If
any shares are purchased upon exercise of this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by TenFold and the selling
stockholders. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by TenFold No Exercise Full Exercise
--------------- ----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
<CAPTION>
Paid by the
Selling Stockholders No Exercise Full Exercise
-------------------- ----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.
TenFold and the selling stockholders have agreed with the underwriters not
to dispose of or hedge any of their common stock or securities convertible into
or exchangeable for shares of common stock during the period from the date of
this prospectus continuing through the date 180 days after the date of this
prospectus, except with the prior written consent of Goldman, Sachs & Co. This
agreement does not apply to any existing employees benefit plans. See "Shares
Eligible for Future Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among TenFold and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be TenFold's historical performance, estimates of the business
potential and earnings prospects
U-1
<PAGE>
of TenFold, an assessment of TenFold's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
At TenFold's request, the underwriters have reserved up to ten percent of
the shares of common stock for sale to directors, officers, employees, and
friends of TenFold in a directed share program. These shares will be sold at
the initial public offering price. Of these shares, 250,000 shares are being
reserved for Westfield Companies and 70,000 shares are being reserved for Utica
National Insurance Group. Both of these companies are customers of TenFold. The
number of shares available to the general public in this offering will be
reduced to the extent that the reserved shares are purchased. Any reserved
shares not purchased will be offered to the general public on the same terms as
the other shares.
Application has been made for quotation of the common stock on The Nasdaq
Stock Market under the symbol "TENF".
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on The Nasdaq
Stock Market, in the over-the-counter market, or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
TenFold and the selling stockholders estimate that their shares of the total
expenses of this offering, excluding underwriting discounts and commissions,
will be approximately $ and $ respectively. TenFold shall pay all such
expenses.
TenFold and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
U-2
<PAGE>
Inside Back Cover of Prospectus:
- --------------------------------
Comparison table of Custom-built Application, Software Package, and TenFold
Application with the following key benefits:
Custom-built application: Customized solution, Highly flexible
Software package: Fast time to market, High quality
TenFold Application: Fast time to market, High quality, Customized solution, and
Highly flexible
Other text similar to the following:
The best of both the "buy" and "build" worlds: TenFold products provide the
rapid deployment that customers expect from packaged applications, while
offering the innovative, tailored-to-their-business features that they need from
custom-built software.
Collage of images of people and scenes related to vertical industries such as
utilities, banking, telecommunications, and healthcare.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 30
Management............................................................... 46
Certain Transactions..................................................... 59
Principal and Selling Stockholders....................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Where You Can Find More Information...................................... 68
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
TenFold Corporation
Common Stock
------------------------
[TENFOLD LOGO]
------------------------
Goldman, Sachs & Co.
BT Alex. Brown
U.S. Bancorp Piper Jaffray
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by TenFold in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and The Nasdaq Stock Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................. $ 22,935
NASD filing fee.................................................. $ 8,750
Nasdaq Stock Market listing fee.................................. $ 95,000
Printing and engraving expenses.................................. $ 128,000
Legal fees and expenses.......................................... $ 350,000
Accounting fees and expenses..................................... $ 375,000
Blue Sky qualification fees and expenses......................... $ 5,000
Transfer Agent and Registrar fees................................ $ 5,000
Director and Officer insurance expenses.......................... $ 350,000
Miscellaneous fees and expenses.................................. $ 160,315
Total.......................................................... $1,500,000
</TABLE>
- --------
Item 14. Indemnification of Directors and Officers
TenFold's certificate of incorporation (Exhibit 3.2 hereto) limits the
liability of directors to the fullest extent permitted by Delaware General
Corporation Law. Delaware law provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of directors for monetary damages for breach of their fiduciary
duties as directors, except for liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
TenFold's bylaws (Exhibit 3.3 hereto) provide that TenFold shall indemnify
its directors and officers and may indemnify its employees and agents to the
fullest extent permitted by law. TenFold believes that indemnification under
its bylaws covers at least negligence and gross negligence on the part of
indemnified parties.
TenFold has entered into indemnification agreements (Exhibit 10.9 hereto)
with its directors and Robert P. Hughes, Senior Vice President and Chief
Financial Officer. These agreements, among other things, indemnify directors
and the executive officer for certain expenses, including attorneys' fees,
judgments, fines and settlement amounts incurred by such persons in any action
or proceeding, including any action by or in the right of TenFold, arising out
of such person's services as a director or officer of TenFold, any subsidiary
of TenFold or any other company or enterprise to which the person provides
services at the request of TenFold. TenFold believes that these provisions and
agreements are necessary to attract and retain qualified directors and
officers.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of TenFold where indemnification will be
required or permitted. TenFold is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
The Underwriting Agreement (Exhibit 1.1) also provides for cross-
indemnification among TenFold, the selling stockholder and the underwriters
with respect to certain matters, including matters arising under the Securities
Act.
Item 15. Recent Sales of Unregistered Securities
Since February 28, 1996, TenFold has sold and issued the following
securities:
1. On December 30, 1998, TenFold issued 200,000 shares of common stock to
Provident Companies at a price of $5.00 per share.
2. On December 30, 1998, TenFold issued 200,000 shares of common stock to
Unitrin Services Company at a price of $5.00 per share.
3. On February 20, 1998, TenFold sold 10,000 shares of common stock to
Kay R. Whitmore, a member of the Board of Directors of TenFold, pursuant to
a common stock purchase agreement in connection with his election to
TenFold's board of directors.
4. On November 24, 1997, TenFold sold 3,340,330 shares of TenFold's
Series B preferred stock at a price of $2.10 per share to Winter Harbor,
LLC.
5. On March 4, 1997, TenFold sold The Indus Group, Inc. (the predecessor
to Indus International, Inc.) 1,460,399 shares of Series A preferred stock
and entered into a software license agreement with The Indus Group. On the
same date, Jeffrey L. Walker, TenFold's Chairman, Executive Vice President
and Chief Technology Officer, and the Walker Children's Trust each sold The
Indus Group 730,200 shares of common stock. In connection with these
transactions, TenFold granted The Indus Group an option to purchase one
share of Series A preferred stock in exchange for each share of common
stock that The Indus Group purchased from either Mr. Walker or the Walker
Children's Trust. The Indus Group paid an aggregate of $2,497,284 for the
shares of common stock it purchased from Mr. Walker and the Walker
Children's Trust, and paid TenFold an aggregate of $5,500,000 for the
shares of Series A preferred stock it purchased from TenFold, the option to
exchange the shares of common stock for shares of Series A preferred stock,
and for certain software license rights it acquired. On November 17, 1997,
The Indus Group exercised its option and exchanged the common stock it had
purchased from Mr. Walker and the Walker Children's Trust for shares of
Series A preferred stock. Each share of Series A preferred stock is
convertible into one share of common stock and will automatically convert
into common stock upon the closing of this offering.
6. On October 31, 1996, TenFold sold 4,530,104 shares of common stock to
Gary D. Kennedy, TenFold's President, Chief Executive Officer and Director,
under a restricted stock purchase agreement in connection with his
employment agreement.
7. Since inception TenFold has issued 12,584,800 options to purchase
common stock of TenFold to a number of employees and directors of and
consultants to TenFold.
8. Since inception, TenFold has issued 2,205,800 shares of common stock
upon exercise of options.
The issuances of the securities described in items 1-6 above were deemed to
be exempt from registration under the Securities Act in reliance on Section
4(2) or Regulation D, or other applicable exemption of such Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of such securities, and appropriate legends were affixed
to the share certificates issued in such transactions.
II-2
<PAGE>
All recipients had adequate access, through their relationships with TenFold,
to information about TenFold. In addition, the issuances described in Items 7
and 8 were deemed exempt from registration under the Securities Act in reliance
upon Rule 701 promulgated under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Third Amended and Restated Certificate of Incorporation of TenFold
(proposed).
3.2** Fourth Amended and Restated Certificate of Incorporation of TenFold
(proposed).
3.3** Bylaws of TenFold, as currently in effect.
4.1** Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Specimen Stock Certificate.
4.3** Amended and Restated Investors' Rights Agreement dated November 24,
1997, as amended, by and among TenFold, Gary D. Kennedy, Jeffrey L.
Walker, the Walker Children's Trust and the Investors (as defined
therein).
4.4** Amended and Restated Co-Sale Agreement dated November 24, 1997 by and
among Gary D. Kennedy, the Walker Children's Trust, Jeffrey L. Walker
and the Investors (as defined therein).
5.1* Opinion of Venture Law Group regarding the legality of the common
stock being registered.
10.1+ Software License Agreement dated March 4, 1997 between TenFold and the
Indus Group, Inc.
10.2** Series B preferred stock purchase agreement dated November 24, 1997
between TenFold and Winter Harbor L.L.C.
10.3** Amended and Restated Voting Agreement dated November 24, 1997 among
TenFold, Jeffrey L. Walker, the Walker Children's Trust, Gary D.
Kennedy, Indus International, Inc. and Winter Harbor, LLC.
10.4** First Amended and Restated Voting Agreement dated March 4, 1997, among
TenFold, Gary D. Kennedy and Jeffrey L. Walker.
10.5 Office Lease at 180 W. Election Road Draper, UT dated November 12,
1996 between TenFold and Draper Park North.
10.6** Employment Agreement dated September 1, 1996 between TenFold (formerly
known as Keytex Corporation) and Gary D. Kennedy.
10.7** Restricted Stock Purchase Agreement dated September 1, 1996 between
TenFold (formerly known as Keytex Corporation) and Gary D. Kennedy.
10.8** Letter Agreement dated March 3, 1999 between TenFold and Bernard C.
Mazon.
10.9** Form of Indemnification Agreement between TenFold and an executive
officer and its directors.
10.10 1993 Flexible Stock Incentive Plan, as amended.
10.11** 1999 Stock Plan.
10.12** 1999 Employee Stock Purchase Plan.
23.1 Consent of KPMG LLP.
23.2* Consent of Venture Law Group. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions of this agreement.
II-3
<PAGE>
(b) Financial Statement Schedules
.Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, 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 Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant under Rule 424(b)(1) 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.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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 of such
securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Draper,
State of Utah, on April 20, 1999.
TenFold Corporation
/s/ Robert P. Hughes
By: _________________________________
Robert P. Hughes
Senior Vice President and Chief
Financial Officer
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
--------- ----- ----
<S> <C> <C>
* President, Chief Executive April 20, 1999
______________________________________ Officer and Director
(Gary D. Kennedy) (Principal Executive
Officer)
/s/ Robert P. Hughes Senior Vice President and April 20, 1999
______________________________________ Chief Financial Officer
(Robert P. Hughes) (Principal Financial and
Accounting Officer)
* Chairman, Executive Vice April 20, 1999
______________________________________ President and Chief
(Jeffrey L. Walker) Technology Officer
* Director April 20, 1999
______________________________________
(Robert W. Felton)
* Director April 20, 1999
______________________________________
(Ralph W. Hardy, Jr.)
* Director April 20, 1999
______________________________________
(Kay R. Whitmore)
</TABLE>
/s/ Robert P. Hughes
* By: ____________________
Robert P. Hughes
Attorney-In-Fact
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that H. Raymond Bingham, whose signature
appears below, constitutes and appoints Gary D. Kennedy and Robert P. Hughes,
and each one of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this registration statement (including post-effective amendments), and any
related registration statement filed under Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the undersigned in the capacity and
on the date indicated:
<TABLE>
<S> <C> <C>
/s/ H. Raymond Bingham Director April 20, 1999
______________________________________
(H. Raymond Bingham)
</TABLE>
II-6
<PAGE>
Schedule II
TENFOLD CORPORATION
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1997, and 1998
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Receivables Balance
beginning charged to charged to at end of
Allowance for doubtful receivables of year expense allowance year
---------------------------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1996....... $ -- $ -- $ -- $ --
===== ===== ===== =====
Year ended December 31, 1997....... $ -- $ -- $ -- $ --
===== ===== ===== =====
Year ended December 31, 1998....... $ -- $ 500 $ -- $ 500
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance
Deferred tax asset valuation beginning at end of
allowance of year Additions Reductions year
---------------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1996........ $ -- $ 471 $ -- $ 471
===== ===== ====== =====
Year ended December 31, 1997........ $ 471 $ 547 $ (45) $ 973
===== ===== ====== =====
Year ended December 31, 1998........ $ 973 $ 238 $ (537) $ 674
===== ===== ====== =====
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1** Third Amended and Restated Certificate of Incorporation of
TenFold (proposed).
3.2** Fourth Amended and Restated Certificate of Incorporation of
TenFold (proposed).
3.3** Bylaws of TenFold, as currently in effect.
4.1** Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Specimen Stock Certificate.
4.3** Amended and Restated Investors' Rights Agreement dated November
24, 1997, as amended, by and among TenFold, Gary D. Kennedy,
Jeffrey L. Walker, the Walker Children's Trust and the
Investors (as defined therein).
4.4** Amended and Restated Co-Sale Agreement dated November 24, 1997
by and among Gary D. Kennedy, the Walker Children's Trust,
Jeffrey L. Walker and the Investors (as defined therein).
5.1* Opinion of Venture Law Group regarding the legality of the
common stock being registered.
10.1+ Software License Agreement dated March 4, 1997 between TenFold
and the Indus Group, Inc.
10.2** Series B preferred stock purchase agreement dated November 24,
1997 between TenFold and Winter Harbor L.L.C.
10.3** Amended and Restated Voting Agreement dated November 24, 1997
among TenFold, Jeffrey L. Walker, the Walker Children's Trust,
Gary D. Kennedy, Indus International, Inc. and Winter Harbor,
LLC.
10.4** First Amended and Restated Voting Agreement dated March 4,
1997, among TenFold, Gary D. Kennedy and Jeffrey L. Walker.
10.5 Office Lease at 180 W. Election Road Draper, UT dated November
12, 1996 between TenFold and Draper Park North.
10.6** Employment Agreement dated September 1, 1996 between TenFold
(formerly known as Keytex Corporation) and Gary D. Kennedy.
10.7** Restricted Stock Purchase Agreement dated September 1, 1996
between TenFold (formerly known as Keytex Corporation) and Gary
D. Kennedy.
10.8** Letter Agreement dated March 3, 1999 between TenFold and
Bernard C. Mazon.
10.9** Form of Indemnification Agreement between TenFold and an
executive officer and its directors.
10.10 1993 Flexible Stock Incentive Plan, as amended.
10.11** 1999 Stock Plan.
10.12** 1999 Employee Stock Purchase Plan.
23.1 Consent of KPMG LLP.
23.2* Consent of Venture Law Group. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions of this agreement.
<PAGE>
EXHIBIT 10.1
Software License Agreement
This Software License Agreement ("Agreement") is executed by and between TenFold
Corporation, a Delaware Corporation ("TenFold"), with its principal office at
475 Sansome Street, Suite 860, San Francisco, CA 94111 and the Indus Group,
Inc., a California corporation ("INDUS"), with its principal office at 60 Spear
Street, San Francisco, CA 94105. The terms of this Agreement shall apply to
each Program license granted and to all services provided by TenFold under this
Agreement.
I. DEFINITIONS
1.1 "Program" shall mean the computer software owned or distributed by
TenFold, including any updates and enhancements, for which INDUS is
granted a license pursuant to this Agreement, and the user guides and
manuals for use of the software ("Documentation"). Each Program is
described in an appropriate Exhibit to this Agreement.
1.2 "Effective Date" shall mean the date on which both parties agree that
that this Agreement should take effect. The Effective Date approximates
the date that both parties execute this Agreement or the date that
TenFold begins providing services.
1.3 "Services" shall mean staff work done by TenFold relating to the
implementation of the Programs or to post-implementation analysis,
research, error correction, applications design and development, support,
training, or any other work done on behalf of INDUS. Services for which
INDUS has retained TenFold are defined in an appropriate Exhibit to this
Agreement.
II. PROGRAM LICENSE
2.1 Rights Granted
A. TenFold grants to INDUS a license to use the object code version of the
Programs INDUS obtains under this Agreement, as described in Exhibit A to
this Agreement.
B. INDUS agrees not to cause or permit the reverse engineering, disassembly,
or decompilation of the Programs.
C. TenFold shall retain all title, copyright, and other proprietary rights
in the Programs. INDUS does not acquire any rights, express or implied,
in the Programs, other than those specified in this Agreement.
2.2 Transfer and Assignment. INDUS may not assign this Agreement to a third
party (i.e., a legal entity separate from INDUS).
III. TERM AND TERMINATION
3.1 Term. Each Program license granted under this Agreement shall remain in
effect for the duration of the term described in Exhibit A to this
Agreement, unless the license or this Agreement is terminated as provided
in Section 3.2 or 3.3.
3.2 Termination by INDUS. INDUS may terminate this Agreement or any license
if TenFold has materially breached its obligations hereunder, and such
breach has remained uncured for 30 days after written notice. However,
termination shall not relieve INDUS's obligations specified in Section
3.4.
3.3 Termination by TenFold. TenFold may terminate this Agreement or any
license upon written notice if INDUS materially breaches this Agreement
and fails to correct the breach within 30 days following written notice
specifying the breach.
3.4 Effect of Termination. Termination of this Agreement or any license shall
not limit either party from pursuing other remedies available to it,
including injunctive relief. The parties' rights and obligations under
Sections 21.B, 21.C, 22, and Articles III, IV, and V shall survive
termination of this Agreement.
3.5 Handling of Programs Upon Termination. If a license granted under this
Agreement expires or otherwise terminates, INDUS shall (a) cease using
the applicable Programs, and (b) certify to TenFold within one month
after expiration or termination that INDUS has destroyed or has returned
to TenFold the Programs and all copies. This requirement applies to
copies in all forms, partial and complete, in all types of media and
computer memory, and whether or not modified or merged into other
materials.
IV. WARRANTY AND INDEMNITY
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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<PAGE>
4.1 TenFold Warranty. TenFold warrants that it owns all right, title, and
interest to, or has the full right to license any Program it subsequently
licenses to INDUS and that (i) any such Program will materially conform
to Documentation that is delivered with the Program, (ii) the Program has
been developed in a workmanlike manner, and (iii) the Program does not
infringe upon the copyright, patent, trade secret, and/or property rights
of any third party nor does it constitute a misappropriation of any
property rights.
4.2 Infringement Indemnity. TenFold will defend and indemnify INDUS against a
claim that the Programs infringe a third party's copyright, patent, or
other proprietary right provided that (a) INDUS notifies TenFold in
writing within 30 days of its receipt of notice of the claim; (b) TenFold
has sole control of the defense and all related settlement negotiations
provided that any such settlement shall not be adverse to the interests
of INDUS; and (c) INDUS provides TenFold with reasonable assistance,
information and authority necessary to perform TenFold's obligations
under this Section. TenFold shall have no liability for any claim of
infringement based on use of a superseded or altered release of Programs
if the infringement would have been avoided by the use of a current
unaltered release of the Programs which TenFold provides to INDUS at
least 90 days prior to the date of any alleged infringement.
In the event the Programs are held or are believed by TenFold to
infringe, or if INDUS is enjoined or otherwise prohibited from using the
Programs, TenFold shall have the option, at its expense, to (a) modify
the Programs to be noninfringing; (b) obtain for INDUS a license to
continue using the Programs; or if (a) and (b) are impracticable then (c)
terminate the license for the infringing Programs.
V. GENERAL TERMS
5.1 Nondisclosure. By virtue of this Agreement, the parties may have access
to information that is confidential to one another ("Confidential
Information"). Confidential Information includes, but is not limited to,
the Programs, data, trade secrets, business processes, organization
charts, customer information, the terms and pricing under this Agreement,
and all information clearly identified as confidential.
A party's Confidential Information shall not include information that (a)
is or becomes a part of the public domain through no act or omission of
the other party; (b) was in the other party's lawful possession prior to
the disclosure and had not been obtained by the other party either
directly or indirectly from the disclosing party; (c) is lawfully
disclosed to the other party by a third party without restriction on
disclosure or (d) is independently developed by the other party. INDUS
shall not disclose the results of any benchmark tests or any other
performance or usability information about the Programs to any third
party without TenFold's prior written approval.
The parties agree to hold each other's Confidential Information in
confidence. The parties agree, unless required by a lawful court order,
subpoena or similar legal request, not to make each other's Confidential
Information available in any form to any third party or to use each
other's Confidential Information for any purposes other than the
implementation of this Agreement. Each party agrees to take all
reasonable steps to ensure that Confidential Information is not disclosed
or distributed by its employees or agents in violation of the terms of
the Agreement.
Each party acknowledges that failure to comply with this Section 5.1 may
irreparably harm the business of the other party, and that a breach of
one party's obligations under this Section 5.1 shall entitle the other
party to seek immediate injunctive relief, in addition to any other
remedies that it may have.
5.2 Governing Law. This Agreement, and all matters arising out of or relating
to this Agreement, shall be governed by the laws of the State of
California, and shall be deemed to be executed in California.
5.3 Jurisdiction. Any legal action or proceeding relating to this Agreement
shall be instituted in a state or federal court in the Northern District
of California. TenFold and INDUS agree to submit to the jurisdiction of,
and agree that venue is proper in, these courts in any such legal action
or proceeding.
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
5.4 Notice. All notices, including notices of address change, required to be
sent hereunder shall be in writing and shall be deemed to have been given
when mailed by first class mail to the addressees in the first paragraph
of this Agreement.
5.5 Limitation of Liability. Except in the event of any breach by INDUS of
the license terms in Section II above, or any breach of its obligations
in Section 5.1 above, in no event shall either party be liable for any
indirect, incidental, special or consequential damages, or damages for
loss of profits, revenue, data or use, incurred by either party or any
third party, whether in an action in contract or tort, even if the other
party has been advised of the possibility of such damages.
5.6 Severability. In the event any provision of this Agreement is held to be
invalid or unenforceable, the remaining provisions of this Agreement will
remain in full force.
5.7 Waiver. The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent
default or breach. Except for actions for breach of TenFold's proprietary
rights in the Programs, no action, regardless of form, arising out of
this Agreement may be brought by either party more than one year after
the cause of action has accrued.
5.8 Export Administration. INDUS agrees to comply fully with all relevant
export laws and regulations of the United States ("Export Laws") to
assure that neither the Programs nor any direct product thereof are (1)
exported, directly or indirectly, in violation of Export Laws or (2) are
intended to be used for any purposes prohibited by the Export Laws,
including, without limitation, nuclear, chemical or biological weapons
proliferation.
5.9 Relationship Between the Parties. TenFold is an independent software
company; nothing in this Agreement shall be construed to create a
partnership, joint venture or agency relationship between the parties.
5.10 Entire Agreement. This Agreement and the Exhibits constitute the complete
agreement between the parties and supersedes all prior or contemporaneous
agreements or representations, written or oral, concerning the subject
matter of this Agreement. This Agreement may not be modified or amended
except in a writing signed by a duly authorized representative of each
party; no other act, document, usage or custom shall be deemed to amend
or modify this Agreement.
The Effective Date of this Agreement shall be as of March 4, 1997.
<TABLE>
<CAPTION>
Executed by INDUS Executed by TenFold:
Authorized Signature: /s/ Robert W. Felton Authorized Signature: /s/ Gary Kennedy
<S> <C> <C> <C>
Name: Robert W. Felton Name: Gary Kennedy
Title: President & CEO Title: President & CEO
Date: March 3, 1997 Date: March 3, 1997
</TABLE>
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
Exhibit A
(to the Software License Agreement)
TenFold Architecture License
I. Description of Programs.
The TenFold Architecture ("Programs") is an integrated applications
software development technology for building sophisticated, mission-
critical, distributed software applications.
II. License Rights Granted.
II.A. TenFold grants to INDUS a nonexclusive, nontransferable license to use the
object code version of the Programs as follows:
i. to use the Programs to develop and maintain applications on an
unlimited number of computers within INDUS;
iii. to use the Documentation provided with the Programs in support of
INDUS's authorized use of the Programs;;
iv. to copy the Programs for archival or backup purposes; no other copies
shall be made without TenFold's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the
Programs are subject to the terms of this Agreement.
II.B INDUS may not sell, license, sublicense, or otherwise provide the Programs
or derivative Programs to any third party for relicensing, resale, or
other form of distribution;
II.C INDUS shall not copy or use the Programs (including the Documentation)
except as otherwise specified in this Agreement.
II.D TenFold shall retain all title, copyright, and other proprietary rights in
the Programs, and any enhancements made to the Programs by either party.
INDUS does not acquire any rights, express or implied, in the Programs,
other than those specified in the Agreement and related Exhibits. Subject
to TenFold's ownership of the Programs, INDUS retains all title,
copyright, and other proprietary rights in the applications it
independently develops with the Programs. INDUS acquires no rights to
distribute the Programs with these applications.
III. Enhancements to the Programs.
TenFold agrees to provide INDUS with all new releases of the Programs it
completes within 1997. TenFold has discussed it's development plans for
enhancing the TenFold Architecture with INDUS. TenFold agrees to use its
best efforts to complete these enhancements in 1997, which may include:
. Providing the TenFold Architecture in a Windows/NT Operating System
environment, including support for the desktop components of Active X
. Release configuration control
. An internet strategy
. An ability to couple the TenFold Architecture to the INDUS PORTAL/95
front end (e.g., through an API), providing a migration path for
existing INDUS clients
. Porting the TenFold architecture to OS/390
. Support for DB/2
. Providing the TenFold Architecture as a reporting tool for PASSPORT
objects
. Support for the MS SQLServer Database
IV. Support Services.
TenFold agrees to provide during 1997 telephone assistance with the
TenFold Architecture from TenFold technical staff during normal business
hours. During non-business hours, TenFold may provide access to technical
staff through a paging, on-call, or other similar method.
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
INDUS agrees to purchase standard annual TenFold Architecture Support
Services for an annual fee of [XXXXX] to be invoiced and paid monthly in
arrears, commencing when requested by INDUS but in any event no later than
June 1, 1998.
INDUS may also obtain additional services from TenFold, at INDUS's option,
as described in Exhibit B.
V. Term.
This license grant shall remain in effect perpetually unless this license
or the Agreement is terminated as provided in Section 3.2 or 3.3 of the
Agreement.
VI. Competition.
INDUS develops and licenses applications in three functional areas: Work
Management, Materials and Procurement, and Safety and Compliance, for
process industries. TenFold agrees not to develop or license process-
industry-specific applications with similar functionality to INDUS's
current applications (as of the Effective Date of this Exhibit), and using
the TenFold Architecture, to customers in process industries. Process
industries shall mean electric utility, petrochemical, chemical refining,
steel and forest products companies whose primary business processes
involve converting raw materials into commodity materials. TenFold agrees
that if it licenses the Programs to companies in process industries, it
will license the Programs on an application by application basis (not a
site license for the TenFold Architecture), unless INDUS approves
otherwise. TenFold agrees not to license the TenFold Architecture to the
following seven INDUS competitors:
. SAP AG
. TSW International
. PSDI - Project Software Development, Inc.
. Marcom, Inc.
. Revere, Inc.
. Severn Trent
. Synercom, a division of Health Care Computer Corporation
The term of this section VI. shall be until the earlier to occur of (a)
five years after the Effective Date of this Exhibit A, or (b) upon INDUS's
ownership of TenFold decreasing by 50% or more than that held by INDUS
immediately after the Effective Date of the Agreement unless extended at
the mutual agreement of the parties.
VII. Source Code Escrow.
Subject to a mutually acceptable agreement ("Escrow Agreement") among,
TenFold, INDUS, and a mutually agreed escrow agent. TenFold will deposit
into escrow (a) a copy of the Program source code no later than 60 days
from execution of the Escrow Agreement; (b) source code for major new
releases of the Programs provided under this Agreement or standard support
agreements, within 60 days of delivery to INDUS. The escrowed material
shall be maintained under an agreement which provides that if TenFold
enters into proceedings under Chapter 7 or 11 of the U.S. Bankruptcy Code
which are not dismissed within 60 days after their commencement, then
INDUS will be able to obtain the relevant escrowed material in accordance
with mutually agreed upon escrow release procedures. Any escrowed material
furnished under this provision shall be considered licensed subject to the
terms of this Agreement and related Exhibits and shall be used solely to
maintain the Programs. The parties shall evenly share the cost of the
escrow agent's fees for the arrangement.
VIII. Business Relationships.
TenFold and INDUS envision working together to develop new customer
relationship in the process industries and other industries, and for both
existing INDUS and TenFold applications as well as new
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
applications. The parties agree to use reasonable efforts to develop a
mutually acceptable agreement defining the specific details of this
relationship (e.g., sales, marketing, licensing, ownership, service,
training and support arrangements).
The Effective Date of this Agreement shall be as of March 4, 1997.
<TABLE>
<CAPTION>
Executed by INDUS Executed by TenFold:
Authorized Signature: /s/ Robert W. Felton Authorized Signature: /s/ Gary Kennedy
<S> <C> <C> <C>
Name: Robert W. Felton Name: Gary Kennedy
Title: President & CEO Title: President & CEO
Date: March 3, 1997 Date: March 3, 1997
</TABLE>
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
Exhibit B
(to the Software License Agreement)
General Services
I. Description of Services.
INDUS retains TenFold to provide the following services:
. Research, analysis, problem solving, error correction, enhancements,
training, and other service related to the TenFold Architecture or
applications that INDUS develops with the TenFold Architecture, or
. Other services that INDUS may from time to time request and authorize
for TenFold to perform on its behalf.
II. Fees for Services.
In consideration for TenFold staff work, INDUS agrees to pay TenFold a
daily rate for the staff based upon the position held by such staff member.
TenFold's daily rates for staff positions and representative staff names
(which may change from time to time) are:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Staff position title Names of staff Daily rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior manager Jeffrey Walker [XXXXX]
- ---------------------------------------------------------------------------------------------------------------------
Senior technologist Bruce Tow, Richard VanderDrift, [XXXXX]
et cetera
- ---------------------------------------------------------------------------------------------------------------------
Manager Adam Slovik, Lori Bertolini, Al [XXXXX]
Chang, Sameer Shalaby, Henry
Willard, et cetera
- ---------------------------------------------------------------------------------------------------------------------
Developer John Mitcham, Terek El-Sadany, [XXXXX]
Nathaniel Calvin, Samer Diab,
David Lipin, Emmet Sun, et cetera
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
For any on-site services requested by INDUS, INDUS shall reimburse
TenFold for actual, reasonable travel and out-of-pocket expenses incurred.
TenFold agrees to invoice INDUS weekly.
III. Approval to provide Services.
INDUS requires and TenFold agrees that no service are to be provided
under this Exhibit without written approval to do so. Such approval can
only be granted by Robert Felton or a successor to such person designated
by INDUS.
The Effective Date of this Exhibit shall be as of March 4, 1997.
<TABLE>
<CAPTION>
Executed by INDUS Executed by TenFold:
Authorized Signature: /s/ Robert W. Felton Authorized Signature: Robert W. Felton
<S> <C> <C> <C>
Name: Robert W. Felton Name: Gary Kennedy
Title: President & CEO Title: President & CEO
Date: March 3, 1997 Date: March 3, 1997
</TABLE>
[XXXXX] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
EXHIBIT 10.5
COMMERCIAL LEASE
THIS LEASE (the "Lease") dated this 12TH DAY OF NOVEMBER, 1996, is entered
into by and between DRAPER PARK NORTH, L.C., a Utah Limited Liability Company
("Landlord"), and KEYTEX CORPORATION, a Delaware corporation ("Tenant").
1. PREMISES.
(a) Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the terms and conditions hereinafter set
forth, to each and all of which Landlord and Tenant hereby mutually agree, those
certain premises ("Premises"), shown on Exhibit A (site-plan) attached hereto,
which include approximately 25,530 Rentable square feet of office space, the
exact Rentable and Usable sq. ft. to be determined by final space plan. For The
location of the Premises is commonly known as: 180 West Election Dr., Bldg.
#15, 1st floor, Draper, UT 84020 ("Building").
(b) In addition, the Premises shall include the appurtenant right to use,
in common with others, the site, parking and landscaped areas. Landlord shall
provide Tenant 5 non-reserved parking stalls per 1,000 Rentable square feet of
Premises in the adjacent parking lots of the Premises.
(c) Acceptance of Premises. Unless otherwise notified by Tenant within
----------------------
thirty (30) days of taking possession, by entry hereunder Tenant accepts the
Premises as being in the condition in which Landlord is obligated to deliver the
Premises. Tenant shall at the end of the term and any extension herein
surrender to Landlord the Premises and all alterations, additions and
improvements thereto in the same condition as when received; ordinary wear and
tear, damage by fire, earthquake, or act of God excepted. Landlord has no
liability and has made no representation to alter, improve, repair, or paint the
Premises or any part thereof, except as specified in Article 2(c), 2(d) & 6
herein.
2. TERM, OPTION, TENANT IMPROVEMENTS.
(a) Lease Term. The initial Lease Term shall be FIVE (5) years and shall
----------
commence December 15, 1996 ("Commencement Date"), with commencement of Lease
Term subject to space plan and building permit completed and approved by
November 15, 1996 and subject to substantial completion of Tenant Improvements.
Tenant shall not be responsible for Rents until Landlord delivers possession of
the Premises to Tenant. If Landlord is solely responsible for not delivering
possession of the Premises to Tenant within forty-five (45) days of the
Commencement Date, Tenant may upon ten (10) days written notice terminate the
Lease. In the event of Tenant's termination due to late delivery, Landlord
shall not be liable for such late delivery or failure to deliver possession of
the Premises.
(b) Option. Provided that Tenant is not in default under the Lease, and
------
not later than one hundred eighty (180) days of expiration of the Lease or any
extension period herein, Tenant
<PAGE>
may by written notice to Landlord extend the Lease by exercising a 5-year option
on a timely basis. Tenant shall possess the Premises during the option period
upon the same terms and conditions of the Lease, except that Base Rent under
Article 4(a) herein will be adjusted for the option period to the then fair
market rate for similar space in similar condition in the surrounding area.
(c) Base Building Improvements. At Landlord's sole cost and expense,
--------------------------
Landlord shall design, construct and install the Building's roof and structural
elements ("Shell"), shall provide basic utility access to and an initial HVAC
unit for the Premises, and shall design and construct the common areas of the
Premises and Building, as more specifically outlined in Exhibit B - Base
Building Improvements (collectively "Base Building Improvements").
(d) Tenant Improvements. At execution of the Lease, Landlord shall
-------------------
commence the building design, construction and installation of agreed-upon
Tenant Improvements requested by Tenant ("Tenant Improvements"). Tenant is
responsible for costs of Tenant Improvements in excess of $ 18.00 per Usable sq.
foot as determined by final space plan. Tenant Improvements' shall include all
improvements to the Premises, but exclude the Base Building Improvements.
(e) Substantial Completion of Tenant Improvements. The Premises shall be
---------------------------------------------
deemed complete when Landlord has substantially completed Tenant Improvements.
"Substantial Completion" shall mean when (i) installation of Tenant Improvements
has occurred, (ii) Basic utility services are available to the Premises, (iii)
Landlord's Architect/Contractor shall have issued a Certificate of Substantial
Completion with respect to Premises or that portion of the Building within which
they are contained, whether or not Substantial Completion of the entire Building
itself shall has occurred, and (iv) issuance of a temporary Certificate of
Occupancy. Substantial Completion shall be deemed to have occurred
notwithstanding a requirement to complete "punch-list" work. Landlord shall use
its best efforts to advise Tenant of Substantial Completion at least thirty (30)
days prior to such date, but the failure to give such notice shall not
constitute a default hereunder by Landlord.
3. NON-OCCUPANCY OF IMPROVED SPACE.
In the event Tenant does not occupy the Premises and fails to pay Rents as
required in Article 4 of the Lease, all Tenant Improvements become due and
payable upon invoicing by Landlord. Further, such invoicing by Landlord does
not waive any other rights or remedies Landlord may have against Tenant for
failure to occupy.
4. RENT.
(a) Base Rent. Total Base Rent shall be $1.629.579.30, ($11.90 PER
---------
RENTABLE SQ. FT. ANNUALLY; 25,530 RENTABLE SQ. FT.; 3.5% INCREASE/YR; NUMBERS
ROUNDED TO 2 DECIMAL PLACES) calculated as follows:
-2-
<PAGE>
YEAR RENT/SQ. FT. ANNUAL BASE RENT MONTHLY BASE RENT
- ------ ------------ ---------------- -----------------
Year 1 $11.90/Rent. sq. ft. $303,807.00 $25,317.25
Year 2 12.32 314,529.00 26,210.80
Year 3 12.75 325,507.50 27,125.63
Year 4 13.20 336,996.00 28,083.00
Year 5 13.66 348,739.80 29,061.65
payable in advance each month on or before the 1ST day of each month during the
----------
duration of the Lease, with the first and second such monthly rental payments
being due upon the execution of the Lease. Any partial months shall be prorated
accordingly. Base Rent will be increased (approximately 3.5% annually) during
the Lease Term, as indicated in the schedule above and subject to final space
plan, and during any Option period (after adjustment to fair market value at
beginning of any Option period). All Base Rent and Additional Rent
(collectively "Rents") shall be paid as follows, unless otherwise directed in
writing: Draper Park North, L.C.; Attn: Scott Waldron; 5200 South Main; Salt
Lake City, UT 84107.
(b) Additional Rent. All obligations payable by Tenant under the Lease
---------------
other than Base Rent are called "Additional Rent." Unless otherwise provided,
Additional Rent shall be paid with the next monthly installment of Base Rent
upon invoicing from Landlord.
(c) Interest, Late Charges, Costs and Attorneys' Fees. If Tenant fails to
-------------------------------------------------
pay within ten (10) days of the date due any Rents which Tenant is obligated to
pay under the Lease, the unpaid amount shall bear interest at ten (10%) percent
per annum. Tenant acknowledges that any late payments of Rents shall cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under the Lease, including without limitation administrative,
collection and accounting costs, the exact amount of which is difficult to
ascertain. Therefore, in addition to interest, any payments not received by
Landlord within ten (10) days from the date it is due, Tenant shall also pay
Landlord a late charge equal to five (5%) percent of the late Rents. Further,
as Additional Rent, Tenant shall be liable to Landlord for costs and attorneys'
fees incurred as a result of late payments or non-payments. Acceptance of any
interest, late charge, costs or attorneys' fees shall not constitute a waiver of
any default by Tenant nor prevent Landlord from exercising any other rights or
remedies under the Lease or at law.
5. USE.
(a) The Premises shall be used for general office and warehouse, assembly,
equipment, testing and development, distribution purposes, and any other lawful
purpose incidental to Tenant's business, and no other, unless consented to in
writing by Landlord. Tenant shall not do or permit to be done in or about the
Premises or Building anything which is prohibited by or in any way in conflict
with (in the case of hazardous materials, Tenant shall notify Landlord of any
such materials and shall ensure that any such hazardous material is properly
controlled, safeguarded, and disposed of) any and all laws, statutes,
ordinances, rules and regulations now in force or which may hereafter be enacted
or promulgated or which is
-3-
<PAGE>
prohibited by the standard form of fire insurance policy, or which will increase
the existing rate of or affect any fire or other insurance upon the Premises or
Building or any of its contents, or cause a cancellation of any insurance policy
covering the Premises or Building or any part thereof or any of its contents.
Tenant shall not do or permit anything to be done in or about the Premises or
Building which will in any way violate Rules or Regulations reasonably
promulgated by Landlord throughout the Lease, obstruct or interfere with the
rights of other tenants, or injure them, or use or allow the Premises or
Building to be used for any improper, immoral, or unlawful purpose, nor shall
Tenant cause, maintain or permit any nuisance, in, on or about the Premises or
Building or commit or suffer to be committed any waste in, on or about the
Premises or Building.
(b) Tenant shall not use the name of the Building in which the Premises are
located, in connection with any business carried on in said Premises (except as
Tenant's address) without written consent of Landlord.
(c) Tenant shall not manufacture, assemble or store materials inside the
common areas outside of Building.
6. LANDLORD'S SERVICES.
Landlord, at its sole expense, is only responsible to maintain the Shell of
the Premises and Building. All other operating services, including but not
limited to repairs, maintenance, common area utilities, tenant utilities, common
area janitorial, mutually-agreed tenant janitorial, sewer and garbage,
insurance, taxes, and property management on the Premises, Building, and common
areas shall be coordinated by Landlord, but are the financial responsibility of
the Tenant through prorated Operating Expenses as more fully outlined in Article
7 herein.
7. OPERATING EXPENSES - REPAIRS, MAINTENANCE, INSURANCE, TAXES AND PROPERTY
MANAGEMENT.
Since the Premises is part of a Building or group of buildings, Tenant is
responsible for a prorated share of Operating Expenses, including but not
limited to repairs, maintenance, common area utilities, tenant utilities, common
area janitorial, tenant janitorial, sewer and garbage, insurance, taxes, and
property management incurred in the operation and management of the Premises,
Building, and common areas as shall be reasonably determined by the Landlord
(recent approximation for normal business operations and hours at $4.52 per
Rentable sq. foot). Proration shall be on a square footage basis with all other
tenants and Tenant's proration shall be calculated by multiplying the Operating
Expenses by an equation, the numerator being the Rentable square feet of the
Premises and the denominator being the total Rentable square feet of the
Building. The Operating Expenses shall be prorated to Tenant and be payable by
Tenant as Additional Rent on a monthly basis. Further, the following terms and
conditions apply:
(a) Tenant's prorated share of the Operating Expenses shall be computed and
paid in twelve (12) equal monthly estimated payments as determined in the
Landlord's reasonable discretion. Such Additional Rent shall be paid by Tenant
on or before the 1st day of each month
-4-
<PAGE>
with Base Rent. As soon as reasonably possible, but in any event within ninety
(90) days following the end of each calendar year, Landlord shall furnish to
Tenant a statement showing the Premises' and Building's actual Operating
Expenses for the preceding calendar year. In the case of a deficiency, Tenant
shall promptly remit its prorata share of such deficiency to Landlord. In the
case of a surplus, Landlord shall apply said surplus to the next Additional Rent
due from Tenant.
(b) Right to Review. Tenant may review at his sole cost and expense any
---------------
Operating Expenses prorated to Tenant by Landlord, including assessed Real
Estate Taxes as may be statutorily allowed. Landlord shall make available the
applicable Operating Expenses' invoices and statements. However, any such
review must be requested and completed within sixty (60) days of receipt of the
annual statement.
8. ALTERATIONS.
(a) Tenant will not make or suffer to be made any alterations, additions or
improvements in excess of $1,000, excluding the initial Tenant Improvements,
(collectively "Alterations") to or upon the Premises, Building, or any part
thereof, or attach any fixtures or equipment thereto, without first obtaining
Landlord's written approval, which shall not be unreasonably withheld or
delayed. Any Alterations to or upon the Premises shall be made by Tenant at
Tenant's sole cost and expense and any contractor selected by Tenant to make the
same shall be subject to Landlord's reasonable prior written approval. All such
Alterations permanent in character, made in or upon the Premises either by
Tenant or Landlord, may at the option of Landlord, become Landlord's property
and, at the end of the term or any extension hereof, shall remain on the
Premises without compensation to Tenant unless Landlord requests that Tenant
remove any such Alterations. Notwithstanding the above, Tenant's work stations
and other items of personal property shall remain Tenant's property.
(b) Any Alterations shall, when completed, be of such a character as not to
lessen the value of the Premises or improvements as may be located thereon. Any
Alterations shall be made promptly, in a workmanlike manner, and in compliance
with all applicable permits, building and zoning laws, and with all other laws,
ordinances, orders, rules, regulations and requirements of all federal, state
and municipal governments, departments, commissions, boards and offices. The
costs of any Alterations shall be paid by Tenant, so that the Premises be free
of liens for services performed, labor and material supplied or claimed to have
been supplied. Before any Alterations shall be commenced, Tenant shall pay any
increase in premiums on insurance policies (provided for herein) or ensure
adequate coverage is in place for all risks related to the construction of such
Alterations and the increased value of the Premises.
9. PERSONAL PROPERTY & SIGNAGE.
Tenant will be allowed to place a monument sign adjacent to the Building.
Placement of signs on the exterior of the Building or monument, including the
type, size, and lighting of signs and the sign location and availability of
space, must be approved in writing by Landlord prior to
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installation. Such signs must be in compliance with applicable ordinances and
must be removed at the end of the Lease Term, or upon Tenant's failing to
possess the Premises.
10. LIENS.
Tenant shall keep the Premises and the Building free from any mechanics'
and/or materialmen's liens or other liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Tenant shall notify
Landlord in writing at least seventy-two (72) hours before any work or activity
is to commence on the Premises which may give rise to such liens to allow
Landlord to post and keep posted on the Premises any notices which Landlord may
deem to be proper for the protection of Landlord and the Premises from such
liens.
11. DESTRUCTION OR DAMAGE.
(a) If the Premises is partially damaged by fire, earthquake, or other Act
of God, Landlord shall repair the same at Landlord's expense, subject to the
provisions of this Article and provided such repairs can, in Landlord's
reasonable opinion, be made within sixty (60) days. During such repairs, the
Lease shall remain in full force and effect, except that if there shall be
damage to the Premises and such damage is not the result of the negligence or
willful misconduct of Tenant, Tenant's employees, agents, or invitees, an
abatement of Rents shall be allowed Tenant for such portion of Premises and
period of time as the Premises was unusable by Tenant.
(b) If in Landlord's reasonable opinion the partially damaged Premises can
be repaired, but not within sixty (60) days, the Landlord may elect, upon
written notice to Tenant within thirty (30) days of such damages, to repair such
damages over a longer time period and continue the Lease in full force and
effect, but with Rents partially abated as provided in Article 11(a). In the
event such repairs cannot be made within sixty (60) days, Tenant shall have the
option to terminate the Lease provided that written notice is given to Landlord
within thirty (30) days of receipt of Landlord's notice stated in this
paragraph.
(c) If the partially damaged Premises is to be repaired under this Article,
Landlord shall repair such damages to the Premises itself, and to the Tenant
Improvements supplied by Landlord herein. Except in the event of Landlord's
gross negligence or willful misconduct, Tenant shall be responsible for Tenant's
equipment, furniture and fixtures, and other alterations, additions and
improvements made by Tenant to the Premises and Building.
(d) If in Landlord's reasonable opinion, the Premises is totally or
substantially destroyed by fire or other casualty, the Lease shall terminate
upon notice by Landlord.
12. SUBROGATION.
Landlord and Tenant shall each, prior to Tenant's taking possession or
immediately after the execution of the Lease, procure from each of the insurers
under all policies of fire, theft, public liability, workmen's compensation and
other insurance now or hereafter existing during the term and any extension
hereof and purchased by either of them insuring or covering the
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Premises and/or Building or any portion thereof or operations therein, a waiver
of all rights of subrogation which the insurer might otherwise, if at all, have
against the other.
13. INDEMNIFICATION.
Tenant and Landlord hereby agree to indemnify and hold the other party
harmless from any damage to any property, including the release of any hazardous
materials, or injury to or death of any person arising from the use of the
Premises, Building, or common areas by Tenant or the ownership, management or
maintenance of the Premises, Building, or common areas by Landlord, except such
as is caused by reason of the negligent or willful act of the other party, its
agents, employees or contractors. The foregoing indemnity obligation of Tenant
and Landlord shall include reasonable fees, investigation costs and all other
reasonable costs and expenses incurred by Landlord or Tenant from the first
notice that any claim or demand is made, except in the event of the other
party's negligence or willful misconduct. The provisions of this Article shall
survive the Lease's termination with respect to any damage, injury or death
occurring prior to such termination.
14. COMPLIANCE WITH LEGAL REQUIREMENTS.
Tenant shall, at its sole cost and expense, promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be in force, the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, any direction
or occupancy certificate issued pursuant to any law by any public officer or
officers, as well as the provisions of all recorded documents affecting the
Premises, (collectively the "Applicable Laws"), insofar as any thereof relate to
or affect the use or occupancy of the Premises, Building, or common areas,
excluding requirements of structural changes now related to or affected by
improvements made by or for Tenant.
Landlord shall, at its sole cost and expense, promptly comply with all
Applicable Laws, including the American with Disabilities Act ("ADA"), insofar
as any thereof relate to or affect Landlord's obligations under the Lease, or
its ownership of the Premises, Building, or common areas, except for Tenant's
requirements in the immediately preceding paragraph herein.
15. INSURANCE.
(a) Commercial General Liability. Tenant shall maintain a Commercial
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General Liability policy including all coverages normally provided therein.
Such policies shall specifically name Landlord as an additional insured, with a
cancellation period of thirty (30) days prior written notice of a cancellation.
A Certificate of Insurance shall be provided to Landlord. All polices of
insurance shall be issued by responsible insurance companies licensed to do
business in the State of Utah.
The minimum limits of coverage acceptable are:
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(i) $1,000,000 Each Occurrence Combined Single Limit for Bodily
Injury and Property Damage and
(ii) $2,000,000 Annual Aggregate
(b) Premises and Building Insurance. Landlord shall insure the Premises
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and Building, including Landlord supplied Shell and Tenant Improvements, as
deemed necessary in Landlord's reasonable discretion. Tenant shall pay for such
insurance as outlined in Article 7 herein, involving Tenant's prorated share of
Operating Expenses. All policies of insurance shall be issued by responsible
insurance companies licensed to do business in the State of Utah.
(c) Tenant's Additional Insurance. Tenant may, at its sole cost and
-----------------------------
expense, cause all equipment, machinery, furniture and fixtures, personal
property, and Tenant Improvements supplied by Tenant from time to time used or
intended to be used in connection with the operation and maintenance of the
Premises, to be insured by Tenant against loss or damage. Except for losses
caused by Landlord's gross negligence or willful misconduct, Landlord is in no
way liable for any uninsured Tenant's property.
16. ASSIGNMENT AND SUBLETTING.
In the event Tenant should desire to assign the Lease or sublet the
Premises, Tenant shall give Landlord written notice of such desire at least
ninety (90) days in advance of the date on which Tenant desires to make such
assignment or sublease. Landlord shall then have a period of thirty (30) days
following receipt of such notice within which to notify Tenant in writing that
Landlord elects either (i) to terminate the Lease as of the date so specified by
Tenant, in which event Tenant will be relieved of all further obligations
hereunder, or (ii) to permit Tenant to assign or sublet such space, subject to
prior written approval of the proposed assignee by Landlord, such consent not to
be unreasonably withheld or delayed, so long as the use of the Premises by the
proposed assignee would be a permitted use and the proposed assignee is of sound
financial condition as determined by Landlord. If Landlord should fail to
notify Tenant in writing of such election within said thirty (30) day period,
Landlord shall have deemed to have waived option (i) above, but written approval
by Landlord of the proposed assignee shall still be required. Failure by
Landlord to approve a proposed assignee shall not cause a termination of the
Lease. Any rents or other consideration realized by Tenant under any such
sublease and assignment in excess of the Rents hereunder, after amortization of
the reasonable costs of extra tenant improvements for which Tenant has paid and
reasonable subletting and assignment costs, shall be divided and paid fifty
(50%) percent to Landlord and fifty (50%) percent to Tenant.
Notwithstanding the above, Tenant shall have the right to sublease or
assign all or any portion of the Premises during the Term or any Option period
to any related entity, subsidiary, or affiliate of Tenant, having at least
fifty-one (51%) percent direct common ownership, without having to receive
Landlord's consent, but still requiring written notice to Landlord on or before
such sublease or assignment. No assignment or subletting by Tenant shall
relieve Tenant of any obligation under the Lease. Any assignment or subletting
which conflicts with the provisions hereof shall be void.
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17. RULES.
Tenant shall faithfully observe and comply with all Rules and Regulations
reasonably promulgated by Landlord, in writing and after reasonable notice,
during the Term or any Option period herein. Landlord must apply rules
equitably against all Tenants, but shall not be responsible to Tenant for the
non-performance by other Building tenants, or adjacent buildings' tenants, of
any of said Rules and Regulations.
18. ENTRY BY LANDLORD.
The Landlord may enter the Premises or Building at reasonable hours and
upon 24 hours written notice to Tenant to (a) inspect the same, (b) show the
same to prospective purchasers, lenders or tenants, (c) determine whether Tenant
is complying with all of Tenant's obligations hereunder, (d) post notices of
non-responsibility or (e) make repairs required of Landlord under the Lease,
repairs to adjoining space or utility service, or make repairs, alterations or
improvements to the Building, provided that all such work shall be done as
promptly as possible and with as little interference to Tenant as reasonably
possible. Tenant hereby waives any claim for damages for any inconvenience to
or interference with Tenant's business, any loss of occupancy or quiet enjoyment
of the Premises occasioned by such entry. Landlord shall at all times have and
retain a key to unlock all doors in, on or about the Premises (excluding
Tenant's vaults, safes and similar areas designated in writing by Tenant). In
the event of an emergency, Landlord shall have the right to use any and all
means which Landlord may deem proper to enter the Premises, without notice, for
the limited purpose of abating as possible said emergency. Such emergency
entrance shall not be construed or deemed to be a forcible or unlawful entry
into or a detainer of the Premises or an eviction, actual or constructive, of
Tenant from the Premises, or any portion thereof.
19. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events ("Events of
Default") shall constitute a breach of the Lease by Tenant: (a) if Tenant fails
to pay Rents when and as the same becomes due and payable and such failure
continues for more than ten (10) days, or (b) if Tenant fails to pay any other
sum when and as the same becomes due and payable and such failure continues for
more than ten (10) days after written notice hereof; or (c) if Tenant fails to
perform or observe any material term or condition of the Lease, such failure
continues for more than thirty (30) days after written notice from Landlord, and
Tenant does not within such period begin with due diligence and dispatch the
curing of such default, or, having so began, thereafter fails or neglects to
complete with due diligence and dispatch the curing of such default; or (d) if
Tenant shall make a general assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts as they become due or shall file
a petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or
shall file a petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting or shall
fail timely to contest the material allegations of a petition filed against it
in any such proceeding, or shall seek or consent
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to or acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or any material part of its properties; or (e) if within thirty (30) days
after the commencement of any proceeding against Tenant seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
proceeding shall not have been dismissed, or if, within thirty (30) days after
the appointment without the consent or acquiescence of Tenant, of any trustee,
receiver or liquidator of Tenant or of any material part of its properties, such
appointment shall not have been vacated; or (f) vacation or abandonment of the
Premises for a continuous period in excess of fifteen (15) days, or (g) if the
Lease or any estate of Tenant hereunder shall be levied upon under any
attachment or execution and such attachment or execution is not vacated within
ten (10) days or receipt thereof by Tenant.
20. TERMINATION UPON TENANT'S DEFAULT.
If an Event of Default shall occur, Landlord at any time thereafter may
give a written termination notice to Tenant, and on the date specified in such
notice (which shall not be less than three (3) days after service) Tenant's
right to possession shall terminate and the Lease shall terminate, unless on or
before such date all Rents, arrearages and other sums due by Tenant under the
Lease, including reasonable costs and attorneys' fees incurred by or on behalf
of Landlord, shall have been paid by Tenant and all other Events of Default by
Tenant shall have been fully cured to the satisfaction of Landlord. Upon such
termination, Landlord may recover from Tenant:
(a) the worth at the time of award of the unpaid Rents which had been
earned at the time of termination; plus
(b) the worth at the time of award of the amount by which the unpaid Rents
which would have been earned after termination until the time of award exceeds
the amount of such Rents loss that Tenant proves could have been reasonably
avoided; plus
(c) the worth at the time of award of the amount by which the unpaid Rents
for the balance of the term of the Lease after the time of award exceeds the
amount of such Rents loss that Tenant proves could be reasonably avoided; and
plus
(d) any other amount reasonably necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be likely to
result therefrom; and/or
(e) At Landlord's elections, such other amounts in addition or in lieu of
the foregoing as may be permitted from time to time herein or by applicable law.
The "worth at the time of award" of the amounts referred to in clauses (a)
and (b) above is computed by allowing interest at the rate of 10% per annum.
The "worth at the time of award" of the amount referred to in clause (c) above
means the monthly sum of the Rents under the Lease. Failure of Landlord to
declare any default immediately upon occurrence thereof, or delay
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in taking any action in connection therewith, shall not waive such default, but
Landlord shall have the right to declare any such default at any time
thereafter.
21. CONTINUATION AFTER DEFAULT.
Even though Tenant has defaulted the Lease and abandoned the Premises, the
Lease shall continue in effect as long as Landlord does not terminate Tenant's
right to possession, and Landlord may enforce all of its rights and remedies
under the Lease, including the right to recover the Rents as they become due
under the Lease. Acts of maintenance or preservation or efforts to relet the
Premises or the appointment of a receiver upon initiative of Landlord to protect
Landlord's interest under the Lease shall not constitute a termination of
Tenant's right to possession. If any fixture, equipment, improvement,
installation or appurtenance shall be required to be removed from the Premises
and/or Building by Tenant, then Landlord (in addition to all other rights and
remedies) may, at its election by written notice to Tenant, deem that the same
has been abandoned by Tenant to Landlord, or Landlord may remove and store the
same and restore the Premises to its original condition at the reasonable
expense of Tenant, as Additional Rent to be paid within ten (10) days after
written notice to Tenant of such expense.
22. LANDLORD'S DEFAULT.
If Landlord fails to perform or observe any of its Lease obligations herein
and such failure continues for thirty (30) days after written notice from
Tenant, or such additional time, if any, that is reasonably necessary to
promptly and diligently cure such failure after receiving written notice,
Landlord shall be in breach of the Lease (a "Default"). If Landlord commits a
Default, Tenant may pursue any remedies given in the Lease or under law.
23. LANDLORD'S RIGHT TO CURE DEFAULTS.
All terms and provisions to be performed by Tenant under the Lease shall be
at Tenant's sole cost and expense and without any abatement of Rents. If Tenant
fails to pay any sum of money, other than Rents, required hereunder or fails to
perform any other act required hereunder and such failure continues for thirty
(30) days after notice by Landlord, Landlord may, but shall not be obligated,
and without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such act on Tenant's part to be made or performed as
provided in the Lease. All sums paid by Landlord and all incidental costs shall
be deemed Additional Rent hereunder and shall be payable within ten (10) days of
written notice of such sums paid.
24. OTHER RELIEF.
The remedies provided for in the Lease are in addition to any other
remedies available to Landlord at law or in equity by statute or otherwise.
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25. ATTORNEYS' FEES.
In the event either party places the enforcement of the Lease, or any part
thereof, or the collection of any Rents, or recovery of the possession of the
Premises, or files suit upon the same, then the prevailing party shall recover
its reasonable attorneys' fees and costs.
26. EMINENT DOMAIN.
If all or any part of the Premises shall be taken or conveyed as a result
of the exercise of the power of eminent domain, the Lease shall terminate as to
the part so taken as of the date of taking, and, in the case of a partial
taking, either Landlord or Tenant shall have the right to terminate the Lease as
to the balance of the Premises by written notice to the other within thirty (30)
days after such date; provided, however, that a condition to the exercise by
Tenant of such right to terminate shall be that the portion of the Premises
taken or conveyed shall be of such extent and nature as substantially to
handicap, impede or impair Tenant's use of the balance of the Premises. In the
event of any taking, Landlord shall be entitled to any and all compensation,
damages, income, rent awards or any interest therein whatsoever which may be
paid or made in connection therewith, and Tenant shall have no claim against
Landlord for the value of any unexpired term of the Lease or otherwise, provided
that Tenant shall be entitled to any and all compensation, damages, income, rent
or awards paid for or on account of Tenant's moving expenses, trade fixtures,
equipment and any leasehold improvements in the Premises, the cost of which was
borne by Tenant, to the extent of the then unamortized value of such
improvements for the remaining term of the Lease. In the event of a taking of
the Premises which does not result in a termination of the Lease, the monthly
rental herein shall be apportioned as of the date of such taking so that
thereafter the rent to be paid by Tenant shall be in the ratio that the area of
the Premises not so taken bears to the total area of the Premises prior to such
taking.
27. SUBORDINATION, ATTORNMENT & NONDISTURBANCE; AND ESTOPPEL CERTIFICATE.
At Landlord's request, Tenant agrees to execute, acknowledge, and deliver
within ten (10) days to Landlord a Subordination, Attornment & Nondisturbance
Agreement ("Subordination Agreement"), subject to Landlord's proposed form(s).
Such Subordination Agreement shall subordinate the Lease to any ground lease,
mortgage, deed of trust, or any other hypothecation for security now or
hereafter placed upon the Premises, Building or common areas, or any part
thereof, to any and all advances made on the security, and to all renewals,
modification, consolidations, replacements and extensions thereof, whether the
Lease is dated prior or subsequent to the date of said ground lease, mortgage,
deed of trust or other hypothecation or the date of recording thereof. Further,
at Landlord's request, Tenant agrees to execute, acknowledge, and deliver within
ten (10) days to Landlord an Estoppel Certificate, subject to Landlord's
proposed form(s). Such Subordination Agreement and Estoppel Certificate may be
relied upon by any prospective purchaser, mortgagee, or beneficiary under any
ground lease, mortgage, deed of trust, or any other hypothecation of the
Premises, Building, or common areas, or any part thereof. Notwithstanding such
Subordination Agreement, Tenant's right to
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quiet possession of the Premises shall not be disturbed so long as Tenant is not
in default under the Lease, unless the Lease is otherwise terminated pursuant to
its terms.
In the event that Tenant fails to execute, acknowledge, and deliver to
Landlord such Subordination Agreement and Estoppel Certificate (sample documents
attached hereto as Exhibits C & D) within ten (10) days of Landlord's request,
the parties herein expressly agree that Tenant shall be deemed in default of the
Lease without further notice. In the event of such Tenant default, the parties
herein further expressly agree that the Subordination Agreement and Estoppel
Certificate are deemed to have been executed by Tenant.
28. NO MERGER.
The voluntary or other surrender of the Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord terminate all or any existing subleases or subtenancies, or may, at the
option of Landlord, operate as an assignment to it of any or all such subleases
or subtenancies.
29. SALE.
In the event the original Landlord hereunder, or any successor owner of the
Premises, Building, or common areas shall sell or convey the Premises, Building,
or common areas, and the purchaser assumes the obligations of Landlord under the
Lease, all liabilities and obligation on the part of the original Landlord, or
such successor owner, under the Lease accruing thereafter shall terminate, and
thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
30. NO LIGHT, AIR OR VIEW EASEMENT.
Any diminution or shutting off of light, air or view by any structure
erected on lands adjacent to the Building shall in no way affect the Lease or
impose any liability on Landlord.
31. HOLDING OVER.
If, without objection by Landlord, Tenant holds possession of the Premises
after expiration of the Term or any Option period of the Lease, Tenant shall
become a tenant from month to month upon the terms herein specified, but at a
monthly Base Rent equivalent to 110% of the Base Rent at the end of the term or
extension period pursuant to Article 4, payable in advance on or before the 1st
day of each month. All Additional Rent shall also apply. Each party shall give
the other notice at least one month prior to the date of termination of such
monthly tenancy of its intention to terminate such tenancy.
32. ABANDONMENT.
If Tenant shall abandon or surrender the Premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed
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to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
33. SECURITY DEPOSIT.
Tenant shall deposit with Landlord upon execution of the Lease as security
deposit equal to a month's full Base Rent ("Security Deposit"). The Security
Deposit shall be held by Landlord as security for the faithful performance by
Tenant of all of the provisions of the Lease to be performed or observed by
Tenant. In the event Tenant fails to perform or observe any of the provisions
of the Lease to be performed or observed by it, then, at the option of the
Landlord, Landlord may (but shall not be obligated to do so) apply the Security
Deposit, or so much thereof as may be necessary to remedy such default or to
repair damages to the Premises caused by Tenant. In the event Landlord applies
any portion of the Security Deposit to remedy any such default or to repair
damages to the Premises caused by Tenant, Tenant shall pay to Landlord, within
thirty (30) days after written demand for such payment by Landlord, all monies
necessary to restore the Security Deposit up to the original amount. Any
portions of the Security Deposit remaining upon termination of the Lease shall
be returned.
34. WAIVER.
All waivers by either party herein must be in writing and signed by such
party. The waiver of any term or conditions herein shall not be deemed to be a
waiver of any subsequent breach of the same or any other agreement, condition or
provision herein contained, nor shall any custom or practice which may grow upon
between the parties in the administration of the terms hereof be construed to
waive or to lessen the right of either party to insist upon the performance by
the other party in strict accordance with said terms. The subsequent acceptance
of Rents hereunder by Landlord shall not be deemed to be a waiver of any breach
by Tenant of any term or condition of the Lease, regardless of Landlord's
knowledge of such breach at the time of acceptance of such Rents.
35. NOTICES.
All notices and demands which may or are required to be given by either
party to the other under the Lease shall be in writing and shall be deemed to
have been fully given when deposited in the United States mail, certified or
registered, postage prepaid, and addressed as follows: to Tenant at KEYTEX
CORPORATION; ATTN: ROBERT P. HUGHES; 475 SANSOME ST., SUITE 860, SAN FRANCISCO,
CA 94111, or to such other place as Tenant may from time to time designate in a
notice to Landlord; to Landlord at DRAPER PARK NORTH, L.C.; ATTN: SCOTT WALDRON,
MANAGER; 5200 SOUTH MAIN STREET, SALT LAKE CITY, UTAH, 84107 or to such other
place as Landlord may from time to time designate in a notice to Tenant, or in
the case of Tenant, delivered to Tenant at the Premises. Tenant hereby appoints
as its agent to receive the service of all dispossessory or distraint
proceedings and notices hereunder the person in charge of or occupying the
Premises at the time, and if no person shall be in charge of or occupying the
same, then service may be made by attaching same on the main entrance of the
Premises.
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36. COMPLETE AGREEMENT.
There are no oral agreements between Landlord and Tenant affecting the
Lease, and the Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between Landlord
and Tenant with respect to the subject matter of the Lease. The Lease may not
be altered, changed or amended, except by an instrument in writing signed by
both parties hereto.
37. CORPORATE AUTHORITY.
The person(s) executing the Lease on behalf of the parties herein hereby
covenants and warrants that (a) such party is a duly authorized and validly
existing entity under the laws in which it was formed, (b) such party has and is
qualified to do business in Utah, (c) such entity has full right and authority
to enter into the Lease, and (d) each person executing the Lease on behalf of
such entity is authorized to do so.
38. GUARANTEE OF LEASE.
Tenant guarantees, upon execution of the Lease, to occupy the Premises.
Any failure to occupy the Premises does not release the Tenant from the
obligation of paying Rents or any other terms set forth herein.
39. MISCELLANEOUS.
(a) The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. If there be more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several.
(b) Time is of the essence on the Lease and each and all of its terms and
conditions.
(c) The terms and conditions herein shall apply to and bind the heirs,
executors, administrators, successors and assigns of the parties hereto.
(d) The captions of the Lease are solely to assist the parties and are not
a part of the terms or conditions of the Lease.
(e) The Lease shall be governed by and construed in accordance with the
laws of the State of Utah, and is deemed to be executed within the State of
Utah.
40. SEVERABILITY.
If any term provision of the Lease, or the application thereof to any
person or circumstance, shall to any extent be invalid or unenforceable, the
remainder of the Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of the Lease shall be valid and
shall be enforceable to the extent permitted by law.
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<PAGE>
41. EXPANSION AND SUBLEASE.
In order to satisfy Tenant's expansion needs, Tenant and Landlord agree
that Landlord shall by separate agreement sublease from Tenant a portion of the
Premises.
42. BROKERS.
Tenant is represented by Spence Clark of Wardley Better Homes and Gardens.
Landlord is represented by Prime Commercial, Inc. Agreed-upon commissions shall
be due and payable by Landlord; 50% upon execution, and 50% upon Tenant taking
possession.
IN WITNESS WHEREOF, the parties have executed the Lease dated the day and
year first above written.
TENANT, LANDLORD,
KEYTEX CORPORATION DRAPER PARK NORTH, L.C.
By: /s/ Robert Hughes By: /s/ Scott M. Waldron
--------------------- --------------------------
Scott M. Waldron, Manager
Its: CFO
--------------------
-16-
<PAGE>
EXHIBIT B
BASE BUILDING IMPROVEMENTS
The Base Building Improvements and systems as described below shall be
furnished by Landlord at Landlord's sole cost and expense. These include:
1. The Building structure will be designed for a minimum floor load of 50
lb. live load plus a 20 lb. partition dead load.
2. The Building shell will include a core consisting, elevator with
equipment room, stairwell enclosures, 1 man and 1 woman rest-room on each floor,
finished lobbies and exterior perimeter walls and windows and all building
columns.
3. A Concrete floor will be installed with a smoothed trowel finish for
installation of glued-down carpet. The Floor will be poured level and finished
in accordance with current ACI Standard Specifications 117.
4. A Life Safety system will be installed in accordance with the more
stringent of applicable national, state and local codes or the Americans with
Disabilities Act Regulations, throughout the Building, including all corridors,
stairwells and rest-rooms (strobes). The sprinkler system will be installed to
code and connected to alarms.
5. Electrical distribution will be provided to the main panel boxes in the
electrical closet on each floor. The electrical system shall be sized for seven
(7) watts per usable square foot for Tenant's consumption, over and above base
building electrical requirements.
6. The Building will be equipped with a packaged-unit heating, ventilation
and air conditioning system sufficient for Tenant's anticipated occupancy
requirements. The system will be designed to maintain a space temperature
between 70-75 degrees F on a year-round basis, based on a maximum average
occupancy of one (1) person for each 150 square feet of usable area. The
requirements for ventilation shall comply with present ASHRAE (American Society
of Heating, Refrigeration and Air-Conditioning Engineers) standard 62-1989 as a
minimum requirement. Tenant shall be furnished with a price per ton for package
unit if additional air conditioning is required.
7. Telephone service, as provided by the local utility, will be brought to
Tenant's main telephone room.
8. Common corridor walls and walls between tenant suites will be provided
with the side finished only to the common areas.
9. Roadways necessary for Tenant's access to and egress from the Building,
along with parking, landscaping and sprinklers.
-17-
<PAGE>
EXHIBIT 10.10
TENFOLD CORPORATION
-------------------
1993 FLEXIBLE STOCK INCENTIVE PLAN
----------------------------------
(AS AMENDED OCTOBER 26, 1998)
1. Establishment, Purpose, and Definitions.
---------------------------------------
(a) There is hereby adopted the 1993 Flexible Stock Incentive Plan
(the "Plan") of TenFold Corporation (the "Company").
(b) The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in paragraph 4, below) can acquire Common Stock of the
Company (the "Stock"). The Plan provides employees (including officers and
directors who are employees) of the Company and of its Affiliates an opportunity
to purchase shares of Stock pursuant to options which may qualify as incentive
stock options (referred to as "incentive stock options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and employees,
officers, directors, independent contractors, and consultants of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to options
which are not described in Sections 422 or 423 of the Code (referred to as
"nonqualified stock options") (collectively, "Participants"). The Plan also
provides for the sale or bonus of Stock to eligible individuals in connection
with the performance of services for the Company or its Affiliates. Finally, the
Plan authorizes the grant of stock appreciation rights ("SARs"), either
separately or in tandem with stock options, entitling holders to cash
compensation measured by appreciation in the value of the Stock.
(c) The term "Affiliates" as used in the Plan means parent or
subsidiary corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including parents or
subsidiaries which become such after adoption of the Plan.
2. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may delegate the responsibility for
administering the Plan to a committee, under such terms and conditions as the
Board shall determine (the "Committee"). The Committee shall consist of one or
more members of the Board. Members of the Committee shall serve at the pleasure
of the Board. The Committee shall select one of its members as chairman, and
shall hold meetings at such times and places as it may determine. A majority of
the Committee shall constitute a quorum and acts of the Committee at which a
quorum is present, or acts reduced to or approved in writing by all the members
of the Committee, shall be the valid acts of the Committee. If the Board does
not delegate administration of the Plan to the Committee, then each reference in
this Plan to "the Committee" shall be construed to refer to the Board.
<PAGE>
(b) The Committee shall determine which eligible individuals (as
defined in paragraph 4, below) shall be granted options under the Plan, the
timing of such grants, the terms thereof (including any restrictions on the
Stock), and the number of shares subject to such options.
(c) The Committee may amend the terms of any outstanding option
granted under this Plan, but any amendment which would adversely affect the
Optionee's rights under an outstanding option shall not be made without the
Optionee's written consent. The Committee may, with the Optionee's written
consent, cancel any outstanding stock option or accept any outstanding stock
option in exchange for a new option.
(d) The Committee shall also determine which eligible individuals (as
defined in paragraph 4, below) shall be issued Stock or SARs under the Plan, the
timing of such grants, the terms thereof (including any restrictions), and the
number of shares or SARs to be granted. The Stock shall be issued for such
consideration (if any) as the Committee deems appropriate. Stock issued subject
to restrictions shall be evidenced by a written agreement (the "Restricted Stock
Purchase Agreement" or the "Restricted Stock Bonus Agreement"). The Committee
may amend any Restricted Stock Purchase Agreement, but any amendment which would
adversely affect the shareholder's rights to the Stock shall not be made without
his or her written consent.
(e) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable for the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all participants.
3. Stock Subject to the Plan.
-------------------------
(a) An aggregate of not more than ten million (10,000,000) shares of
Stock shall be available for the grant of stock options or the issuance of Stock
under the Plan. If an option is surrendered (except surrender for shares of
Stock) or for any other reason ceases to be exercisable in whole or in part, the
shares which were subject to such option but as to which the option had not been
exercised shall continue to be available under the Plan. Any Stock which is
retained by the Company upon exercise of an option in order to satisfy the
exercise price for such option or any withholding taxes due with respect to such
option exercise shall be treated as issued to the Optionee and will thereafter
not be available under the Plan.
(b) If there is any change in the Stock subject to the Plan, an Option
Agreement, a Restricted Stock Purchase Agreement, a Restricted Stock Bonus
Agreement, or a SAR Agreement through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess of two
percent), or other change in the corporate structure of the Company, appropriate
adjustments shall be made by the Committee in order to preserve but not to
increase the benefits to the individual, including adjustments to the aggregate
number, kind and price per share of shares subject to the Plan, an Option
Agreement, a Restricted Stock Purchase Agreement, a Restricted Stock Bonus
Agreement, or a SAR Agreement.
-2-
<PAGE>
4. Eligible Individuals. Individuals who shall be eligible to have
--------------------
granted to them the options, Stock or SARs provided for by the Plan shall be
such employees, officers, directors, independent contractors and consultants of
the Company or an Affiliate as the Committee, in its discretion, shall designate
from time to time. Notwithstanding the foregoing, only employees of the Company
or an Affiliate (including officers and directors who are bona fide employees)
shall be eligible to receive incentive stock options.
5. The Option Price. The exercise price of the Stock covered by each
----------------
incentive stock option shall be not less than the per share fair market value of
such Stock on the date the option is granted. The exercise price of the Stock
covered by each nonqualified stock option shall be as determined by the
Committee. Notwithstanding the foregoing, in the case of an incentive stock
option granted to a person possessing more than ten percent of the combined
voting power of the Company or an Affiliate, the exercise price shall be not
less than 110 percent of the fair market value of the Stock on the date the
option is granted. The exercise price of an option shall be subject to
adjustment to the extent provided in paragraph 3(b) above.
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person to whom
such option is granted.
(b) The Committee shall determine the term of each option granted
under the Plan; provided, however, that the term of an incentive stock option
shall not be for more than 10 years and that, in the case of an incentive stock
option granted to a person possessing more than ten percent of the combined
voting power of the Company or an Affiliate, the term shall be for no more than
five years.
(c) If the aggregate fair market value (determined as of the time the
option to purchase the stock is granted) of Stock with respect to which
incentive stock options are exercisable for the first time by a Participant
during any calendar year (under this Plan or under any other plan of the Company
or any parent or subsidiary of the Company) exceeds $100,000, the options for
the first $100,000 worth of Stock to become exercisable in such calendar year
shall be incentive stock options and the options for the amount in excess of
$100,000 that becomes exercisable in that calendar year shall be treated as
nonqualified stock options.
(d) The Committee shall have full power and authority to extend the
period of time for which any option granted under the Plan is to remain
exercisable following the Participant's cessation of services as an employee,
director, advisor or consultant of the Company or its affiliates, including
without limitation, cessation as a result of such Participant's death or
disability; provided, however, that in no event shall such option be exercisable
after the expiration date of the option term specified in such Participant's
option agreement covering such option; and, provided further, that incentive
stock options shall not be exercisable more than three (3) months following
termination of any Participant's employment for any reason other than death or
disability and more than one year following termination of any Participant's
employment due to death or disability. To the extent that an incentive stock
option is not exercised within three (3)
-3-
<PAGE>
months of such termination resulting from a disability which does not fall
within the meaning of total and permanent disability (as set forth in Section
22(e)(3) of the Code), the Option will not qualify for incentive stock option
status under the Code.
(e) The Stock Option Agreement may contain such other terms,
provisions and conditions consistent with this Plan as may be determined by the
Committee. If an option, or any part thereof is intended to qualify as an
incentive stock option, the Stock Option Agreement shall contain those terms and
conditions which are necessary to so qualify it. If an option is subject to
vesting requirements, the Committee may, in its sole discretion, accelerate the
vesting of any such option. Each Stock Option Agreement shall include a vesting
schedule which shall show when the Option becomes exercisable, provided that
each Option shall vest at a rate of at least twenty percent (20%) per year over
a period of five (5) years.
7. Terms and Conditions of Stock Purchases and Bonuses.
---------------------------------------------------
(a) Each sale or grant of stock pursuant to the Plan will be evidenced
by a written Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement executed by the Company and the person to whom such stock is sold or
granted.
(b) The Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement may contain such other terms, provisions and conditions consistent
with this Plan as may be determined by the Committee, including not by way of
limitation, restrictions on transfer, forfeiture provisions, repurchase
provisions and vesting provisions.
(c) If rights of the Company to repurchase Stock are imposed, (i) the
Committee may, in its sole discretion, accelerate, in whole or in part, the time
for lapsing of any such rights of the Company to repurchase of shares of such
Stock, and (ii) the certificates evidencing such shares of Stock, although
issued in the name of the Participant concerned, shall be held by the Company or
a third party designated by the Committee in escrow subject to delivery to the
Participant or to the Company at such times and in such amounts as shall be
directed by the Committee under the terms of this Plan and the Participant's
option agreement.
8. Terms and Conditions of SARs. The Committee may, under such terms and
----------------------------
conditions as it deems appropriate, authorize the issuance of SARs evidenced by
a written SAR agreement (which, in the case of tandem options, may be part of
the option agreement to which the SAR relates) executed by the Company and the
person to whom such SAR is granted. The SAR agreement may contain such terms,
provisions and conditions consistent with this Plan as may be determined by the
Committee.
9. Use of Proceeds. Cash proceeds realized from the sale of Stock under
---------------
the Plan shall constitute general funds of the Company.
10. Amendment, Suspension, or Termination of the Plan.
-------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan as
it deems advisable; provided that such amendment, suspension or termination
complies with all
-4-
<PAGE>
applicable requirements of state and federal law, including any applicable
requirement that the Plan or an amendment to the Plan be approved by the
Company's shareholders, and provided further that, except as provided in
paragraph 3(b), above, the Board shall in no event amend the Plan in the
following respects without the consent of shareholders then sufficient to
approve the Plan in the first instance:
(i) To increase the maximum number of shares subject to
incentive stock options issued under the Plan; or
(ii) To change the designation or class of persons eligible to
receive incentive stock options under the Plan.
(b) No option may be granted nor any Stock issued under the Plan
during any suspension or after the termination of the Plan, and no amendment,
suspension or termination of the Plan shall, without the affected individual's
consent, alter or impair any rights or obligations under any option previously
granted under the Plan. The Plan shall terminate with respect to the grant of
incentive stock options on January 1, 2003, unless previously terminated by the
Board pursuant to this paragraph 10.
11. Assignability. Each option granted pursuant to this Plan shall,
-------------
during optionee's lifetime, be exercisable only by him, and neither the option
nor any right hereunder shall be transferable by optionee by operation of law or
otherwise other than by will or the laws of descent and distribution. Stock
subject to a Restricted Stock Purchase Agreement or a Restricted Stock Bonus
Agreement shall be transferable only as provided in such Agreement.
12. Payment Upon Exercise of Options. Payment of the purchase price upon
--------------------------------
exercise of any option granted under this Plan shall be made in cash; provided,
however, that the Committee, in its sole discretion, may permit an optionee to
pay the option price in whole or in part (i) with shares of Stock owned by the
Optionee; (ii) by delivery on a form prescribed by the Committee of an
irrevocable direction to a securities broker approved by the Committee to sell
shares and deliver all or a portion of the proceeds to the Company in payment
for the Stock; (iii) by delivery of the optionee's promissory note with such
recourse, interest, security, and redemption provisions as the Committee in its
discretion determines appropriate; or (iv) in any combination of the foregoing.
Any Stock used to exercise options shall be valued at its fair market value on
the date of the exercise of the option. In addition, the Committee, in its sole
discretion, may authorize the surrender by an optionee of all or part of an
unexercised option and authorize a payment in consideration thereof of an amount
equal to the difference between the aggregate fair market value of the Stock
subject to such option and the aggregate option price of such Stock. In the
Committee's discretion, such payment may be made in cash, shares of Stock with a
fair market value on the date of surrender equal to the payment amount, or some
combination thereof.
13. Withholding Taxes. No Stock shall be granted or sold under the Plan
-----------------
to any Participant, and no SAR may be exercised, until the Participant has made
arrangements acceptable to the Committee for the satisfaction of federal, state,
and local income and employment tax withholding obligations, including without
limitation obligations incident to the receipt of Stock
-5-
<PAGE>
under the Plan, the lapsing of restrictions applicable to such Stock, the
failure to satisfy the conditions for treatment as incentive stock options under
applicable tax law, or the receipt of cash payments. Upon exercise of a stock
option or lapsing of restriction on stock issued under the Plan, the Company
shall withhold from the Optionee or require the Shareholder to surrender shares
of the Company's Stock sufficient to satisfy federal, state, and local income
and employment tax withholding obligations.
14. Restrictions on Transfer of Shares. The Stock acquired pursuant to
----------------------------------
the Plan shall be subject to such restrictions and agreements regarding sale,
assignment, encumbrances or other transfer as are in effect among the
shareholders of the Company at the time such Stock is acquired, as well as to
such other restrictions as the Committee shall deem advisable.
15. Corporate Transaction.
---------------------
(a) For purposes of this Section 15, a "Corporate Transaction" shall
include any of the following shareholder-approved transactions to which the
Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or dissolution of
the Company; or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities assessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to holders different from those who held such securities immediately
prior to such merger.
(b) In the event of any Corporate Transaction, any option,
restricted stock or SAR shall vest in its entirety and become exercisable, or
with respect to restricted stock, be released from restrictions on transfer and
repurchase rights, immediately prior to the specified effective date of the
Corporate Transaction unless assumed by the successor corporation or its parent
company, pursuant to options, restricted stock agreements or SARs providing
substantially equal value and having substantially equivalent provisions as the
options, restricted stock or SARs granted pursuant to this Plan.
16. Shareholder Approval. This Plan shall only become effective with
--------------------
regard to incentive stock options upon its approval by the shareholders of the
Company in any manner permitted by applicable state law within 12 months of the
Board's adoption of the Plan. The Committee may grant incentive stock options
under the Plan prior to the shareholders' meeting, but until shareholder
approval of the Plan is obtained, no incentive stock option shall be
exercisable.
17. No Employment/Service Rights. Neither the action of the Company in
----------------------------
establishing this Plan, nor any action taken by the Committee hereunder, nor any
provision of
-6-
<PAGE>
this Plan shall be construed so as to grant any individual the right to remain
in the employ of the Company (or any parent, subsidiary or affiliated
corporation) for any period of specific duration, and the Company (or any
parent, subsidiary or affiliated corporation retaining the services of such
individual) may terminate such individual's employment at any time and for any
reason, with or without cause.
18. Miscellaneous Provisions.
------------------------
(a) The provisions of this Plan shall be governed by the laws of the
State of Delaware, as such laws are applied to contracts entered into and
performed in such State.
(b) The provisions of this Plan shall inure to the benefit of, and be
binding upon, the Company and its successors or assigns, and the Participants
and the legal representatives of their respective estates, their respective
heirs or legatees and their permitted assignees.
-7-
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF AMENDMENT
<PAGE>
EXHIBIT B
---------
1993 FLEXIBLE STOCK INCENTIVE PLAN, AS AMENDED
<PAGE>
EXHIBIT C
---------
STOCK OPTION GRANTS
<PAGE>
Exhibit 23.1
The Board of Directors
TenFold Corporation:
The audits referred to in our report dated January 21, 1999, except as to Note
13 which is as of March 29 1999, included the related financial statement
schedule as of December 31, 1998, and for each of the years in the three-year
period ended December 31, 1998, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as whole, present fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Salt Lake City, Utah
April 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM S-1 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 15,373 13,171
<SECURITIES> 0 0
<RECEIVABLES> 1,691 3,200
<ALLOWANCES> 500 500
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,223 21,752
<PP&E> 7,685 8,527
<DEPRECIATION> 1,528 2,069
<TOTAL-ASSETS> 29,566 28,395
<CURRENT-LIABILITIES> 11,493 9,445
<BONDS> 0 0
9,555 9,803
0 0
<COMMON> 25 25
<OTHER-SE> 3,723 4,153
<TOTAL-LIABILITY-AND-EQUITY> 29,566 28,395
<SALES> 40,167 16,027
<TOTAL-REVENUES> 40,167 16,027
<CGS> 0 0
<TOTAL-COSTS> 38,324 15,508
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (20) (71)
<INCOME-PRETAX> 2,218 607
<INCOME-TAX> 495 234
<INCOME-CONTINUING> 808 125
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 808 125
<EPS-PRIMARY> 0.04 0.01
<EPS-DILUTED> 0.03 0.00
</TABLE>
