<PAGE>
As filed with the Securities and Exchange Commission on March 8, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
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
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title Of Each Class Of Aggregate Offering Amount Of
Securities To Be Registered Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value................................ $82,500,000 $22,935
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 March 8, 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.
Prior to this offering, there has been no public market for the common stock.
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 National Market under the symbol "TENF".
See "Risk Factors" beginning on page 6 to read about certain 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.
--------------
<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, under certain circumstances, 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>
----------------
We have applied for federal registration of the marks TenFold, The TenFold
Way, Universal Application, The Power of Ten, TenFold Revenue Manager,
10fold.com, tenfold.com and the TenFold logo. All other brand names,
trademarks, or service marks appearing in this prospectus are the property of
their respective holders.
[Description of Artwork]
Collage of images of people and scenes related to vertical industries such as
utilities, banking, telecommunications, and healthcare to correspond with the
headings: Process + Technology = Business Value.
Text associated with headings in language similar to the following points:
. Process: TenFold Way, FastStart Services, Requirements in weeks, Rapid
iterative development, Continuous automated testing.
. 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.
Other text similar to the following:
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 prices, and on target or we refund our customer's money.
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 obsolete legacy 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 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 aging, legacy-like products.
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, 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.
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 TenFold Way
methodology and our unique Universal Application and TenFold ComponentWare
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.
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.
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
3
<PAGE>
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 vertical 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 Vertical Business Groups to tailor marketing,
selling, product development, and business strategies for our target vertical
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.
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.
4
<PAGE>
The Offering
The following information assumes that the underwriters do not exercise the
option granted by TenFold and certain selling stockholders to purchase
additional shares in this offering. Please see "Underwriting".
<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".
Proposed Nasdaq National Market Symbol........ "TENF"
</TABLE>
The share numbers exclude:
. 6,412,300 shares issuable upon exercise of options outstanding under
TenFold's 1993 flexible stock incentive plan with a weighted average
exercise price of $2.36 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 December 31, 1998, TenFold granted additional options to
purchase 1,052,300 shares of common stock at a weighted average exercise price
of $7.49 per share. See "Management--Stock Plans" and Note 8 of Notes to
Consolidated Financial Statements.
Summary Financial Information
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
Consolidated Statement of Operations Data: ------- -------- --------
<S> <C> <C> <C>
Revenues:
License......................................... $ 271 $ 5,244 $ 13,382
Services........................................ 2,744 8,879 26,785
------- -------- --------
Total revenues................................ 3,015 14,123 40,167
Total operating expenses.......................... 3,142 15,012 38,324
------- -------- --------
Income (loss) from operations..................... (127) (889) 1,843
Net income (loss)................................. $ (99) $ (600) $ 1,723
Accretion of Series A and B redeemable preferred
stock ........................................... -- (274) (915)
------- -------- --------
Net income (loss) applicable to common stock...... $ (99) $ (874) $ 808
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------
Actual As Adjusted
Consolidated Balance Sheet Data: ------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $15,373 $
Total current assets........................................ 23,223
Total current liabilities................................... 11,493
Long-term obligations less current portion.................. 2,709
Total stockholders' equity.................................. 3,748
</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".
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. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also impair
our business operations.
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.
We have a limited operating history and consequently face certain risks and
difficulties
TenFold was founded in 1993 and has a limited operating history. An investor
in our common stock must consider the risks and difficulties frequently
encountered by early stage companies in rapidly evolving markets. These risks
include:
. 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, including some beyond our control, that may cause
fluctuations in our quarterly financial results
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;
. employee utilization rates;
. the adequacy of provisions for losses associated with fixed-price contracts;
. the timing of sales of our products and services;
. demand for our products and services;
. economic conditions in the industries we target;
6
<PAGE>
. general economic conditions in the countries in which we operate;
. delays in introducing new products and services;
. new product introductions by our competitors;
. changes in our pricing policies or the pricing policies of our competitors;
. the mix of product license and service revenue, as well as the mix of
products licensed;
. the mix of domestic and international sales;
. the budget cycles of our customers; and
. costs related to acquisitions of technology or businesses.
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 such a loss in one or
more future quarters.
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 losses for such quarter. 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, have a material adverse effect on our business, financial condition,
and results of operations.
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". 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 such delays in the future.
Although we have limited historical financial data, many companies in our
industry experience, and we may in the future experience, seasonal fluctuations
in quarterly operating results. For instance, quarterly results may fluctuate
based on our customers' budgeting cycles and as a result of our compensation
policies.
7
<PAGE>
Due to the foregoing factors, 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 public market analysts and investors. In this event, the
price of our common stock may fall.
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. In 1998, our five largest
customers accounted for approximately 64% of our revenues, with four customers
each accounting for more than 10% of such 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. The loss of any large customer could have a material adverse effect on
our business, financial condition, and results of operations. See "Management
Discussion and Analysis of Financial Condition and Results of Operations".
Some of our fixed-price contracts are terminable by the customer following
limited notice and without significant penalty. The cancellation or significant
reduction in the scope of a large project could have a material adverse effect
on our business, financial condition, and results of operations.
We have completed a limited number of projects that are in production and we
may be unaware of limitations or potential defects in our products
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. Because our customers use our products for mission- critical
applications, any such defects could result in serious financial or other
damages to our customers. They could bring claims against us, which, if
successful, could have a material adverse effect on our business, financial
condition, and results of operations. 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 such
limitation of liability provisions.
Similar to software applications developed by other companies, 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 business, financial condition, and
results of operations will likely be materially adversely affected.
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. 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 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
8
<PAGE>
economic conditions, there will likely be a significant reduction in the demand
for our products, causing our business, financial condition, and results of
operations to suffer.
Our failure to manage growth and multiple organizations could impair our
business
Our growth has placed significant demands on our management and other
resources. 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. If we are unable
to manage our growth and projects effectively, such 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.
An element of our business strategy involves organizing our business along
industry lines, and evolving such 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 could have a material adverse effect on our
business, financial condition, and results of operations.
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. 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 could have a material adverse effect on the our business,
financial condition, and results of operations. In certain circumstances, we
have been required to commit unanticipated additional resources to complete
certain projects. We will likely experience similar situations in the future.
In addition, for certain 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
and may, as a result, adversely affect our business, financial condition, and
results of operations.
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.
9
<PAGE>
VanderDrift, Senior Vice President of Applications Products. If one or more of
our key employees resigns to join a competitor or to form a competing company,
the loss of such personnel and any resulting loss of existing or potential
customers to any such competitor could have a material adverse effect on our
business, financial condition, and results of operations. In the event of the
loss of any such personnel, there can be no assurance that we would be able to
prevent the unauthorized disclosure or use of our technical knowledge,
practices, or procedures by such personnel.
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. Certain 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. If we are unable to develop and
license these applications successfully or within the timeframes anticipated,
our business, financial condition, and results of operations could be
materially adversely affected.
If our software contains defects, we could face product liability exposure and
our reputation could be damaged
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, and could damage
our reputation, any of which could have a material adverse effect on our
business, financial condition, and results of operations.
We have designed and tested the current versions of our products to be Year
2000 compliant. However, there can be no assurance that any 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 such litigation,
it is uncertain to what extent TenFold may be affected by it.
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 such losses. Any successful claims for such losses could have a material
adverse effect on our business, financial condition, and results of operations.
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 such 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 from companies with greater resources than we
have and may face additional competition in the future
The market for our products and services is highly competitive. We believe
that we currently compete principally with consulting and software integration
firms, application software vendors, and
10
<PAGE>
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 such 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. Such a reduction in orders could
significantly impact our operating results which could cause our stock price to
materially decline.
We plan to 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. 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 such 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 are
unsuccessful in developing applications that meet the needs of companies in
these industries or if our applications are not competitive, our business,
financial condition, and results of operations will suffer.
Our failure to attract and retain professional staff could impair 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. 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, and any inability to do so could impair our ability to
adequately manage and complete our existing projects and to bid for or obtain
new projects. If our employees are unable to achieve expected performance
levels, our business, financial condition, and results of operations could be
adversely affected.
11
<PAGE>
Our future success depends upon our ability to develop new applications and
technology during periods of rapid technological change
The software market in which we compete is characterized by rapid
technological change. Existing products may become obsolete and unmarketable
when products using new technologies are introduced and new industry standards
emerge. As a result, we may need to modify our products to accommodate
technological changes, such as new versions of operating systems or relational
databases or new hardware technologies. To be successful, we must continually
enhance our current and future products and technology. Our business, financial
condition, and operating results will be materially adversely affected if we
delay release of our products and product enhancements 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. Such events could materially
adversely affect our business, financial condition, and results of operations.
A domestic or global recession could adversely affect our results of operations
Our revenues and results of operations will be influenced by general
economic conditions prevailing in the United States and, to a lesser extent,
globally. In the event of a general economic downturn or a recession, our
customers and potential customers may substantially reduce their information
technology and related budgets. Such an economic downturn may materially and
adversely affect our business, financial condition, and results of operations.
Our lengthy sales cycle could cause our operating results to vary widely
We believe that a customer's decision to purchase our software is
discretionary, 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 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".
We may not be able to successfully implement our strategy of issuing equity in
our subsidiaries
An element of our vertical business strategy involves segmenting our
business along industry lines, likely through the creation of separate
subsidiaries, and having such 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.
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 likely have a material adverse
effect on our business, financial condition, and results of operations.
12
<PAGE>
We will face new risks as we expand our international operations
Although we currently have limited international operations, our ability to
achieve revenue growth in the future may 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 such
efforts will be 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 business, financial condition, and results of operations could be
materially adversely affected. In addition, our TenFold Guarantee may not be
appropriate in certain 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.
To date, TenFold has not had significant international sales. To the extent
that we engage in international sales denominated in U.S. dollars, an increase
in the value of the U.S. dollar relative to foreign currencies could make our
products less competitive in international markets. Alternatively, to the
extent that we engage in foreign currency denominated transactions, our
operating results could become subject to significant fluctuations based upon
changes in the exchange rates of certain currencies in relation to the U.S.
dollar. Although management will continue to monitor our exposure to currency
fluctuations, and, when appropriate, may use financial hedging techniques in
the future to minimize the effect of these fluctuations, there can be no
assurance that exchange rate fluctuations will not have a material adverse
effect on our business, financial condition, and results of operations in the
future.
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. Such
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 December 31, 1998), assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after December 31, 1998. 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 as follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<S> <C>
At the date of this prospectus
90 days after the date of this prospectus
180 days after the date of this prospectus
subject to certain restrictions under the federal
securities laws
More than 180 days after the date of this
prospectus, subject to certain restrictions under
the federal securities laws
</TABLE>
The above table gives effect to certain lock-up arrangements with the
underwriters under which our directors, officers and certain stockholders have
agreed not to sell or otherwise dispose of their shares of common stock. The
underwriters may remove these lock-up restrictions prior to 180 days after the
offering without prior notice. See "Shares Eligible for Future Sale" and
"Underwriting".
13
<PAGE>
Our stock price could be volatile and could decline following the offering
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;
. developments with respect to copyrights or proprietary rights;
. conditions and trends in the software and other technology industries;
. adoption of new accounting standards affecting the software industry;
. changes in financial estimates by securities analysts;
. changes in the economic conditions in the United States and abroad;
. general market conditions; and
. other factors.
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 such company. There can
be no assurance that we will not face such litigation in the future. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon our
business, financial condition, and results of operations.
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. 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
14
<PAGE>
take appropriate steps to enforce our intellectual property rights. The laws of
certain 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. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial condition, and
results of operations.
Our business involves the development of software applications for specific
customer engagements. Although we retain ownership of the Universal
Application, TenFold ComponentWare, and FastStart, rights to applications that
we develop for customers are the subject of negotiation. We generally retain
ownership of these applications, providing customers with a license to the
application, and in some cases royalties on our future sales of the
application. In addition, certain customers have prohibited us from marketing
the applications developed for them for specified periods of time or to
specified third parties and there can be no assurance that customers will not
continue to demand similar or other restrictions in the future. Issues relating
to the ownership of, and rights to use, software applications can be
complicated and there can be no assurance that disputes will not arise that
affect our ability to resell or reuse such applications.
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 such 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. Such royalty or licensing agreements, if required, may
not be available on 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 could have a material
adverse effect upon our business, financial condition, and results of
operations.
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 ( % 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 ( %, 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. Such concentration of ownership may have the effect of delaying
or preventing any such merger or other business combination transaction, even
if such a transaction would be beneficial to our other stockholders. See
"Principal and Selling Stockholders".
The antitakeover provisions in our charter documents and under Delaware law
could discourage a takeover
Certain 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
15
<PAGE>
favorable. See "Management--Stock Plans" and "Description of Capital Stock--
Antitakeover Effect of Certain Certificate of Incorporation and Bylaw
Provisions".
Future acquisitions could be difficult to integrate, disrupt our business,
dilute stockholder value, and adversely affect our operating results
Although we have no current plans to grow our business through acquisitions,
we may in the future decide to acquire other companies or technologies using
TenFold's capital stock or proceeds from this offering. In the event that we
develop an acquisition strategy, there can be no assurance that we will be able
to identify appropriate acquisition candidates or that such candidates, when
identified, will be willing to enter into transactions with us. If we engage in
acquisitions, such acquisitions could result in dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities and amortization
expenses related to goodwill and other intangible assets, any of which could
materially adversely affect our business, financial condition, and results of
operations. In order to derive the intended benefit from any such acquisitions,
we may need to integrate the technology of the acquired company with our
technology and coordinate the research and development, marketing, and sales of
the acquired organization. There can be substantial difficulties associated
with integrating companies, including difficulties related to corporate
culture, employees, and diverse technology offerings and there can be no
assurance that any such integration will be completed expeditiously or
successfully. The integration of operations following any acquisition will
require the dedication of management resources that may temporarily distract
attention from our day-to-day business. Our business may also be disrupted by
employee uncertainty and lack of focus during any such integration. Failure to
identify appropriate acquisition targets, consummate identified acquisitions,
or effectively integrate consummated acquisitions could have a material adverse
effect on our business, financial conditions, and results of operations.
Moreover, uncertainty in the marketplace or customer hesitation relating to any
such acquisitions could have a material adverse effect on our business,
financial condition, and results of operations.
There has been no prior market for our common stock and an active trading
market may not develop following the offering
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined by negotiation among us and representatives of the underwriters, and
may not be indicative of the price that will prevail in the open market. See
"Underwriting".
New investors will incur immediate and substantial dilution
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. To the extent outstanding options to purchase common stock are
exercised, there will be further dilution. See "Dilution" and "Shares Eligible
for Future Sale".
16
<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 such forward-
looking statements. Such 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 such 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 such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
17
<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
(approximately $ million if the underwriters' over-allotment option is
exercised in full), 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 such
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 such funds
in short-term, interest-bearing, investment-grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources".
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.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998: (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>
December 31, 1998
-------------------------------
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)........... 718 718
======= ======= ====
Long-term obligations, net of current
maturities................................... $ 2,709 $ 2,709 $
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..................................... 9,555 -- --
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; 120,000,000 shares
authorized pro forma and pro forma as
adjusted; 25,074,404 shares issued and
outstanding, actual; 31,535,533 shares
issued and outstanding pro forma;
shares issued and outstanding pro forma as
adjusted(2)................................ 25 32
Preferred Stock, $0.001 par value, 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.................. 5,906 17,430
Notes receivable from shareholders.......... (329) (329)
Deferred compensation....................... (2,258) (2,258)
Retained earnings........................... 396 396
Accumulated other comprehensive income...... 8 8
------- ------- ----
Total stockholders' equity................ 3,748 15,279
------- ------- ----
Total capitalization.................... $17,988 $17,988 $
======= ======= ====
</TABLE>
- --------
(1)See Notes 4 and 5 of Notes to Consolidated Financial Statements.
(2)Based on the number of shares outstanding as of December 31, 1998. Excludes:
. 6,412,300 shares issuable upon exercise of options outstanding under
TenFold's 1993 flexible stock incentive plan with a weighted average
exercise price of $2.36 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 December 31, 1998, TenFold granted additional options to
purchase 1,052,300 shares of common stock at a weighted average exercise
price of $7.49 per share. See "Management--Stock Plans" and Note 8 of Notes
to Consolidated Financial Statements.
19
<PAGE>
DILUTION
TenFold's pro forma net tangible book value as of December 31, 1998 was
approximately $15.3 million, or $0.48 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 December 31, 1998 would have been approximately $
million or $ per share of common stock. This amount represents an immediate
increase in such net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share at December 31, 1998... $0.48
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 December 31,
1998, 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
(based on an assumed initial public offering price of $ per share before
deducting underwriting discounts and commissions and estimated offering
expenses payable by TenFold):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)(2)...... 31,535,533 % $13,474,000 % $0.43
New investors(2).........
---------- ----- ----------- -----
Total(1)............... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) This information is based on the number of shares of common stock
outstanding on December 31, 1998 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:
. 6,412,300 shares issuable upon exercise of options outstanding under
TenFold's 1993 flexible stock incentive plan with a weighted average
exercise price of $2.36 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 December 31, 1998, TenFold granted additional options to
purchase 1,052,300 shares of common stock at a weighted average exercise
price of $7.49 per share. See "Management--Stock Plans" and Note 8 of Notes
to Consolidated Financial Statements.
(2) Sales by the selling stockholders will reduce the number of shares of
common stock held by existing stockholders to or % of the total number
of shares (or % if the underwriters' over-allotment option is exercised in
full) and will increase the number of shares of common stock held by new
investors to or % (or % if the underwriters' over-allotment option is
exercised in full). See "Principal and Selling Stockholders".
20
<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 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>
Year Ended December 31,
------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License............... $ 11 $ 128 $ 271 $ 5,244 $ 13,382
Services.............. 2,167 1,420 2,744 8,879 26,785
--------- --------- --------- ---------- ----------
Total revenues...... 2,178 1,548 3,015 14,123 40,167
--------- --------- --------- ---------- ----------
Operating expenses:
Cost of revenues...... 202 302 370 4,661 14,529
Sales and marketing... -- -- 87 2,765 11,070
Research and
development.......... 1,182 1,774 2,289 4,739 9,690
General and
administrative....... 42 178 396 1,364 2,882
Amortization of
deferred
compensation......... -- -- -- 34 153
Other charge.......... -- -- -- 1,449 --
--------- --------- --------- ---------- ----------
Total operating
expenses........... 1,426 2,254 3,142 15,012 38,324
--------- --------- --------- ---------- ----------
Income (loss) from
operations............. 752 (706) (127) (889) 1,843
--------- --------- --------- ---------- ----------
Interest and other
income, net............ 9 52 28 179 375
--------- --------- --------- ---------- ----------
Income (loss) before
income taxes........... 761 (654) (99) (710) 2,218
Provision (benefit) for
income taxes........... 242 (141) -- (110) 495
--------- --------- --------- ---------- ----------
Net income (loss)....... $ 519 $ (513) $ (99) $ (600) $ 1,723
========= ========= ========= ========== ==========
Accretion of Series A
and B redeemable
preferred stock........ $ -- $ -- $ -- $ (274) $ (915)
--------- --------- --------- ---------- ----------
Net income (loss)
applicable to common
stock.................. $ 519 $ (513) $ (99) $ (874) $ 808
========= ========= ========= ========== ==========
Basic earnings (loss)
loss per share......... $ 0.03 $ (0.03) $ (0.00) $ (0.04) $ 0.04
========= ========= ========= ========== ==========
Diluted earnings (loss)
loss per share......... $ 0.03 $ (0.03) $ (0.00) $ (0.04) $ 0.02
========= ========= ========= ========== ==========
Weighted average common
and common equivalent
shares used to
calculate earnings
(loss) per share(1);
Basic................. 19,385 20,047 20,285 21,542 21,551
========= ========= ========= ========== ==========
Diluted............... 19,385 20,047 20,285 21,542 32,924
========= ========= ========= ========== ==========
Consolidated Balance
Sheet Data (at period
end):
Cash and cash equiva-
lents.................. $ -- $ 723 $ 1,211 $ 9,022 $ 15,373
Total current assets.... 1,132 846 1,376 10,443 23,223
Total current liabili-
ties................... 265 561 585 2,921 11,493
Long-term obligations,
net of current por-
tion................... -- -- -- -- 2,709
Stockholders' equity.... 914 403 1,305 483 3,748
</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 loss per share.
21
<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. Certain statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements based on current expectations and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. For a more detailed
discussion of these and other business risks, see "Risk Factors".
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 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. 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 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, 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 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 certain
22
<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 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, 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 such 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 December 31, 1998 was $5.5
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. Our unbilled accounts receivable balance at December
31, 1998 was $3.3 million. Generally, unbilled amounts are billed within 30
days.
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 such options will equal the fair
market value, at the time of grant, of such subsidiary's common stock, as
determined by TenFold's board of directors.
23
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from TenFold's statement of operations to total
net revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
License....................................... 9% 37% 33%
Services...................................... 91 63 67
------- ------- -------
Total revenues.............................. 100 100 100
------- ------- -------
Operating expenses:
Cost of revenues.............................. 12 33 36
Sales and marketing........................... 3 20 28
Research and development...................... 76 34 24
General and administrative.................... 13 10 7
Amortization of deferred compensation......... -- -- --
Other charge.................................. -- 10 --
------- ------- -------
Total operating expenses.................... 104 106 95
------- ------- -------
Income (loss) from operations................... (4) (6) 5
Interest and other income, net.................. 1 1 1
------- ------- -------
Income (loss) before income taxes............... (3) (5) 6
Provision (benefit) for income taxes............ -- (1) 1
------- ------- -------
Net income (loss)............................... (3)% (4)% 4%
======= ======= =======
</TABLE>
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. 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 1998 resulted
primarily from an increase in both the size and number of customer contracts.
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 in our services revenues from 1996 to 1997 and 1998
resulted primarily from an increase in both the size and 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 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
24
<PAGE>
1997, and 36% in 1998. The increases in the cost of revenues in absolute
dollars were due to increased costs associated with the increased number and
size of customer projects, 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. 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. 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. 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. 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 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. General and administrative expenses consist
primarily of the costs of executive management and finance and administrative
staff, recruiting, business insurance, and professional fees. 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 certain stock option grants and the
deemed fair value of our Common Stock at the time of such 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. We
expect to record an additional $5.8 million of total deferred compensation for
stock options issued in January 1999. As a result, 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.
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
25
<PAGE>
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
certain 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 certain
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.
26
<PAGE>
Quarterly Results of Operations
The following tables set forth certain of our unaudited quarterly results of
operations for each of the eight quarters ended December 31, 1998. 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>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
Mar 31, June 30, Sep 30, Dec 31, Mar 31, June 30, Sep 30, Dec 31,
1997 1997 1997 1997 1998 1998 1998 1998
------- -------- ------- ------- ------- -------- ------- -------
(in thousands)
<S> <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
Services............... 1,289 2,365 1,903 3,322 3,940 6,104 6,946 9,795
------- ------ ------ ------ ------ ------ ------ ------
Total revenues....... 1,890 3,730 2,917 5,586 5,199 7,619 11,035 16,314
------- ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Cost of revenues....... $ 449 $ 953 $1,389 $1,870 $2,176 $2,761 $4,370 $5,222
Sales and marketing.... 335 471 675 1,284 1,442 2,127 2,942 4,559
Research and
development........... 780 968 1,399 1,592 1,807 2,349 2,442 3,092
General and
administrative........ 193 307 414 450 471 507 539 1,365
Amortization of
deferred
compensation.......... -- 8 13 13 13 11 11 118
Other charge........... 1,449 -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 3,206 2,707 3,890 5,209 5,909 7,755 10,304 14,356
------- ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (1,316) 1,023 (973) 377 (710) (136) 731 1,958
Interest and other
income, net............ 28 66 46 39 102 110 113 50
------- ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (1,288) 1,089 (927) 416 (608) (26) 844 2,008
Provision (benefit) for
income taxes........... -- -- -- (110) (207) (9) 287 424
------- ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $(1,288) $1,089 $ (927) $ 526 $ (401) $ (17) $ 557 $1,584
======= ====== ====== ====== ====== ====== ====== ======
As a Percentage of Total
Revenues:
Revenues
License................ 32% 37% 35% 41% 24% 20% 37% 40%
Services............... 68 63 65 60 76 80 63 60
------- ------ ------ ------ ------ ------ ------ ------
Total revenues....... 100 100 100 100 100 100 100 100
------- ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Cost of revenues....... 24 26 48 34 42 36 40 32
Sales and marketing.... 18 13 23 23 28 28 27 28
Research and
development........... 41 26 48 29 35 31 22 19
General and
administrative........ 10 8 14 8 9 7 5 8
Amortization of
deferred
compensation.......... -- -- -- -- -- -- -- 1
Other charge........... 77 -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 170 73 133 93 114 102 93 88
------- ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. (70) 27 (33) 7 (14) (2) 7 12
Interest and other
income, net............ 2 2 2 1 2 1 1 --
------- ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (68) 29 (32) 7 (12) -- 8 12
Provision (benefit) for
income taxes........... -- -- -- 2 (4) -- 3 3
------- ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... (68)% 29% (32)% 5% (8)% -- 5% 10%
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
27
<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 certain 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, research and development, and
general and administrative costs have increased in absolute dollars during each
of the eight quarters ended December 31, 1998, 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,
including some beyond our control, that may cause fluctuations in our quarterly
financial results".
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through cash flow
from operations, private sales of capital stock totaling $11.5 million, and, to
a lesser extent, various types of equipment loans and lease lines of credit. At
December 31, 1998, our principal source of liquidity was $15.4 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 certain 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, and $6.1 million in 1998. Net cash used for investing
activities was $423,000 in 1996, $1.4 million in 1997, and $5.5 million in
1998. 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, and $5.7 million in 1998. 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.
As of December 31, 1998 our aggregate payment commitments under bank
borrowings, debt and capital lease obligations, and noncancellable operating
leases were $3.9 million in 1999, $3.1 million in 2000, $3.0 million in 2001,
$905,000 in 2002, and $845,000 thereafter.
28
<PAGE>
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 such refinancing would be available on commercially
reasonable terms, or at all, or that any other financing could be obtained. See
"Use of Proceeds" and Notes 4 and 6 of Notes to Consolidated Financial
Statements.
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 such
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 April
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. However, there can be no assurance that our current 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 such litigation,
the extent to which it will affect TenFold is uncertain.
29
<PAGE>
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 such 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. Such a reduction in orders 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 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. 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 December 31, 1998, TenFold had short-term investments of $15.0
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 December 31, 1998
rates would cause the fair value of these short-term investments to decline by
an immaterial 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.
30
<PAGE>
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 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 vertical 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 technology, 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, 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 obsolete legacy 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 legacy 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 aging, legacy-like products. 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.
31
<PAGE>
According to research from The Standish Group, most large-scale applications
development projects significantly exceed budgets and schedules. Even after
such 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
technology 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 legacy systems and meeting today's business challenges.
We offer these customer benefits:
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.
32
<PAGE>
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.
33
<PAGE>
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 legacy 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.
34
<PAGE>
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 December 31,
1998, we had 82 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.
35
<PAGE>
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++, 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.
36
<PAGE>
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.
37
<PAGE>
. 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.
38
<PAGE>
. 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
39
<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
40
<PAGE>
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, IT
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
41
<PAGE>
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.
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.
TenFold Enhanced Services Billing. TenFold Enhanced Services Billing will
be a telecommunications services management application that will help
companies quickly define new products, offer sophisticated and flexible billing
services, and improve customer service in the competitive telecommunications
market.
In many cases, the agreement with the original customer for a particular
application requires us to pay that original customer royalties, or restricts
in certain ways our rights to resell the application
42
<PAGE>
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 December 31, 1998, 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". 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 I-Link
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 IT 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.
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,
43
<PAGE>
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 that date, we had 82 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.
44
<PAGE>
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 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 certain 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.
45
<PAGE>
As of December 31, 1998, we had 318 employees, including 155 in applications
development and support, 82 in research and development, 45 in sales and
marketing, and 36 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.
46
<PAGE>
MANAGEMENT
Officers and Directors
The following table sets forth certain information regarding the officers
and directors of TenFold as of February 28, 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
Adam S. Bartkowski......... 48 Senior Vice President of FastStart Products
and Services
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
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
Robert W. Felton(1)........ 59 Director
Ralph W. Hardy, Jr.(2)..... 58 Director
Kay R. Whitmore (1)(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.
47
<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.
Adam S. Bartkowski joined TenFold in September 1998 as its Senior Vice
President of FastStart Products and Services. Prior to joining TenFold, from
1994 to 1998, Mr. Bartkowski served as Senior Vice President of New Markets and
Strategic Planning and Senior Vice President of Marketing at ADP Inc., Dealer
Services Division, a provider of computing, data, and professional services to
auto dealers and manufacturers. From 1989 to 1994, Mr. Bartkowski served as
Director of Product Management and Area Vice President at SSA Inc., an
enterprise resource planning software company. From 1984 to 1989, Mr.
Bartkowski served as West Coast Customer Support Manager, Director of Product
Development and Director of Product Marketing at Pansophic Inc., a software
engineering company. Mr. Bartkowski holds a BA in history from Amherst College
and an MBA from Northwestern University, Kellogg Graduate School of Management.
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
48
<PAGE>
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 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
49
<PAGE>
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.
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 at Policy Management Systems Corporation, a
provider of enterprise applications and services, 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 an officer of
Policy Management Systems Corporation (PMSC), a software company, 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 certain federal
securities laws 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.
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
50
<PAGE>
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 Graduate School of Business,
Harvard University.
Robert W. Felton has served as a member of TenFold's board of directors
since March 1997. Mr. Felton has been Chairman 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
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
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 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.
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. 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
51
<PAGE>
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. See "Stock Plans".
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 Hardy. 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 Whitmore. 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.
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.
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 certain expenses, including attorneys' fees, judgments, fines
52
<PAGE>
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.
Executive Compensation
Summary Compensation Table. The following table provides certain 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 aggregate 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 $75,000 -- --
Executive Vice President and
Chief Operating Officer
Bernard C. Mazon................... 70,958 100,000 -- 150,000
President of TenFold Insurance
Systems Group
Glen D. Mella...................... 140,400 11,938 1,680 --
Senior Vice President of Marketing
Robert P. Hughes................... 139,700 11,938 943 --
Senior Vice President and
Chief Financial Officer
</TABLE>
During 1998, Mr. Mazon was granted options to acquire 150,000 shares of
common stock, subject to a five year vesting schedule. Pursuant to a letter
agreement between TenFold and Mr. Mazon, TenFold has agreed that it will grant
Mr. Mazon an option to acquire three percent of the outstanding shares of
capital stock of a TenFold subsidiary to be formed during 1999 from which
TenFold intends to operate its insurance business, at a per share exercise
price equal to the fair market value, at the time of grant of such subsidiary's
common stock, as determined by TenFold's board. Such option shall vest over
five years and have a vesting commencement date of July 20, 1998.
53
<PAGE>
Option Grants in Last Fiscal Year. The following table provides certain
summary information regarding stock options granted to the named officers
during the fiscal year ended December 31, 1998. TenFold did not grant any stock
options to Messrs. Kennedy, Conroy, Mella and Hughes during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants(1)
-------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise or for Option Term(5)
Options Employees in Base Price Expiration ---------------------
Name Granted(2) Fiscal Year(3) ($/Share)(4) 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>
- --------
(1) Consists of options granted pursuant to TenFold's 1993 Flexible Stock
Incentive Plan. See "Stock Plans--1993 Flexible Stock Incentive Plan."
(2) 20% of the shares issuable upon exercise of such options vest on the first
anniversary of the vesting commencement date and on each annual anniversary
thereafter until fully vested.
(3) Based on an aggregate of 4,065,000 options granted to employees,
consultants and directors during the fiscal year ended December 31, 1998.
(4) The exercise price per share of each option was equal to the fair value of
the common stock on the date of grant as determined by the 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.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
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 common stock appreciates over the
option term, no value will be realized from the option grants made to Mr.
Mazon. The potential realizable value 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 certain 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.
Employment Agreements
None of the named officers, other than Mr. Kennedy, has an employment
agreement with TenFold.
54
<PAGE>
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 or in certain
other circumstances. 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 is expected to be 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 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 which
date 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. To the extent 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 an aggregate fair market value under all plans of
TenFold, and determined for each share as of the date the option to purchase
the shares was granted, in excess of $100,000, any such excess options shall be
treated as nonstatutory stock options. 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. In no event,
however, may an individual employee receive option grants or stock purchase
rights under the 1999 stock plan during any one fiscal year of TenFold which
would allow the employee to purchase more than 1,000,000 shares. The exercise
price of all incentive stock options granted under the 1999 stock plan must be
at least equal to 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 total combined voting
power of all classes of outstanding capital stock of TenFold or any parent or
subsidiary corporation 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
nonstatutory stock options and the purchase price of stock purchase rights
granted under the 1999 stock plan shall be such price as is determined by the
plan administrator; provided, however, that 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.
With respect to options granted under the 1999 stock plan, 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; provided that the plan administrator may
grant nonstatutory stock options with limited transferability rights in certain
circumstances. 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 pursuant to stock purchase rights granted under the 1999 stock
plan will generally be subject to a repurchase right exercisable by TenFold
upon the voluntary or involuntary 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, awards outstanding under the 1999 stock plan shall be assumed or
equivalent awards 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 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 provided that
stockholder approval for any amendments to the plan shall be obtained to the
extent 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. A total of 10,000,000 shares of common stock
has been reserved for issuance under the 1993 stock plan. The 1993 stock plan
is administered by the board of directors and, in certain circumstances, by a
committee of the board, and 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 December 31, 1998, options to purchase 1,794,700 shares of common
stock with a weighted average exercise price of $1.56 had been exercised,
options to purchase a total of 6,412,300 shares at a weighted average exercise
price of $2.36 per share were outstanding and 1,793,000 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
56
<PAGE>
shares that may be issued pursuant to incentive stock options granted, or to
change the class of persons eligible to receive incentive stock options under
the plan.
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 is expected to be
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, plus an
automatic annual increase 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. At the end of each six-
month offering period an automatic purchase will be made for participants. The
initial offering period is expected to commence on the date of this offering
and end on January 31, 2000. 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, which in any event may not exceed 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 applicable 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 shall be granted an option under the purchase plan if immediately
after the grant such employee would own stock and/or hold outstanding options
to purchase stock equaling 5% or more of the total voting power or value of all
classes of TenFold stock or TenFold's subsidiaries, or if such option would
permit an employee to purchase stock under all employee stock purchase plans of
TenFold or TenFold's subsidiaries to accrue at a rate that exceeds $25,000 of
fair market value of such stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 3,000
shares of common stock under the purchase plan in any one offering period.
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
57
<PAGE>
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.
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 a plan entry date nearest 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 59 1/2, 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 an aggregate
price of $1,000,000 pursuant to a restricted stock purchase agreement entered
into in connection with an employment agreement between TenFold and Mr. Kennedy
dated September 1, 1996. Approximately 2,491,558 shares are currently subject
to a repurchase right in favor of TenFold that lapses 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 TenFold 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 TenFold achieves a market capitalization of $500 million or
more. TenFold anticipates that it will achieve a market capitalization of
greater than $500 million upon the closing of this offering. Notwithstanding
the foregoing, 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 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.
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, subject to certain vesting requirements and repurchase rights. On
February 5, 1998, Mr. Conroy exercised 72,000 of these options at an exercise
price of $0.89 per share.
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 option exercises, TenFold
loaned Mr. Slovik $119,919. This loan is due December 12, 2001, bears interest
at an annual rate of 5.69%, 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 such option
exercise, TenFold loaned Mr. Slovik $70,543. This
59
<PAGE>
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 certain 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. Such option shall vest over five years and have
a vesting commencement date of July 20, 1998.
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 $75,064. 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.
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 certain 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".
60
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth (1) certain information regarding the
beneficial ownership of TenFold's common stock as of December 31, 1998 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 pursuant to 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. 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
31,535,533 shares of common stock outstanding as of December 31, 1998 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 December 31, 1998 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 Beneficially Shares 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 14,229,800 45.1% %
M. Walker(1)(2)(3).....
Gary D. Kenne- 4,442,174 14.1
dy(1)(2)(4)............
Walker Children's 4,269,800 13.5
Trust(3)(5)............
First Media TF Holdings, 3,340,330 10.6
LLC(6).................
Ralph W. Hardy, Jr
11400 Skipwith Lane
Potomac, MD 20854
Indus International, 2,920,799 9.3
Inc.(2)(3)(7)..........
Robert W. Felton
60 Spear Street
San Francisco, CA
94105..................
Robert P. Hughes (8).... 160,000 *
William M. Conroy (9)... 144,000 *
Glen D. Mella (10)...... 40,000 *
Kay R. Whitmore (11).... 15,000 *
Bernard C. Mazon........ -- --
All Directors and Execu-
tive Officers as a
Group (10 persons)
(12)................... 25,405,103 80.1% %
</TABLE>
- --------
* Less than one percent of the outstanding shares of common stock.
61
<PAGE>
(1) TenFold and Messrs. Walker and Kennedy are parties to a Voting Agreement
dated September 1, 1996, as amended in March 4, 1997, under which, for so
long as Mr. Kennedy is employed by TenFold as its President and Chief
Executive Officer, on all matters on which the holders of the TenFold's
common stock are entitled to vote, Mr. Kennedy shall have the power to
vote the number of shares of TenFold's common stock then held of record by
Mr. Walker that, when combined with the number of shares of TenFold's
common stock then held of record by Mr. Kennedy, equals 50% of the
aggregate number of shares of TenFold's common stock then held of record
by Messrs. Kennedy and Walker. This agreement will terminate pursuant to
its terms upon the closing of this offering.
(2) TenFold, Messrs. Walker and Kennedy, Indus International, Inc. and First
Media TF Holdings, LLC are parties to an Amended and Restated Voting
Agreement, dated November 24, 1997, which provides, among other things,
that Indus International, Inc. and First Media TF Holdings, LLC will vote
the shares of preferred stock now or hereafter acquired by them to approve
or not approve certain change of control transactions in the same manner
and in the same percentage by which the holders of the TenFold's common
stock, in the aggregate, may vote their shares on such matter. This
agreement will terminate pursuant to its terms upon the closing of this
offering.
(3) In the event that the underwriters exercise their over-allotment option,
Jeffrey L. and Cassandra M. Walker will sell shares, the Walker
Children's trust will sell shares, and Indus International, Inc. will
sell shares.
(4) 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.
(5) 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.
(6) 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.
(7) Mr. Felton, a member of TenFold's board of directors, is Chairman 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.
(8) Includes 40,000 shares issuable upon exercise of options which will be
vested within 60 days of December 31, 1998.
(9) Includes 72,000 shares issuable upon exercise of vested options.
(10) Includes 20,000 shares issuable upon exercise of options which will be
vested within 60 days of December 31, 1998.
(11) Includes 5,000 shares issuable upon exercise of options which will be
vested within 60 days of December 31, 1998.
(12) Includes 40,080 shares held by an entity affiliated with Mr. Kennedy as
described in Note (4) above, 72,000 shares issuable upon exercise of
vested options, and 65,000 shares issuable upon exercise of options which
will be vested within 60 days of December 31, 1998. 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 does not purport to
be a complete description and is qualified in its entirety by reference to
TenFold's certificate of incorporation, bylaws and applicable Delaware law.
Common Stock
As of December 31, 1998, there were 31,535,533 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 127
stockholders, and options to purchase an aggregate of 6,412,300 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
December 31, 1998.
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 therefor. See
"Dividend Policy". 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
thereof, 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. In
certain circumstances, such 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 26,534,504 shares of common stock or
their transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. These rights are provided
under the terms of an agreement between TenFold and the stockholders entitled
to registration rights. Subject to certain limitations in the agreement, the
holders of at least a
63
<PAGE>
majority of the shares entitled to registration rights, a majority of the
common stock issued upon conversion of the Series A preferred stock, or a
majority of the common stock issued upon conversion of the Series B preferred
stock may require, beginning six months after the date of this prospectus, that
TenFold use its best efforts to register shares entitled to registration rights
for public resale. TenFold is required to continue to effect such registrations
until the Series A holders have caused a registration to occur, the Series B
holders have caused a registration to occur and one other registration has
occurred. Subject to certain exceptions, if TenFold registers any of its stock
in a public offering of securities solely for cash, the holders of shares
entitled to registration rights are entitled to include their shares of common
stock in such registration, subject to the ability of the underwriters to limit
the number of shares included in this offering. The holders of not less than
25% of the shares entitled to registration rights, or not less than 25% of the
shares entitled to registration rights held by Series A holders or Series B
holders, may also require TenFold (not more than twice in any twelve-month
period) to register all or a portion of these shares on Form S-3 when use of
such form becomes available to TenFold, provided, among other limitations, that
the proposed aggregate selling price (net of any underwriters' discounts or
commissions) is at least $1,000,000. All registration expenses must be borne by
TenFold and all selling expenses relating to the shares entitled to
registration rights must be borne by the holders of the shares being
registered.
Antitakeover Effect of Certain Certificate of Incorporation and Bylaw
Provisions
Certain 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 certain types of 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 Certain 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,
with certain exceptions, 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,
64
<PAGE>
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 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 . The
transfer agent's address and telephone number is .
Nasdaq National Market Listing
TenFold has applied to have its common stock quoted on the Nasdaq National
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 certain 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, the 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 certain 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 the
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 pursuant to this offering without the prior written consent of a
designated representative of the underwriters. As a result of these contractual
restrictions, notwithstanding 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 certain 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 pursuant to 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 pursuant to 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 December 31,
1998, there were outstanding options for the purchase of 6,412,300 shares, of
which 532,100 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".
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.
ADDITIONAL INFORMATION
TenFold has filed with the Securities and Exchange Commission a registration
statement (which term shall include any amendments thereto) on Form S-1 under
the Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the registration statement as
permitted by the rules and regulations of the Commission. For further
information with respect to TenFold and the common stock offered hereby,
reference is made to the registration statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved. The registration statement, including exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without
charge at the public reference facilities maintained by the 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, NY 10048,
and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the Commission at 1-800-SEC-0330 for
further information about public reference rooms. Copies of all or any part
thereof may be obtained from the Commission upon payment of certain fees
prescribed by the Commission. Such reports and other information may also be
inspected without charge at a Web site maintained by the Commission. The
address of such site is 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.............. F-3
Consolidated Statements of Operations for the three years ended December
31, 1998................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 31, 1998............................................ F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1998................................................................. F-6
Notes to Consolidated Financial Statements for the three years ended
December 31, 1998........................................................ 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 2, 1999
F-2
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................... $ 9,022 $15,373
Accounts receivable (net of allowance for doubtful accounts
of $0 in 1997 and $500 in 1998)............................. 1,149 1,691
Unbilled accounts receivable................................. -- 3,258
Due from shareholder......................................... -- 1,976
Prepaid expenses and other assets............................ 123 389
Income tax receivable........................................ 149 --
Deferred income taxes........................................ -- 536
------- -------
Total current assets......................................... 10,443 23,223
Property and equipment, net.................................. 1,569 6,157
Other assets................................................. 32 186
------- -------
Total assets................................................. $12,044 $29,566
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................. $ 344 $ 941
Income taxes payable......................................... -- 498
Accrued liabilities.......................................... 827 3,306
Deferred revenue............................................. 1,750 5,505
Current installments of obligations under capital leases..... -- 525
Current installments of notes payable........................ -- 718
------- -------
Total current liabilities.................................... 2,921 11,493
Long-term liabilities:
Deferred income taxes........................................ -- 85
Obligations under capital leases, excluding current
installments................................................ -- 1,116
Notes payable, excluding current installments................ -- 1,593
------- -------
Total long-term liabilities.................................. -- 2,794
Redeemable preferred stock.................................... 8,640 9,555
Redeemable common stock....................................... -- 1,976
Stockholders' equity:
Common stock, $0.001 par value:
Authorized: 43,800,000 shares; issued and outstanding:
23,603,704 shares in 1997 and 25,074,404 shares in 1998..... 24 25
Additional paid-in capital................................... 1,087 5,906
Notes receivable from shareholders........................... -- (329)
Deferred compensation........................................ (217) (2,258)
Retained earnings (accumulated deficit)...................... (412) 396
Accumulated other comprehensive income....................... 1 8
------- -------
Total stockholders' equity................................... 483 3,748
------- -------
Total liabilities and stockholders' equity................... $12,044 $29,566
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Revenues:
License........................................ $ 271 $ 5,244 $ 13,382
Services....................................... 2,744 8,879 26,785
------- -------- --------
Total revenues............................... 3,015 14,123 40,167
------- -------- --------
Operating expenses:
Cost of revenues............................... 370 4,661 14,529
Sales and marketing............................ 87 2,765 11,070
Research and development....................... 2,289 4,739 9,690
General and administrative..................... 396 1,364 2,882
Amortization of deferred compensation.......... -- 34 153
Other charge................................... -- 1,449 --
------- -------- --------
Total operating expenses..................... 3,142 15,012 38,324
------- -------- --------
Income (loss) from operations.................... (127) (889) 1,843
Other income (expense):
Interest income................................ 28 179 395
Interest expense............................... -- -- (20)
------- -------- --------
Total other income........................... 28 179 375
------- -------- --------
Income (loss) before income taxes................ (99) (710) 2,218
Provision (benefit) for income taxes............. -- (110) 495
------- -------- --------
Net income (loss)................................ $ (99) $ (600) $ 1,723
======= ======== ========
Accretion of Series A and B preferred stock...... -- (274) (915)
------- -------- --------
Net income (loss) applicable to common stock..... $ (99) $ (874) $ 808
======= ======== ========
Basic earnings (loss) per common share........... $ (0.00) $ (0.04) $ 0.04
======= ======== ========
Diluted earnings (loss) per common share......... $ (0.00) $ (0.04) $ 0.02
======= ======== ========
Weighted average common and common equivalent
shares used to calculate earnings (loss) per
share:
Basic.......................................... 20,285 21,542 21,551
======= ======== ========
Diluted........................................ 20,285 21,542 32,924
======= ======== ========
</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
---------- ------ ---------- ------------- ------------ ------------ ---------------------- --------------
<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
shareholders.... -- -- -- -- (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
========== === ====== ======= ===== ===== ====
<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
shareholders.... (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
=============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
TENFOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (99) $ (600) $ 1,723
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation..................................... 53 305 1,147
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
Changes in operating assets and liabilities:
Accounts receivable............................. (42) (984) (1,042)
Unbilled accounts receivable.................... -- -- (3,258)
Prepaid expenses................................ (28) (123) (266)
Other assets.................................... -- 1 (154)
Accounts payable................................ 100 245 597
Accrued liabilities............................. 16 781 2,479
Income taxes.................................... 91 (239) 498
Deferred revenues............................... (62) 1,402 3,755
------- ------- --------
Net cash provided by (used in) operating
activities.................................... (92) 822 6,129
Cash flows from investing activities:
Additions to property and equipment............... (423) (1,393) (5,464)
------- ------- --------
Net cash used in investing activities.......... (423) (1,393) (5,464)
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
Exercise of common stock options.................. 1 17 327
Notes receivable from shareholders................ -- -- (329)
Proceeds from notes payable....................... -- -- 2,425
Principal payments on notes payable............... -- -- (114)
Proceeds from sales-leaseback..................... -- -- 1,424
Principal payments on capital lease obligations... -- -- (54)
------- ------- --------
Net cash provided by financing activities...... 1,002 8,382 5,680
------- ------- --------
Effect of exchange rate changes.................... -- 1 7
------- ------- --------
Net increase in cash and cash equivalents.......... 487 7,812 6,352
Cash and cash equivalents at beginning of year..... 723 1,210 9,022
------- ------- --------
Cash and cash equivalents at end of year........... $ 1,210 $ 9,022 $ 15,373
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes........................ $ 2 $ 129 --
Cash paid for interest............................ -- -- $ 20
Supplemental schedule of noncash investing and
financing activities:
Issuance of common stock in exchange for
receivable due from shareholder.................. -- -- $ 1,976
Deferred compensation related to grants of stock
options.......................................... -- $ 251 $ 3,264
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
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.
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 unbilled accounts receivable
balance at December 31, 1998 was $3.3 million.
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 Shareholder
The due from shareholder 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)
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.
Warranty Expense
The Company provides reserves for warranty costs expected to be incurred. To
date the Company has not incurred significant warranty costs.
F-9
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
2. Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------ -------
<S> <C> <C>
Computer equipment under capital lease.................. $ -- $ 1,695
Computer equipment...................................... 1,241 3,427
Software................................................ 52 571
Furniture and fixtures.................................. 414 1,107
Leasehold improvements.................................. 72 354
Office equipment........................................ 170 531
------ -------
Total cost............................................ 1,949 7,685
Less accumulated depreciation and amortization.......... (380) (1,528)
------ -------
$1,569 $ 6,157
====== =======
</TABLE>
3. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
-------------
<S> <C> <C>
Accrued compensation...................................... $ 659 $ 2,043
Other accrued expenses.................................... 168 1,263
----- -------
$ 827 $ 3,306
===== =======
</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.
F-10
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 is net of sublease income of approximately $221,000. The Company did not
have sublease income in 1996 and 1998.
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.
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.
F-11
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-12
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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 $3.0 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
F-13
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. In the same transaction, the majority shareholder 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 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. Based on an independent
valuation of the Company's common and preferred stock, the Company allocated
the total consideration received from the third party based on the respective
values of the preferred and common shares. As a result of the transaction, the
majority shareholder received a premium 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
F-14
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
$15,000,000 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.
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 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
========= ====== ========= ====== ======= ======
</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
F-15
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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........................................... 4,065,000 $3.88
Exercised......................................... 1,260,700 $0.26
Canceled.......................................... 845,200 $1.71
--------- -----
Outstanding at December 31, 1998.................... 6,412,300 $2.36
========= =====
</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-16
<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 2,063,500 10 Years $4.49 -- $ --
---------- --------- --------- ----- ------- -----
$0.02 to $4.49 6,412,300 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) $0.02
====== ====== =====
Pro forma net income (loss) per share:
Basic................................................. $(0.00) $(0.04) $0.02
====== ====== =====
Diluted............................................... $(0.00) $(0.04) $0.01
====== ====== =====
</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-17
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
Year ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income (loss).............................. $ (99) $ (600) $ 1,723
Accretion of Series A and B preferred stock.... -- (274) (915)
------- ------- -------
Numerator for basic earnings per share-income
available to common stockholders.............. $ (99) $ (874) $ 808
======= ======= =======
Numerator for diluted earnings per share-income
available to common stockholders after assumed
dilutive conversions.......................... $ (99) $ (874) $ 808
======= ======= =======
Denominator:
Denominator for basic earnings per share-
weighted-average shares....................... 20,285 21,542 21,551
======= ======= =======
Series A and B Preferred Stock................. -- -- 6,261
Employee stock and options..................... -- -- 5,112
------- ------- -------
Denominator for diluted earnings per share-
adjusted weighted-average shares and assumed
conversions................................... 20,285 21,542 32,924
======= ======= =======
Earnings (loss) per common share:
Basic earnings (loss) per common share......... $ (0.00) $ (0.04) $ 0.04
======= ======= =======
Diluted earning (loss) per common share........ $ (0.00) $ (0.04) $ 0.02
======= ======= =======
</TABLE>
The computation of diluted earnings per common share during 1996 and 1997
excludes the assumed conversion of the Series A and B convertible preferred
stock and stock options because the impact of the conversion, including the
assumed elimination of the accretion of such preferred stock, would be anti-
dilutive.
Potential common shares of 5.4 million and 7.2 million outstanding during
the years ended December 31, 1996, and 1997, 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.
F-18
<PAGE>
TENFOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Revenue information regarding operations for different products and services
is as follows (in thousands):
<TABLE>
<CAPTION>
Investment Utilities &
Insurance Management Healthcare Telco Energy Other Total
--------- ---------- ---------- ------ ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
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-19
<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 are expected to be approved
by the stockholders in March of 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.
Subsequent to year end, 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-20
<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 pursuant to 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.
Application has been made for quotation of the common stock on the Nasdaq
National 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
National 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........................ 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 31
Management............................................................... 47
Certain Transactions..................................................... 59
Principal and Selling Stockholders....................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Additional 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 National Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee.............................................. *
NASD filing fee................................................... *
Nasdaq National Market listing fee................................ *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky qualification fees and expenses.......................... *
Transfer Agent and Registrar fees................................. *
Director and Officer insurance expenses........................... *
Miscellaneous fees and expenses................................... *
Total........................................................... *
</TABLE>
- --------
*To be supplied by amendment.
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 10.1 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,
pursuant to a restricted stock purchase agreement in connection with his
employment agreement.
7. Since inception TenFold has issued 10,953,500 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 2,182,500 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 thereof, and appropriate legends were affixed to the
share certificates issued in such transactions. All recipients
II-2
<PAGE>
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-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
** To be supplied by amendment, subject to confidential treatment to be
requested as to certain portions of this Exhibit.
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 pursuant to 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 thereof.
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 March 5, 1999.
TenFold Corporation
/s/ Gary D. Kennedy
By: _________________________________
Gary D. Kennedy
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person 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 pursuant to 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. This
Power of Attorney may be signed in several counterparts.
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>
/s/ Gary D. Kennedy President, Chief Executive March 5, 1999
______________________________________ Officer and Director
(Gary D. Kennedy) (Principal Executive
Officer)
/s/ Robert P. Hughes Senior Vice President and March 5, 1999
______________________________________ Chief Financial Officer
(Robert P. Hughes) (Principal Financial and
Accounting Officer)
/s/ Jeffrey L. Walker Chairman, Executive Vice March 5, 1999
______________________________________ President and Chief
(Jeffrey L. Walker) Technology Officer
/s/ Robert W. Felton Director March 5, 1999
______________________________________
(Robert W. Felton)
/s/ Ralph W. Hardy, Jr. Director March 5, 1999
______________________________________
(Ralph W. Hardy, Jr.)
/s/ Kay R. Whitmore Director March 5, 1999
______________________________________
(Kay R. Whitmore)
</TABLE>
II-5
<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-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
** To be supplied by amendment, subject to confidential treatment to be
requested as to certain portions of this Exhibit.
<PAGE>
Exhibit 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TENFOLD CORPORATION
The undersigned, Gary D. Kennedy and Donald M. Keller, Jr. hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of TenFold Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware of February 3, 1993 under the name
"KeyTex Corporation." On December 20, 1996 this corporation filed a Certificate
------------------
of Amendment with the Secretary of State of Delaware changing its name from
"KeyTex Corporation" to "TenFold Corporation."
- ------------------- -------------------
3. On March 4,1997, this corporation filed a First Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware. On November 24, 1997, this corporation filed a Second Amended and
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware.
4. The Certificate of Incorporation of this corporation shall be further
amended and restated to read in full as follows:
"ARTICLE I
The name of the corporation is TenFold Corporation (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
<PAGE>
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and " Preferred Stock."
------------ ----------------
The total number of shares which the corporation is authorized to issue is One
Hundred Twenty Eight Million Two Hundred Sixty-One Thousand One Hundred Twenty-
Nine (128,261,129) shares, each with a par value of $0.001 per share. One
Hundred Twenty Million (120,000,000) shares shall be Common Stock and Eight
Million Two Hundred Sixty-One Thousand One Hundred Twenty-Nine (8,261,129)
shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Restated Certificate of Incorporation may
be issued from time to time in one or more series. The Board of Directors is
authorized to fix by resolution or resolutions the number of shares of any
series of Preferred Stock and to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series of Preferred Stock, to increase (but
not above the total number of authorized shares of Preferred Stock) or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue
of shares of that series.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(c) whether that series shall have voting rights in addition to
the voting rights provided by law, and if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges, and
if so, the terms and conditions of such privileges, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and if so, the terms in the
amount of such sinking funds;
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
<PAGE>
(h) any other relative rights, preferences and limitations of
that series.
The first series of Preferred Stock shall be designated Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and shall consist
------------------------
of Two Million Nine Hundred Twenty Thousand Seven Hundred Ninety Nine
(2,920,799) shares. The second series of Preferred Stock shall be designated
Series B Convertible Preferred Stock (the "Series B Preferred Stock" and with
------------------------
the Series A Preferred Stock, collectively the "Convertible Preferred Stock")
---------------------------
and shall consist of Three Million Three Hundred Forty Thousand Three Hundred
Thirty (3,340,330) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock and the
Series B Preferred Stock are set forth below in this Article IV(B).
1. Dividend Provisions. Subject to the rights of series of
-------------------
Preferred Stock which may from time to time come into existence, the holders
of shares of Convertible Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than
in Common Stock or other securities and rights convertible into or entitling
the holder thereof to receive, directly or indirectly, additional shares of
Common Stock of the Corporation) on any other outstanding shares of capital
stock of Corporation, at the rate of $0.14 per share per annum on each
outstanding share of Series A Preferred Stock and $0.17 per share per annum on
each outstanding share of Series B Preferred Stock (each as appropriately
adjusted for stock splits and combinations) payable quarterly when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of the Convertible Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation
to the holders of any other outstanding shares of capital stock of the
Corporation by reason of their ownership thereof, an amount per share equal to
(i) $2.74 per share (as appropriately adjusted for stock splits and
combinations) for each share of Series A Preferred Stock then held by them,
plus declared but unpaid dividends and (ii) $3.36 per share (as appropriately
adjusted for stock splits and contribution) for each share of Series B
Preferred Stock then held by them, plus declared but unpaid dividends. If,
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Convertible Preferred Stock shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of
the Convertible Preferred Stock in proportion to the preferential amount each
such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by Section
2(a) above and any other distribution that may be required with respect to any
series of Preferred
<PAGE>
Stock that may from time to time come into existence, the remaining assets of
the, corporation available for distribution to stockholders shall be
distributed among the holders of the Convertible Preferred Stock and the
Common Stock pro rata based on the number of shares of Common Stock held by
each (calculated as if all then outstanding shares of Convertible Preferred
Stock has been converted into Common Stock) until such holders of Series A
Preferred Stock shall have received an aggregate of $5.13 per share (including
amounts paid pursuant to Section 2(a) above). Thereafter, the remaining assets
of the Corporation available for distribution to stockholders shall be
distributed among holders of the Series B Preferred Stock and the Common Stock
pro rata based on the number of shares of Common Stock held by each
(calculated as if all then outstanding shares of Series B Preferred Stock has
been converted into Common Stock) until such holders of Series B Preferred
Stock shall have received an aggregate of $6.30 per share (including amounts
paid pursuant to Section 2(a) above); provided, however, that notwithstanding
the foregoing, holders of Preferred Stock shall not receive any distribution
under Sections 2(a) and 2(b) hereof that in the aggregate exceeds the amount
that such holder would be entitled to receive under such sections if the total
of assets and funds available for distribution among the holders of Series A
Preferred Stock, Series B Preferred Stock and Common Stock were equivalent to
one hundred twenty million dollars ($120,000,000). Thereafter, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, if assets remain in the Corporation, the holders of the Common
Stock of the Corporation shall receive all of the remaining assets of the
Corporation pro rata based on the number of shares of Common Stock held by
each.
(c) For purposes of this Section 2, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, or to
include, (i) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation, or transfer of
outstanding equity shares, but excluding any merger effected exclusively for the
purpose of changing the domicile of the corporation); or (ii) a sale of all or
substantially all of the assets of the corporation, unless the corporation's
------
stockholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the corporation's acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity in
approximately the same relative percentages after such acquisition or sale as
before such acquisition or sale.
(d) In any of the events specified in (c) above, if the
consideration received by the corporation is other than cash, its value will
be deemed fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability;
(A) If traded on a securities exchange or the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
<PAGE>
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all then outstanding shares of Convertible
Preferred Stock (the "Required Percentage"). If the Corporation and the
-------------------
holders of the Required Percentage cannot mutually determine a value, then
such value shall be determined by the majority vote of a three-member panel,
one member of which shall be a non-employee designee of the Corporation, one
member of which shall be the designee of the holders of the Required
Percentage and the third member of which shall be designated by the foregoing
two members.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from
the market value determined as above in (i) (A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by the
corporation and the holders of the Required Percentage.
(iii) In connection with any of the events specified in
Section 2(c), if the requirements of this Section 2 are not complied with, the
Corporation shall forthwith either:
(A) cause the closing of the transaction to be
postponed until such time as the requirements of this Section 2 have been
complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Convertible Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Convertible Preferred Stock written notice of such impending transaction not
later than twenty (20) days prior to the stockholders' meeting called to
approve such transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the corporation shall thereafter
give such holders prompt notice of any material changes. The transaction shall
in no event take place sooner than twenty (20) days after the corporation has
given the first notice provided for herein or sooner than ten (10) days after
the corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Convertible Preferred Stock that are entitled to such notice
rights or similar notice rights and that represent the Required Percentage.
<PAGE>
3. Redemption.
----------
(a) Subject to the rights of series of Preferred Stock which
may from time to time come into existence, at any time after January 1, 2003
in the case of the Series A Preferred Stock, or October 1, 2003, in the case
of the Series B Preferred Stock, upon the receipt by this Corporation of a
written request from either the holders of not less than sixty-six and two-
thirds percent (66-2/3%) of the then outstanding Series A Preferred Stock or
the holders of not less than sixty-six and two-thirds percent (66 2/3%) of the
then outstanding Series B Preferred Stock that all or some of such holders'
shares be redeemed, (a "Redemption Notice") this Corporation shall redeem,
------------------
from any source of funds legally available therefor, such Convertible
Preferred Stock requested to be redeemed in four quarterly installments
commencing on a date which is within thirty (30) days of the date that the
Corporation received the Redemption Notice, and continuing quarterly thereafter
(each a "Redemption Date") until the remaining Convertible Preferred Stock
---------------
requested to be redeemed has been so redeemed. The corporation shall effect
such redemptions on the applicable Redemption Dates by paying in cash, in
exchange for the shares of Convertible Preferred Stock to be redeemed, a sum as
set forth below (the "Redemption Price"). The number of shares of Convertible
----------------
Preferred Stock that the corporation shall be required under this subsection
(3)(a) to redeem on any one Redemption Date shall be equal to the amount
determined by dividing (i) the aggregate number of shares of Convertible
Preferred Stock requested to be redeemed and still outstanding immediately
prior to such Redemption Date by (ii) the number of remaining Redemption Dates
(including the Redemption Date to which such calculation applies). Any
redemption effected pursuant to this subsection (3)(a) shall be made on a pro
rata basis among the holders of the Convertible Preferred Stock in proportion
to the number of shares of Convertible Preferred Stock then held by such
holders. The Redemption Price shall be $2.74 per share with respect to the
Series A Preferred Stock and $3.36 per share with respect to the Series B
Preferred Stock (each as appropriately adjusted for stock splits and
combinations).
4. Conversion. The holders of the Convertible Preferred Stock shall
----------
have conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(d), each share of
----------------
Convertible Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, and on or prior
to the fifth day prior to the Redemption Date, if any, as may have been fixed in
any Redemption Notice with respect to such series of Convertible Preferred
Stock, at the office of the Corporation or any transfer agent for such stock,
into one share of Common Stock, subject to the adjustments provided in this
Section 4.
(b) Automatic Conversion of Series A Preferred Stock. Each
------------------------------------------------
share of Series A Preferred Stock shall automatically be converted into such
number of shares of Common Stock as is calculable under this Section 4 upon
the earlier of (i) except as provided below in Section 4(d), the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended, the public offering price of which is not less than $4.00 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and which results in aggregate
<PAGE>
cash proceeds to the Corporation of $15,000,000 (net of underwriting discounts
and commissions) or (ii) the date specified by written consent or agreement of
the holders of a majority of the then outstanding shares of Series A Preferred
Stock.
(c) Automatic Conversion of Series B Preferred Stock. Each
------------------------------------------------
Series B Preferred Stock shall automatically be converted into such number of
shares of Common Stock as is calculable under this Section 4 upon the earlier of
(i) except as provided below in Section 4(d), the corporation's sale of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended, the public
offering price of which is not less than $4.00 per share (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization) and which results
in aggregate cash proceeds to the Corporation of $15,000,000 (net of
underwriting discounts and commissions) or (ii) the date specified by written
consent or agreement of the holders of a majority of the then outstanding shares
of Series B Preferred Stock.
(d) Mechanic of Conversion. Before any holder of Convertible
----------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Convertible Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Convertible Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Convertible Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, the conversion may, at the option of any holder
tendering Convertible Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive Common Stock upon
conversion of such Convertible Preferred Stock shall not be deemed to have
converted such Convertible Preferred Stock until immediately prior to the
closing of such sale of securities.
(e) Conversion Ratio Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Splits and Combinations. The number of shares of Common Stock issuable upon
- ------------------------
conversion of the Convertible Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) In the event the Corporation should at any time or
from time to time fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock then, as of such record date (or
the date of such dividend, distribution, split or subdivision if no record
date is
<PAGE>
fixed), the number of shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock shall be increased in proportion to such increase
of the aggregate number of shares of Common Stock outstanding.
(ii) If the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the number of shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(f) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or securities of the Corporation other than Common Stock,
then, in each such ease for the purpose of this Section 4(f), the holders of
Convertible Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Convertible
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(g) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of the Convertible Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Convertible Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the number of
shares purchasable upon Conversion of the Convertible Preferred Stock) shall be
applicable after that event and be as nearly equivalent as practicable.
(h) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
(i) No Fractional Shares and Certificates as to Adjustments.
-------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Convertible Preferred Stock, and the
number of shares of Common
<PAGE>
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Convertible Preferred Stock the holder
is at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the number of shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock pursuant to this Section 4, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Convertible Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Convertible Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, and (B) the number of shares of Common Stock arid
the amount, if any, of other property which at the time would be received upon
the conversion of a share of the Series Preferred Stock.
(j) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Convertible Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(k) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Convertible Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Convertible
Preferred Stock, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Convertible Preferred Stock, in addition to such
other remedies as shall be available to the holder of such Convertible
Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary
amendment to this Certificate of Incorporation.
(l) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Convertible Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books
of the Corporation.
<PAGE>
5. Voting Rights. The holder of each share of Convertible Preferred
-------------
Stock shall have the right to one vote for each share of Common Stock into which
such Convertible Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of the Corporation and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Convertible
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward). Notwithstanding the
foregoing, with respect to the election of directors, (i) so long as at least
one million (1,000,000) shares of Series A Preferred Stock (as appropriately
adjusted for stock splits or recapitalizations) are outstanding, the holders of
the Series A Preferred Stock, as a class (and without the voting participation
of holders of other share of capital stock of the Corporation) shall be entitled
to elect one member of the Board of Directors, (ii) so long as at least one
million (1,000,000) shares of Series B Preferred Stock (as appropriately
adjusted for stock splits and recapitalizations) are outstanding, the holders of
the Series B Preferred Stock, as a class (and without the voting participation
of holders of other shares of capital stock of the Corporation) shall be
entitled to elect one member of the Board of Directors, and (iii) the holders of
the Common Stock, as a class (and without the voting participation of holders of
other Shares of capital stock of the Corporation), shall be entitled to elect
the remaining members of the Board of Directors.
6. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as
any shares of Convertible Preferred Stock are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of sixty-six and two-thirds percent (66 2/3%)
of the then outstanding shares of Convertible Preferred Stock, voting together
as a single class:
(i) alter or change the rights, preferences or privileges
of the shares of Convertible Preferred Stock so as to affect adversely the
shares of such series;
(ii) increase or decrease (other than by redemption or
conversion in accordance with the terms hereof) the total number of authorized
shares of Convertible Preferred Stock;
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security; having a preference over, or being on a
party with, the Convertible Preferred Stock with respect to voting, dividends,
antidilution right, redemption or upon liquidation;
(iv) redeem, purchase or otherwise acquire (or pay into or
set funds aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction
-------- -------
shall not apply to the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing
<PAGE>
services for the Corporation or any subsidiary pursuant to agreements under
which the Corporation has the option to repurchase such shares at cost or at
cost upon the occurrence of certain events, such as the termination of
employment; or
(v) pay or declare any dividends, whether in cash, stock or
other property.
7. Status of Redeemed or Converted Stock. In the event any shares of
-------------------------------------
Convertible Preferred Stock shall be redeemed converted pursuant to Section 4
hereof, the shares so converted shall be canceled and shall not be issuable by
the Corporation. The Certificate of Incorporation of the Corporation shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receives when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, adopt, alter, amend or
repeal the Bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal Bylaws made by the
Board of Directors as provided for in this Restated Certificate of
Incorporation. The affirmative vote of 66-2/3% of the total number of votes of
the then outstanding shares of capital stock of this Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required for the adoption, amendment or repeal of the following
sections of the Corporation's Bylaws: 2.3 (Special Meeting), 2.9 (Stockholder
Proposals at Annual Meetings) and 2.10 (Nomination of Persons for Election to
the Board of Directors) by the stockholders of this Corporation.
ARTICLE VI
<PAGE>
The number of directors which shall constitute the whole Board of Directors
of the Corporation shall be as specified in the Bylaws of the Corporation.
ARTICLE VII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
If at any time this Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent. This provision shall supersede any provision to the
contrary in the Bylaws of the Corporation.
ARTICLE X
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XI
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the Bylaws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of Incorporation
or the Bylaws of this Corporation), the affirmative vote of 66-2/3% of the total
number of the then outstanding shares of capital stock of this Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with the purpose or intent of, Articles V through XIII. Notice of
any such proposed amendment, repeal or adoption, shall be contained in the
notice of the meeting at which it is to be considered. Subject to the
provisions set forth herein, this Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XII
<PAGE>
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The Corporation
shall indemnify to the fullest extent permitted by law any person made or
threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he, his
testator or intestate is or was a director or officer of the Corporation or any
predecessor of the Corporation, or serves or served at any other enterprise as a
director or officer at the request of the Corporation or any predecessor to the
Corporation. Neither any amendment nor repeal of this Article XII, nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article XII, shall eliminate or reduce the effect of this
Article XII in respect of any matter occurring, or any cause of action, suit,
proceeding or claim that, but for this Article XII, would accrue or arise, prior
to such amendment, repeal or adoption of any inconsistent provision.
ARTICLE XIII
"Listing Event" as used in this Restated Certificate of Incorporation shall
-------------
mean the Corporation becoming a "Listed Corporation" within the meaning of
------------------
Section 301.5 of the California Corporations Code. For the management of the
business and for the conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the Corporation, its
directors and its stockholders or any class thereof, as the case may be, it is
further provided that, effective upon the occurrence of the Listing Event:
(i) The number of directors which shall constitute the
entire Board of Directors, and the number of directors in each class, shall be
fixed exclusively by one or more resolutions adopted from time to time by the
Board of Directors. Until changed by a resolution of the Board of Directors,
Class I shall consist of three directors, each of whom shall be designated by
the Board of Directors, and Class II shall consist of three directors, each of
whom shall be designated by the Board of Directors.
The Board of Directors shall be divided into two classes, designated as
Class I and Class II, respectively. Directors shall be assigned to each class
in accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the Listing
Event, the terms of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of two years. At the second annual
meeting of stockholders following the Listing Event, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of two years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of two years to succeed the directors
of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
<PAGE>
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the then-
outstanding shares of voting stock of the corporation entitled to vote generally
in the election of directors (the "Voting Stock") voting together as a single
------------
class; or (ii) by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors. Newly
created directorships resulting from any increase in the number of directors
shall, unless the Board of Directors determines by resolution that any such
newly created directorship shall be filled by the stockholders, be filled only
by the affirmative vote of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
(ii) There shall be no right with respect to shares of
stock of the Corporation to cumulate votes in the election of directors.
(iii) Any director, or the entire Board of Directors, may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of at least a majority of the voting power of the then-outstanding
shares of the Voting Stock, voting together as a single class; or (ii) without
cause by the affirmative vote of the holders of at least 66-2/3% of the voting
power of the then-outstanding shares of the Voting Stock."
<PAGE>
Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates, and amends, the provisions of this Corporation's Certificate of
Incorporation. Pursuant to Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation has
been duly adopted by written consent of the Board of Directors and stockholders
of this Corporation.
Executed at _______________, on _______________, 1999.
_______________________________________
Gary D. Kennedy, President
_______________________________________
Donald M. Keller, Jr., Secretary
<PAGE>
Exhibit 3.2
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TENFOLD CORPORATION
The undersigned, Gary D. Kennedy and Donald M. Keller, Jr. hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of TenFold Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware of February 3, 1993 under the name
"KeyTex Corporation." On December 20, 1996 this corporation filed a Certificate
------------------
of Amendment with the Secretary of State of Delaware changing its name from
"KeyTex Corporation" to "TenFold Corporation."
- ------------------- -------------------
3. On March 4,1997, this corporation filed a First Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware. On November 24, 1997, this corporation filed a Second Amended and
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware. On March __, 1999, this corporation filed a Third Amended and
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware.
4. The Certificate of Incorporation of this corporation shall be further
amended and restated to read in full as follows:
"ARTICLE I
The name of the corporation is TenFold Corporation (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
<PAGE>
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and " Preferred Stock."
------------ ----------------
The total number of shares which the corporation is authorized to issue is One
Hundred Twenty Two Million (122,000,000) shares, each with a par value of $0.001
per share. One Hundred Twenty Million (120,000,000) shares shall be Common
Stock and Two Million (2,000,000) shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Restated Certificate of Incorporation may
be issued from time to time in one or more series. The Board of Directors is
authorized to fix by resolution or resolutions the number of shares of any
series of Preferred Stock and to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series of Preferred Stock, to increase (but
not above the total number of authorized shares of Preferred Stock) or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue
of shares of that series.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(c) whether that series shall have voting rights in addition to
the voting rights provided by law, and if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges, and
if so, the terms and conditions of such privileges, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and if so, the terms in the
amount of such sinking funds;
<PAGE>
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) any other relative rights, preferences and limitations of
that series.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receives when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Subject to the rights of any outstanding
------------------
series of Preferred Stock, upon the liquidation, dissolution or winding up of
the Corporation, the assets of the Corporation shall be distributed to the
holders of the Common Stock of the Corporation pro rata based on the number of
shares of Common Stock held by each.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, adopt, alter, amend or
repeal the Bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal Bylaws made by the
Board of Directors as provided for in this Restated Certificate of
Incorporation. The affirmative vote of 66-2/3% of the total number of votes of
the then outstanding shares of capital stock of this Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required for the adoption, amendment or repeal of the following
sections of the Corporation's Bylaws: 2.3 (Special Meeting), 2.9 (Stockholder
Proposals at Annual Meetings) and 2.10 (Nomination of Persons for Election to
the Board of Directors) by the stockholders of this Corporation.
ARTICLE VI
The number of directors which shall constitute the whole Board of Directors
of the Corporation shall be as specified in the Bylaws of the Corporation.
<PAGE>
ARTICLE VII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
If at any time this Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent. This provision shall supersede any provision to the
contrary in the Bylaws of the Corporation.
ARTICLE X
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XI
Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the Bylaws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of Incorporation
or the Bylaws of this Corporation), the affirmative vote of 66-2/3% of the total
number of the then outstanding shares of capital stock of this Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with the purpose or intent of, Articles V through XIII. Notice of
any such proposed amendment, repeal or adoption, shall be contained in the
notice of the meeting at which it is to be considered. Subject to the
provisions set forth herein, this Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XII
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The Corporation
shall indemnify to the fullest extent permitted by law any person made
<PAGE>
or threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he, his
testator or intestate is or was a director or officer of the Corporation or any
predecessor of the Corporation, or serves or served at any other enterprise as a
director or officer at the request of the Corporation or any predecessor to the
Corporation. Neither any amendment nor repeal of this Article XII, nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article XII, shall eliminate or reduce the effect of this
Article XII in respect of any matter occurring, or any cause of action, suit,
proceeding or claim that, but for this Article XII, would accrue or arise, prior
to such amendment, repeal or adoption of any inconsistent provision.
ARTICLE XIII
"Listing Event" as used in this Restated Certificate of Incorporation shall
-------------
mean the Corporation becoming a "Listed Corporation" within the meaning of
------------------
Section 301.5 of the California Corporations Code. For the management of the
business and for the conduct of the affairs of the Corporation, and in further
definition, limitation and regulation of the powers of the Corporation, its
directors and its stockholders or any class thereof, as the case may be, it is
further provided that, effective upon the occurrence of the Listing Event:
(i) The number of directors which shall constitute the entire Board
of Directors, and the number of directors in each class, shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board
of Directors. Until changed by a resolution of the Board of Directors, Class I
shall consist of three directors, each of whom shall be designated by the
Board of Directors, and Class II shall consist of three directors, each of
whom shall be designated by the Board of Directors.
The Board of Directors shall be divided into two classes, designated as
Class I and Class II, respectively. Directors shall be assigned to each class
in accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the Listing
Event, the terms of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of two years. At the second annual
meeting of stockholders following the Listing Event, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of two years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of two years to succeed the directors
of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the then-
outstanding shares of voting stock of the corporation entitled to vote generally
in the election of directors (the "Voting Stock") voting together as a single
------------
class; or (ii) by the affirmative vote of a majority of the remaining directors
<PAGE>
then in office, even though less than a quorum of the Board of Directors. Newly
created directorships resulting from any increase in the number of directors
shall, unless the Board of Directors determines by resolution that any such
newly created directorship shall be filled by the stockholders, be filled only
by the affirmative vote of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
(ii) There shall be no right with respect to shares of stock of the
Corporation to cumulate votes in the election of directors.
(iii) Any director, or the entire Board of Directors, may be removed
from office at any time (i) with cause by the affirmative vote of the holders
of at least a majority of the voting power of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least 66-2/3% of the voting power of
the then-outstanding shares of the Voting Stock."
<PAGE>
Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates, and amends, the provisions of this Corporation's Certificate of
Incorporation. Pursuant to Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation has
been duly adopted by written consent of the Board of Directors and stockholders
of this Corporation.
Executed at _______________, on _______________, 1999.
_____________________________________
Gary D. Kennedy, President
_____________________________________
Donald M. Keller, Jr., Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
TENFOLD CORPORATION
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Offices..................................................................................... 1
Section 1.1 Office......................................................................... 1
Section 1.2 Offices........................................................................ 1
ARTICLE II - Stockholders' Meetings..................................................................... 1
Section 2.1 Place of Meetings.............................................................. 1
Section 2.2 Meetings....................................................................... 1
Section 2.3 Meetings....................................................................... 1
Section 2.4 Notice of Meetings............................................................. 1
Section 2.5 Quorum and Voting.............................................................. 2
Section 2.6 Voting Rights.................................................................. 2
Section 2.7 Voting Procedures and Inspectors of Elections.................................. 3
Section 2.8 List of Stockholders........................................................... 4
Section 2.9 Stockholder Proposals at Annual Meetings....................................... 4
Section 2.10 Nominations of Persons for Election to the Board of Directors.................. 5
Section 2.11 Action Without Meeting......................................................... 6
ARTICLE III - Directors................................................................................. 6
Section 3.1 Number and Term of Office...................................................... 6
Section 3.2 Powers......................................................................... 7
Section 3.3 Vacancies...................................................................... 7
Section 3.4 Resignations and Removals...................................................... 7
Section 3.5 Meetings....................................................................... 7
Section 3.6 Quorum and Voting.............................................................. 8
Section 3.7 Action Without Meeting......................................................... 8
Section 3.8 Fees and Compensation.......................................................... 8
Section 3.9 Committees..................................................................... 9
ARTICLE IV - Officers...................................................................................10
Section 4.1 Officers Designated............................................................10
Section 4.2 Tenure and Duties of Officers..................................................10
ARTICLE V - Execution of Corporate Instruments, and Voting of Securities Owned by the Corporation.......11
Section 5.1 Execution of Corporate Instruments.............................................11
Section 5.2 Voting of Securities Owned by Corporation......................................12
ARTICLE VI - Shares of Stock............................................................................12
Section 6.1 Form and Execution of Certificates.............................................12
Section 6.2 Lost Certificates..............................................................12
Section 6.3 Transfers......................................................................13
Section 6.4 Fixing Record Dates............................................................13
Section 6.5 Registered Stockholders........................................................14
ARTICLE VII - Other Securities of the Corporation.......................................................14
ARTICLE VIII - Corporate Seal...........................................................................14
ARTICLE IX - Indemnification of Officers, Directors, Employees and Agents...............................15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 9.1 Right to Indemnification.......................................................15
Section 9.2 Authority to Advance Expenses..................................................15
Section 9.3 Right of Claimant to Bring Suit................................................15
Section 9.4 Provisions Nonexclusive........................................................16
Section 9.5 Authority to Insure............................................................16
Section 9.6 Survival of Rights.............................................................16
Section 9.7 Settlement of Claims...........................................................16
Section 9.8 Effect of Amendment............................................................16
Section 9.9 Subrogation....................................................................16
Section 9.10 No Duplication of Payments.....................................................17
ARTICLE X - Notices.....................................................................................17
ARTICLE XI - Amendments.................................................................................18
</TABLE>
<PAGE>
BYLAWS
OF
TENFOLD CORPORATION
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 1.2 OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at 1050 Sagebrush, Jackson, Wyoming
83001, and may also have offices at such other places, both within and without
the State of Delaware as the Board of Directors may from time to time determine
or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof.
SECTION 2.2 ANNUAL MEETINGS. The annual meetings of the stockholders of
the corporation, commencing with the year 1994, for the purpose of election of
directors and for such other business as may lawfully come before it, shall be
held on such date and at such time as may be designated from time to time by the
Board of Directors.
SECTION 2.3 SPECIAL MEETINGS. Special Meetings of the stockholders of
the corporation may be called, for any purpose or purposes, by the Chairman of
the Board or the President or the Board of Directors or by one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting at any time.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears upon
the books of the corporation; except that where the matter to be acted on is a
merger or consolidation of the Corporation or a sale, lease or exchange of all
or substantially all of its assets, such notice shall be given not less than
twenty (20) nor more than sixty (60) days prior to such meeting.
<PAGE>
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle shareholders fulfilling the requirements of section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty days, or unless after the adjournment a new
record date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice of
such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided
by law, the Certificate of Incorporation, or these Bylaws, the presence, in
person or by proxy duly authorized, of the holders of a majority of the
outstanding shares of stock entitled to vote shall constitute a quorum for the
transaction of business. Shares, the voting of which at said meeting have been
enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said meeting. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. At such adjourned meeting at
which a quorum is present or represented any business may be transacted which
might have been transacted at the original meeting. The stockholders present at
a duly called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the corporation.
-2-
<PAGE>
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names
shares entitled to vote stand on the stock records of the corporation on the
record date for determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. Shares standing in the names of two
or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such persons
is present in person or represented by proxy, such person shall have the right
to vote such shares and such shares shall be deemed to be represented for the
purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the
right to do so either in person or by an agent or agents authorized by a written
proxy executed by such person or his duly authorized agent, which proxy shall be
filed with the Secretary of the corporation at or before the meeting at which it
is to be used. Said proxy so appointed need not be a stockholder. No proxy
shall be voted on after three years from its date unless the proxy provides for
a longer period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another
person or persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to act
for him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the stockholder.
Such authorization can be established by the signature of the stockholder on the
proxy, either in writing or by a signature stamp or facsimile signature, or by a
number or symbol from which the identity of the stockholder can be determined,
or by any other procedure deemed appropriate by the inspectors or other persons
making the determination as to due authorization.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
-3-
<PAGE>
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
SECTION 2.8 LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
said meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held and which place shall be specified
-4-
<PAGE>
in the notice of the meeting, or, if not specified, at the place where said
meeting is to be held, and the list shall be produced and kept at the time and
place of meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation, not
less than 30 days nor more than 60 days prior to the meeting; provided, however,
that in the event that less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting, (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.9, provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with said
procedure.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 2.9, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF
DIRECTORS. In addition to any other applicable requirements, only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board
-5-
<PAGE>
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 30 days nor more than 60 days prior to the meeting;
provided, however, that in the event that less than 40 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
the corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934; and (b) as to the stockholder giving the
notice, (i) the name and record address of the stockholder, and (ii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to determine
the eligibility of such proposed nominee to serve as a director of the
corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth herein.
These provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the detective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required by statute to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, are signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. To be effective, a
written consent must be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this Section to
the corporation, written consents signed by a sufficient number of holders to
take action are delivered to the corporation in accordance with this Section.
Prompt notice of the taking of the corporate action without a meeting by less
than
-6-
<PAGE>
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole of the Board of Directors shall be one (1). With the
exception of the first Board of Directors, which shall be elected by the
incorporators, and except as provided in Section 3.3 of this Article III, the
directors shall be elected by a plurality vote of the shares represented in
person or by proxy, at the stockholders annual meeting in each year and entitled
to vote on the election of directors. Elected directors shall hold office until
the next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders. If, for any cause, the Board of
Directors shall not have been elected at an annual meeting, they may be elected
as soon thereafter as convenient at a special meeting of the stockholders called
for that purpose in the manner provided in these Bylaws.
SECTION 3.2 POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by or under the direction of the
Board of Directors.
SECTION 3.3 VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected shall hold office for
the unexpired portion of the term of the director whose place shall be vacant.
and until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this section in the case
of the death, removal or resignation of any director, or if the stockholders
fail at any meeting of stockholders at which directors are to be elected
(including any meeting referred to in Section 3.4 below) to elect the number of
directors then constituting the whole Board.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected and
qualified.
(b) At a special meeting of stockholders called for the purpose in
the manner hereinabove provided, the Board of Directors, or any individual
director, may be removed from
-7-
<PAGE>
office, with or without cause, and a new director or directors elected by a vote
of stockholders holding a majority of the outstanding shares entitled to vote at
an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in the office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof. Regular meetings of the
Board of Directors may also be held at any place within or without the State of
Delaware which has been designated by resolutions of the Board of Directors or
the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by any of the directors.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time in accordance with Section
3.1 of Article III of these Bylaws, but not less than one; provided, however, at
any meeting whether a quorum be present or otherwise, a majority of the
directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors. without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
-8-
<PAGE>
SECTION 3.7 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board of Directors.
SECTION 3.9 COMMITTEES.
(a) Executive Committee. The Board of Directors may, by resolution
passed by a majority of the whole Board, appoint an Executive Committee of not
less than one member, each of whom shall be a director. The Executive
Committee, to the extent permitted by law, shall have and may exercise when the
Board of Directors is not in session all powers of the Board in the management
of the business and affairs of the corporation, including, without limitation,
the power and authority to declare a dividend or to authorize the issuance of
stock, except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement or merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the Corporation a dissolution of the Corporation or a revocation
of a dissolution, or to amend these Bylaws.
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) Term. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board, subject to the provisions of
subsections (a) or (b) of this Section 3.9, may at any time increase or decrease
the number of members of a committee or terminate the existence of a committee;
provided, that no committee shall consist of less than one member. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation, but the Board may at any time for any reason remove any
individual committee member and the Board may fill any committee vacancy created
by death, resignation, removal or increase in the number of members of the
committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may
-9-
<PAGE>
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 3.9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter; special meetings of any such
committee may be held at the principal office of the corporation required to be
maintained pursuant to Section 1.2 of Article I hereof; or at any place which
has been designated from time to time by resolution of such committee or by
written consent of all members thereof, and may be called by any director who is
a member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED. The officers of the corporation shall be
a Chairman of the Board of Directors and a President, and one or more Vice-
Presidents, a Secretary, and a Treasurer. The order of the seniority of the Vice
Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors or the Chairman of
the Board or the President may also appoint one or more assistant secretaries,
assistant treasurers, and such other officers and agents with such powers and
duties as it or he shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as they Shall deem appropriate.
Any one person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. Nothing in these Bylaws shall be construed as
creating any kind of contractual right to employment with the corporation.
-10-
<PAGE>
(b) Duties of the Chairman of the Board of Directors. The Chairman of
the Board of Directors (if there be such an officer appointed) shall be the
chief executive officer of the corporation and, when present, shall preside at
all meetings of the shareholders and the Board of Directors. The Chairman of the
Board of Directors shall perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(c) Duties of President. The President shall be the chief executive
officer of the corporation in the absence of the Chairman of the Board and shall
preside at all meetings of the shareholders and at all meetings of the Board of
Directors, unless the Chairman of the Board of Directors has been appointed and
is present. The President shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
(d) Duties of Vice-Presidents. The Vice-Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the President
is vacant. The Vice-President shall perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of
the shareholders and of the Board of Directors and any committee thereof, and
shall record all acts and proceedings thereof in the minute book of the
corporation. The Secretary shall give notice, in conformity with these Bylaws,
of all meetings of the shareholders, and of all meetings of the Board of
Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) Duties of Treasurer. The Treasurer shall keep or cause to be kept
the books of account of the corporation in a thorough and proper manner, and
shall render statements of the financial affairs of the corporation in such form
and as often as required by the Board of Directors or the President. The
Treasurer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Treasurer shall
perform all other duties commonly incident to his office and shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time. The President may direct any
Assistant Treasurer to assume and perform the duties of the Treasurer in the
absence or disability of the Treasurer, and each Assistant Treasurer shall
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
-11-
<PAGE>
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the corporation,
promissory notes, deeds of trust, mortgages and other evidences of indebtedness
of the corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
(c) All checks and drafts drawn on banks or other depositaries on
funds to the credit of the corporation, or in special accounts of the
corporation, shall be signed by such person or persons as the Board of Directors
shall authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors or, in the absence of such authorization,
by the Chairman of the Board (if there be such an officer appointed), or by the
President, or by any Vice-President.
ARTICLE VI
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of the corporation by, the Chairman of the Board (if there be such an
officer appointed), or by the President or any Vice-President and by the
Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any
-12-
<PAGE>
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the Delaware General
Corporation Law, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
indemnify the corporation in such manner as it shall require and/or to give the
corporation a surety bond in such form and amount as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a certificate or
certificates for a like number of shares, properly endorsed.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the date on which the meeting is held. A determination of
stockholders of record entitled notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
-13-
<PAGE>
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail. return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President or
such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signature of the
-14-
<PAGE>
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation, or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 9.1 RIGHT TO INDEMNIFICATION. Each person who was or is a party
or is threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"); provided,
-15-
<PAGE>
however, that except as to actions to enforce indemnification rights pursuant to
Section 9.3 of this Article, the corporation shall indemnify any Agent seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if the Proceeding (or part thereof) was authorized by the Board
of Directors of the corporation. The right to indemnification conferred in this
Article shall be a contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES. Expenses incurred by an
officer or director (acting in his capacity as such) in defending a Proceeding
shall be paid by the corporation in advance of the final disposition of such
Proceeding, provided, however, that if required by the Delaware General
Corporation Law, as amended, such Expenses shall be advanced only upon delivery
to the corporation of an undertaking by or on behalf of such director or officer
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Article or
otherwise. Expenses incurred by other Agents of the corporation (or by the
directors or officers not acting in their capacity as such, including service
with respect to employee benefit plans) may be advanced upon such terms and
conditions as the Board of Directors deems appropriate. Any obligation to
reimburse the corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 9.1
or 9.2 of this Article is not paid in full by the corporation within 90 days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense (including attorneys' fees) of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending a
Proceeding in advance of its final disposition where the required undertaking
has been tendered to the corporation) that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper under the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel. or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE. The rights conferred on any person
by this Article shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate, agreement, or vote of the stockholders or disinterested directors
is inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
-16-
<PAGE>
SECTION 9.5 AUTHORITY TO INSURE. The corporation may purchase and
maintain insurance to protect itself and any Agent against any Expense, whether
or not the corporation would have the power to indemnify the Agent against such
Expense under applicable law or the provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS. The rights provided by this Article
shall continue as to a person who has ceased to be an Agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS. The corporation shall not be liable to
indemnify any Agent under this Article (a) for any amounts paid in settlement of
any action or claim effected without the corporation's written consent, which
consent shall not be unreasonably withheld; or (b) for any judicial award if the
corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT. Any amendment, repeal, or modification
of this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION. In the event of payment under this Article, the
corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS. The corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote, or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the corporation. or, in the absence of such
filing, to the last known post office address of such director. If no address
of a stockholder or director be known, such notice may be sent to the office of
the corporation required to be maintained pursuant to Section 1.2 of Article I
hereof. An affidavit of mailing, executed by a duly authorized and competent
employee of the corporation or its transfer agent
-17-
<PAGE>
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, director
or directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained. All notices given by mail, as above provided, shall be deemed
to have been given as at the time of mailing and all notices given by telegram
or other means of electronic transmission shall be deemed to have been given as
at the sending time recorded by the telegraph company or other electronic
transmission equipment operator transmitting the same. It shall not be necessary
that the same method of giving be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
The period or limitation of time within which any stockholder may exercise any
option or right, or enjoy any privilege or benefit, or be required to act, or
within which any director may exercise any power or right, or enjoy any
privilege, pursuant to any notice sent him in the manner above provided, shall
not be affected or extended in any manner by the failure of such a stockholder
or such director to receive such notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Whenever notice is required
to be given, under any provision of law or of the Certificate of Incorporation
or Bylaws of the corporation, to any person with whom communication is unlawful,
the giving of such notice to such person shall not be required and there shall
be no duty to apply to any governmental authority or agency for a license or
permit to give such notice to such person. Any action or meeting which shall be
taken or held without notice to any such person with whom communication is
unlawful shall have the same force and effect as if such notice had been duly
given. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate shall state, if such is the fact and if notice
is required, that notice was given to all persons entitled to receive notice
except such persons with whom communication is unlawful.
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted by
written consent of stockholders in the manner authorized by Section 2.11 of
Article II, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting. The Board of Directors shall also have the authority to repeal, alter
or amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
-18-
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE BY-LAWS
OF
TENFOLD CORPORATION
The undersigned, being the duly acting and appointed Secretary of TenFold
Corporation, a Delaware corporation (the "Company"), hereby certifies that the
-------
members of the Board of Directors of the Company amended Article III, Section
3.1 of the Bylaws of the Company to read as follows, effective as of the date
set forth below:
"NUMBER AND TERM OF OFFICE. Unless otherwise determined by the Board of
Directors, the Board of Directors shall consist of not less than four (4)
and not more than five (5) persons. The exact number of directors, unless
otherwise determined by the Board of Directors shall be five (5). With the
exception of the first Board of Directors, which shall be elected by the
incorporators, and except as provided in Section 3.3 of this Article III,
or unless otherwise determined by the Company's Certificate of
Incorporation, the directors shall be elected by a plurality vote of the
shares represented in person or by proxy, at the stockholders annual
meeting in each year and entitled to vote on the election of directors.
Elected directors shall hold office until the next annual meeting and until
their successors shall be duly elected and qualified. Directors need not
be stockholders. If, for any cause, the Board of Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter
as convenient at a special meeting of the stockholders called for that
purpose in the manner provided in these Bylaws."
Dated: February 6, 1998
/s/ Donald M. Keller, Jr.
---------------------------------------
Donald M. Keller, Jr., Secretary
<PAGE>
EXHIBIT 4.2
NUMBER CS-CERTIFICATENUMBER *NUMBERSHARES*SHARES
TENFOLD CORPORATION
A Delaware Corporation
THIS CERTIFIES THAT SHAREHOLDERNAME is the record holder of
TOTALAUTHORIZEDSPELL (NUMBERSHARES) shares of COMMON STOCK of TENFOLD
CORPORATION transferable only on the share register of said corporation by the
holder, in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed or assigned.
This certificate and the shares represented hereby are issued and shall be
held subject to all the provisions of the Certificate of Incorporation and the
Bylaws of said corporation and any amendments thereto, to all of which the
holder of this certificate, by acceptance hereof, assents.
A statement of all of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes and/or series of shares of
stock of the corporation and upon the holders thereof may be obtained by any
stockholder upon request and without charge, at the principal office of the
corporation, and the corporation will furnish any stockholder, upon request and
without charge, a copy of such statement.
See the reverse of this certificate for restrictions.
WITNESS the Seal of the corporation and the signatures of its duly
authorized officers this DAY day of MONTH, YEAR.
______________________________________ ____________________________________
Donald M. Keller, Jr., Secretary Gary D. Kennedy, President
<PAGE>
FOR VALUE RECEIVED _____________________________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO___________________________________________________________________
SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT ____________________________________ ATTORNEY TO TRANSFER
THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED ____________, 19___
IN PRESENCE OF _________________________________________________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
______________________________________
(SHAREHOLDER)
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
<PAGE>
EXHIBIT 4.3
TENFOLD CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
This Amended and Restated Investors' Rights Agreement (the "Agreement") is made
---------
as of the 24th day of November, 1997, by and among TenFold Corporation, a
Delaware corporation (the "Company"), the investors listed on Exhibit A hereto
------- ---------
(the "Investors" and individually an "Investor") and Gary D. Kennedy, Jeffrey L.
--------- --------
Walker and the Walker Children's Trust each of which is herein referred to as a
"Founder".
-------
RECITALS
--------
1. The Company and Indus International, Inc. ("Indus") entered into an
Investor's Rights Agreement on March 4, 1997 (the "Existing Agreement"), in
connection with the purchase by Indus of certain shares of Series A Preferred
Stock of the Company.
2. The Company and Winter Harbor, L.L.C. ("Winter Harbor") have entered
into a Series B Preferred Stock Purchase Agreement (the "Purchase Agreement") of
------------------
even date herewith pursuant to which the Company desires to sell to Winter
Harbor and Winter Harbor desires to purchase from the Company shares of the
Company's Series B Preferred Stock. A condition to Winter Harbor's obligations
under the Purchase Agreement is that the Company, the Founders, Winter Harbor
and the other Investor enter into this Agreement in order to provide Winter
Harbor with (i) certain rights to register shares of the Company's Common Stock
issuable upon conversion of the Series B Preferred Stock held by Winter Harbor,
(ii) certain rights to receive or inspect information pertaining to the Company,
and (iii) a right of first offer with respect to certain issuances by the
Company of its securities. The Company, Indus and the Founders each desire to
induce Winter Harbor to purchase shares of Series B Preferred Stock pursuant to
the Purchase Agreement by agreeing to the terms and conditions set forth herein,
in consideration of which Indus expressly waives its rights under Section 2.3 of
the Existing Agreement with respect to the sale of series B Preferred Stock
contemplated by the Purchase Agreement.
AGREEMENT
---------
The parties hereby agree as follows:
. REGISTRATION RIGHTS. The Company and the Investors covenant and
-------------------
agree as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration"
-------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement or similar
<PAGE>
document in compliance with the Securities Act of 1933, as amended (the "Act"),
and the declaration or ordering of effectiveness of such registration statement
or document;
(b) The term "Registrable Securities" means (i) the shares of Common
----------------------
Stock issuable or issued upon conversion of the Series A Preferred Stock (the
"Series A Stock"), (ii) the shares of Common Stock issuable as issued upon
--------------
conversion of the Series B Preferred Stock (the "Series B Stock" and with the
--------------
Series A Stock, collectively, the "Stock"), (iii) any other shares of Common
-----
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Stock, and (iv) the shares of Common Stock issued to the Founders (the
"Founders' Stock"), provided, however, that the term Registrable Securities
--------------- -------- -------
shall exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Act under Section 4(1)
thereof so that all transfer restrictions, and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then outstanding"
---------------------------------------
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
------
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof;
(e) The term "Form S-3" means such form under the Act as in effect on
--------
the date hereof or any successor form under the Act; and
(f) The term "SEC" means the Securities and Exchange Commission.
---
1.2 REQUEST FOR REGISTRATION.
------------------------
(a) If the Company shall receive, at any time after six (6) months
after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), a written request from the Holders of a majority of the
-2-
<PAGE>
Registrable Securities then outstanding or from Holders of a majority of the
Series A Stock then outstanding or from Holders of a majority of the Series B
Stock then outstanding that the Company file a registration statement under the
Act covering the registration of at least twenty-five percent (25%) of such
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $10,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), use its best efforts to effect as soon
as practicable, and in any event within 60 days of the receipt of such request,
the registration under the Act of all Registrable Securities which the Holders
request to be registered in a writing delivered to the Company within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
------------------
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
-------- -------
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting; provided further that if the Initiating Holders are the Holders
-------- -------
referred to in Section 1.1(b)(i) or Section 1.1(b)(ii) the Registrable
Securities held by such Initiating Holders shall not be reduced unless all other
securities are first entirely excluded from the underwriting, or in the case of
Registrable Securities held by Holders referred to in Section 1.1(b)(i) or
Section 1.1(b)(ii) reduced to the minimum permissible amount; and provided
--------
further that in every underwriting pursuant to this Section 1.2 the Registrable
- -------
Securities held by Holders referred to in Section 1.1(b)(i) or Section
1.1(b)(ii) shall not be reduced below 20% of the Registrable Securities included
in such underwriting.
-3-
<PAGE>
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
-------- -------
right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected one, one registration
initiated by Holders referred to in Section 1.1(b)(i), one registration
initiated by Holders referred to in Section 1.1(b)(ii) and one other
registration, in each case pursuant to this Section 1.2, and each such
registration has been declared or ordered effective;
(ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the
--------------------
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan or a transaction covered by Rule 145 under
the Act, a registration in which the only stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered, or
any registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
-4-
<PAGE>
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1
--------------------------
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days. The
Company shall not be required to file, cause to become effective or maintain the
effectiveness of any registration statement that contemplates a distribution of
securities on a delayed or continuous basis pursuant to Rule 415 under the Act.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement for up to one hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, such
obligation to continue for one hundred twenty (120) days.
-5-
<PAGE>
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 FURNISH INFORMATION. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting
-------------------------------
discounts and commissions incurred in connection with registration, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements not to exceed $20,000 of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all
-6-
<PAGE>
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
--------------------------------
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one counsel for the selling
Holders selected by them with the approval of the Company, which approval shall
not be unreasonably withheld, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders); provided however that in every underwriting
-------- -------
pursuant to Section 1.3 the Registrable Securities held by Holders referred to
in either Section 1.1(b)(i) or Section 1.1(b)(ii) shall not be reduced below 20%
of the Registrable Securities included in such underwriting. For purposes of
the preceding parenthetical concerning apportionment, for any selling
stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
-------------------
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the
-7-
<PAGE>
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are included
---------------
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
---------
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Act, the Exchange Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection
-8-
<PAGE>
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 1.10(b)
exceed the net proceeds from the offering received by such Holder, except in the
case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Subsection 1.10(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
-9-
<PAGE>
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
---------------------------------------------
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the Exchange Act (at any time after
it has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
-10-
<PAGE>
1.12 FORM S-3 REGISTRATION. In case the Company shall receive from any
---------------------
Holder or Holders of not less than twenty five percent (25%) of the Registrable
Securities, or any Holder or Holders of not less than twenty five percent (25%)
of the Registrable Securities referred to in either Section 1.1(b)(i) or Section
1.1(b)(ii), in each case then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with such registrations,
including (without limitation) all registration, filing, qualification,
printers' and accounting fees and the reasonable fees and disbursements of
counsel for the selling Holder or Holders and counsel for the Company, but
excluding any underwriters' discounts or commissions associated with Registrable
Securities (the "S-3 Expenses"), shall be borne by the Company for two such
------------
registrations pursuant to this Section 1.12. Thereafter, the S-3 Expenses shall
be borne pro
-11-
<PAGE>
rata by the Holder or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least 1,000,000 shares of such securities (as adjusted for stock
splits and dividends), provided the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single attorney-
in-fact for the purpose of exercising any rights, receiving notices or taking
any action under Section 1.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
----------------------------
during the period of duration (up to, but not exceeding, 180 days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the date of the final prospectus distributed in connection
with a registration statement of the Company filed under the Act, it shall not,
to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except Common Stock included
in such registration; provided, however, that:
(a) such agreement shall be applicable only during the two-year
period following the date of the final prospectus distributed pursuant to the
first such registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) such agreement shall only be applicable if all officers and
directors of the Company, all one-percent securityholders, and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of
-12-
<PAGE>
such period, and each Holder agrees that, if so requested, such Holder will
execute an agreement in the form provided by the underwriter containing terms
which are essentially consistent with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after the earlier of (i)
three (3) years following the consummation of the sale of securities pursuant to
a registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public, or (ii) such time as Rule 144 or another similar exemption under
the Act is available for the sale of all of such Holder's shares during a three
(3)-month period without registration.
COVENANTS OF THE COMPANY.
------------------------
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
--------------------------------
each Investor holding, and to transferees of, at least 1,000,000 shares of
Registrable Securities (as determined pursuant to Section 1.13):
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company commencing with fiscal
1997, an income statement for such fiscal year, a balance sheet of the Company
and statement of stockholder's equity as of the end of such year, and a
statement of cash flows for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by an independent public
accounting firm of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within thirty (30)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, a statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of such
fiscal quarter; and
(c) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail.
2.2 TERMINATION OF INFORMATION COVENANTS. The covenants set forth
------------------------------------
in Section 2.1 shall terminate as to Investor and be of no further force or
effect when the sale of securities pursuant to a registration statement filed by
the Company under the Act
-13-
<PAGE>
in connection with the firm commitment underwritten offering of its securities
to the general public is consummated or when the Company first becomes subject
to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange
Act, whichever event shall first occur.
2.3 RIGHT OF FIRST OFFER. Subject to the terms and conditions
--------------------
specified in this Section 2.3, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this
Section 2.3, a "Major Investor" shall mean any person who holds at least 15 % of
--------------
the Series A Preferred Stock or Series B Preferred Stock (or the Common Stock
issued upon conversion thereof) issued, or issuable upon the exercise of options
to purchase Preferred Stock outstanding, as of the date hereof. For purposes
of this Section 2.3, Major Investor includes any general partners and affiliates
of a Major Investor. A Major Investor who chooses to exercise the right of
first offer may designate as purchasers under such right itself or its partners
or affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investor stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice, the
Major Investor may elect to purchase or obtain for cash, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
(c) The Company may, during the 90-day period following the
Notice, offer that portion of the Shares that are not subject to purchase
pursuant to this Section 2.3 to any person or persons at a price not less than,
and upon terms no more favorable to the offeree than those specified in the
Notice; provided, however, that if the consideration proposed to be received
from any such person is other than cash, the cash value of such consideration
shall be determined by the Board of Directors of the Company in good faith. If
the Company does not enter into an agreement for the sale of the Shares within
such period, or if such agreement is not consummated within 60 days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to the Major
Investor in accordance herewith.
-14-
<PAGE>
(d) The provisions of this Section 2.3 shall not be applicable
(i) to the issuance or sale of up to 10,000,000 shares (or such greater number
as is unanimously approved by the Board of Directors) of Common Stock (or
options therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services, or (ii) to or after consummation of a
bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement on Form S-l or
(iii) to the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities, or (iv) to the issuance of securities in
connection with a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, with respect to which the Company determines that providing the
rights under this Section 2.3 would adversely impact the pooling of interests
accounting treatment of such transaction or the tax treatment of such
transaction or which would materially adversely impact the transaction as
contemplated by the Company, or (v) to the issuance of securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings, or similar transactions (each transaction referred to in
this paragraph is referred to as an "Excluded Transaction").
(e) The Company agrees that, at any time prior to March 4, 1998,
if Indus notifies the Company in good faith, within ten days after receipt of a
Notice, that it believes the transaction which is the subject of the Notice
would cause a write down in the value of Indus's investment in the Company as
reflected on the consolidated balance sheet of Indus, as the case may be, which
write down would be material to Indus, as the case may be, the Company will use
reasonable efforts to mitigate such write down. Such efforts may include without
limitation providing Indus with an antidilution adjustment on customary terms
based on a broad-based antidilution formula.
. MISCELLANEOUS.
-------------
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any of the Series A Preferred Stock, Series B Preferred Stock or
any Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
-15-
<PAGE>
3.3 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
-------
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or on
Exhibit A hereto or as subsequently modified by written notice.
- ---------
3.6 EXPENSES. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding, not including the
Founders' Stock; provided that if such amendment has the effect of affecting the
Founders' Stock (i) in a manner different than securities issued to the Investor
and (ii) in a manner adverse to the interests of the holders of the Founders'
Stock, then such amendment shall require the consent of the holder or holders of
a majority of the then outstanding Founders' Stock. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company. This Agreement supersedes in its
entirety the Existing Agreement.
3.8 SEVERABILITY. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(x) such provision shall be excluded from this Agreement, (y) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (z) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.9 AGGREGATION OF STOCK. All shares of the Preferred Stock
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
-16-
<PAGE>
[Signature Page Follows]
-17-
<PAGE>
The parties have executed this Investor's Rights Agreement as of the date
first above written.
COMPANY:
TENFOLD CORPORATION
By:
---------------------
Gary D. Kennedy
President
Address: 180 West Election Road, Ste 100
Draper, UT 84020
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-18-
<PAGE>
INVESTORS:
INDUS INTERNATIONAL, INC.
By:
---------------------
Name: Robert W. Felton
---------------------
Title: Chairman & CEO
--------------------
Address: 60 Spear Street
San Francisco, CA 94105
WINTER HARBOR, L.L.C.
By: First Media, L.P., Manager
By: First Media Corporation
its sole general partner
By:
-----------------------
Name: Ralph W. Hardy Jr.
Title: Secretary
Address: 11400 Skipwith Lane
Potomac, Maryland 20854
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-19-
<PAGE>
FOUNDERS:
-------------------
Gary D. Kennedy
Address: 7814 South Pheasantwood Drive
Sandy, UT 84093
---------------------
Jeffrey L. Walker
Address: 30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-20-
<PAGE>
FOUNDERS:
THE WALKER CHILDREN'S TRUST
By:
------------------------
Name:
Title: Trustee
Address: 30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-21-
<PAGE>
EXHIBIT A
---------
INVESTORS
---------
Name/Address NO. OF SHARES
- -------------------------------------------------
Indus International, Inc. 2,920,799
Winter Harbor, L.L.C. 3,340,330
6,261,129
=========
-22-
<PAGE>
AMENDMENT TO AMENDED AND RESTATED
----------------------------------
INVESTORS' RIGHTS AGREEMENT
---------------------------
This Amendment to Amended and Restated Investors' Rights Agreement (this
"Amendment") is made and entered into as of December 28, 1998 by and among
---------
TenFold Corporation, a Delaware corporation (the "Company"), Winter Harbor,
-------
L.L.C. ("Winter Harbor"), Indus International, Inc. ("Indus"), Provident
------------- -----
Companies, Inc. ("Provident"), and Unitrin Services Company ("Unitrin").
--------- -------
RECITALS
--------
A. Winter Harbor and Indus are stockholders of the Company, and the
Company, Winter Harbor, Indus and certain other stockholders of the Company are
parties to that certain Amended and Restated Investors' Rights Agreement dated
November 24, 1997 (the "Restated Agreement").
------------------
B. Concurrently herewith, Provident and Unitrin are each purchasing
200,000 shares of the Company's Common Stock (the "Shares").
------
C. The Company, Winter Harbor and Indus desire to amend the Restated
Agreement pursuant to Section 3.7 thereof so that Provident and Unitrin shall be
entitled to the rights set forth in Section 1.3 of the Restated Agreement with
respect to the Shares.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree that the Restated
Agreement is amended as follows:
1. AMENDMENT.
---------
1.1 REGISTRABLE SECURITIES. The first sentence of subsection (b) of
----------------------
Section 1.1 of the Restated Agreement is hereby amended and restated in its
entirety to read as follows:
"The term "Registrable Securities" means (i) the shares of Common Stock
----------------------
issuable or issued upon conversion of the Series A Preferred Stock (the
"Series A Stock"), (ii) the shares of Common Stock issuable or issued upon
---------------
conversion of the Series B Preferred Stock (the "Series B Stock" and with
--------------
the Series A Stock, collectively, the "Stock"), (iii) any other shares of
-----
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the Stock, (iv) the shares of Common Stock issued to the
Founders (the "Founders' Stock"), and (v) the shares of Common Stock issued
---------------
pursuant to that certain Common Stock Purchase Agreement dated December 28,
1998 between the Company and Provident Companies, Inc. and the shares of
Common Stock issued pursuant to that certain Common Stock Purchase
Agreement dated December 28, 1998 between the
-23-
<PAGE>
Company and Unitrin Services Company, provided, however, that the term
-------- -------
Registrable Securities shall exclude in all cases (x) any Registrable
Securities sold by a person in a transaction in which his or her rights
under this Agreement are not assigned, and (y) the shares of Common Stock
referenced in clause (v) above for purposes of Sections 1.2, 1.12 and 2.1
hereof."
1.2 HOLDERS. Subsection (d) of Section 1.1 of the Restated Agreement is
-------
hereby amended and restated in its entirety to read as follows:
"The term "Holder" means any person owning or having the right to acquire
------
Registrable Securities or any assignee thereof in accordance with Section
1.13 hereof, provided, however, that for purposes of Section 1.2 and 1.12
-------- -------
hereof, Holder shall not include persons owning or having the right to
acquire Registrable Securities by virtue of clause (v) of subsection (b) of
this Section 1.1."
1.3 UNDERWRITING. The clause contained in Section 1.8 of the Restated
------------
Agreement which begins "provided however" and runs through the end of the
-------- -------
sentence is hereby amended and restated in its entirety to read as follows:
"provided however that in every underwriting pursuant to Section 1.3, the
-------- -------
Registrable Securities held by Holders referred to in Section 1.1(b)(i),
1.1(b)(ii) or 1.1(b)(v) shall not be reduced below 20% of the Registrable
Securities included in such underwriting."
2. ACKNOWLEDGMENT AND AGREEMENT. Provident and Unitrin each acknowledge and
----------------------------
agree that it shall be subject to the obligations and other provisions contained
in Sections 1 and 3 of the Restated Agreement, as amended, including, without
limitation, the "market stand-off agreement" contained in Section 1.14 of the
Restated Agreement, as amended, and the amendment and waiver provisions
contained in Section 3.7 of the Restated Agreement, as amended. The address of
each of Provident and Unitrin for purposes of notices given pursuant to Section
3.5 of the Restated Agreement, as amended, shall be as set forth on the
signature page hereto. The Company and each other party to this Amendment also
agree that the provisions of Section 1.3 of the Restated Agreement, as amended,
apply to a registration commenced pursuant to Section 1.2 or 1.12 of the
Restated Agreement, as amended, and that to the extent the provisions of
Sections 1.2 (b) and 1.8 conflict, the provisions of Section 1.2 (b) shall
govern.
3. GENERAL PROVISIONS.
------------------
3.1 GOVERNING LAW. This Amendment and all acts and transactions pursuant
-------------
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
laws.
3.2 COUNTERPARTS. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-24-
<PAGE>
3.3 UNUM CORPORATION. Each of the Company and each other party to this
----------------
Amendment hereby consents to Provident's business combination with Unum
Corporation and agrees that all of the rights and obligations of this Amendment
and the Restated Agreement that apply to Provident shall apply to the successor
entity to Provident as a result of such business combination.
[Signature Page Follows]
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Amended and Restated Investors' Rights Agreement as of the date and year first
above written.
TENFOLD CORPORATION
By:
--------------------------------------
Gary D. Kennedy, Chief Executive
Officer
WINTER HARBOR, L.L.C.
By: First Media, L.P., Manager
By: First Media Corporation
its sole general partner
By:
--------------------------------------
Ralph W. Hardy Jr., Secretary
INDUS INTERNATIONAL, INC.
By:
--------------------------------------
Robert W. Felton, Chairman and
Chief Executive Officer
<PAGE>
PROVIDENT COMPANIES, INC.
By:
---------------------------------------
Name: David M. Fiacco
--------------------------------------
Title: Sr. Vice President
--------------------------------------
Address:
One Fountain Square
Chattanooga, TN 37402
UNITRIN SERVICES COMPANY
By:
---------------------------------------
Name: Eric J. Draut
-------------------------------------
Title: Treasurer
-------------------------------------
Address:
One East Wacker Drive
Chicago, IL 60601
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED
-----------------------------------------
INVESTORS' RIGHTS AGREEMENT
---------------------------
This Second Amendment to Amended and Restated Investors' Rights Agreement
(this "Amendment") is made and entered into as of December 29, 1998 by and among
---------
TenFold Corporation, a Delaware corporation (the "Company"), Winter Harbor,
-------
L.L.C. ("Winter Harbor"), Indus International, Inc. ("Indus") and Unitrin
------------- -----
Services Company ("Unitrin").
-------
RECITALS
--------
A. Winter Harbor, Indus and Unitrin are stockholders of the Company, and
the Company, Winter Harbor, Indus, Unitrin and certain other stockholders of
the Company are parties to that certain Amended and Restated Investors' Rights
Agreement dated November 24, 1997, as amended on december 28, 1998 (the
"Restated Agreement").
- -------------------
C. The Company, Winter Harbor, Indus and Unitrin desire to amend the
Restated Agreement pursuant to Section 3.7 thereof on the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree that the Restated
Agreement is amended as follows:
1. AMENDMENT.
---------
1.1 REGISTRABLE SECURITIES. The first sentence of subsection (b) of
----------------------
Section 1.1 of the Restated Agreement is hereby amended and restated in its
entirety to read as follows:
"The term "Registrable Securities" means (i) the shares of Common Stock
----------------------
issuable or issued upon conversion of the Series A Preferred Stock (the
"Series A Stock"), (ii) the shares of Common Stock issuable or issued upon
---------------
conversion of the Series B Preferred Stock (the "Series B Stock" and with
--------------
the Series A Stock, collectively, the "Stock"), (iii) any other shares of
-----
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the Stock, (iv) the shares of Common Stock issued to the
Founders (the "Founders' Stock"), and (v) the shares of Common Stock issued
---------------
pursuant to that certain Common Stock Purchase Agreement dated December 28,
1998 between the Company and Provident Companies, Inc. and the shares of
Common Stock issued pursuant to that certain Common Stock Purchase
Agreement dated December 28, 1998 between the Company and Unitrin Services
Company, provided, however, that the term Registrable Securities shall
-------- -------
exclude in all cases any Registrable Securities sold by a person in a
transaction in which his or her rights under this Agreement are not
assigned."
-2-
<PAGE>
1.2 HOLDERS. Subsection (d) of Section 1.1 of the Restated Agreement is
-------
hereby amended and restated in its entirety to read as follows:
"The term "Holder" means any person owning or having the right to
------
acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof, provided, however, that for
-------- -------
purposes of initiating a request for registration under Section
1.2 and under Section 1.12 hereof, Holder shall not include
persons owning or having the right to acquire Registrable
Securities by virtue of clause (v) of subsection (b) of this
Section 1.1, but such persons shall be considered a Holder for
all other purposes under Section 1.2 and 1.12."
2. AGREEMENT. The provisions of Sections 1.3 and 1.8 of the Restated
---------
Agreement, as amended, shall not apply to a registration commenced pursuant to
Section 1.2 or 1.12 of the Restated Agreement, as amended. All Holders of
Registrable Securities shall be subject to the provisions of Sections 1.2 and
1.12 of the Restated Agreement, as amended, on the terms contemplated by this
Amendment.
3. GENERAL PROVISIONS.
------------------
3.1 GOVERNING LAW. This Amendment and all acts and transactions pursuant
-------------
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
laws.
3.2 COUNTERPARTS. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to Amended and Restated Investors' Rights Agreement as of the date and year
first above written.
TENFOLD CORPORATION
By:
--------------------------------------
Gary D. Kennedy, Chief Executive
Officer
WINTER HARBOR, L.L.C.
By: First Media, L.P., Manager
By: First Media Corporation
its sole general partner
By: /s/ Ralph W. Hardy
Ralph W. Hardy Jr., Secretary
INDUS INTERNATIONAL, INC.
By:
--------------------------------------
Robert W. Felton, Chairman and
Chief Executive Officer
<PAGE>
UNITRIN SERVICES COMPANY
By:
--------------------------------------
Name: Eric J. Draut
--------------------------------------
Title: Treasurer
--------------------------------------
Address:
One East Wacker Drive
Chicago, IL 60601
<PAGE>
EXHIBIT 4.4
TENFOLD CORPORATION
AMENDED AND RESTATED CO-SALE AGREEMENT
--------------------------------------
This Amended and Restated Co-Sale Agreement (the "Agreement") is made and
entered into as of November 24, 1997 by and among Gary D. Kennedy, the Walker
Children's Trust and Jeffrey L. Walker (the "Founders"), TenFold Corporation, a
Delaware corporation (the "Company"), and the holders of Series A Preferred
Stock and Series B Preferred Stock of the Company listed on Exhibit A hereto
(each an "Investor" and, collectively, the "Investors").
RECITALS
--------
1. The Company and Indus International, Inc. ("Indus") entered into a Co-
Sale Agreement dated March 4, 1997 (the "Existing Agreement"), in connection
with the purchase by Indus of certain shares of Series A Preferred Stock of the
Company.
2. The Company and Winter Harbor, L.L.C. ("Winter Harbor") have entered
into a Series B Preferred Stock Purchase Agreement (the "Purchase Agreement") of
even date herewith pursuant to which the Company desires to sell to Winter
Harbor and Winter Harbor desires to purchase from the Company shares of the
Company's Series B Preferred Stock. A condition to Winter Harbor's obligations
under the Purchase Agreement is that the Company, the Founders and the Investors
enter into this Agreement in order to provide Winter Harbor the opportunity to
purchase and/or participate, upon the terms and conditions set forth in this
Agreement, in subsequent sales by the Founders of shares of the Company's Common
Stock. The Company, Indus and the Founders each desire to induce Winter Harbor
to purchase shares of Series B Preferred Stock pursuant to the Purchase
Agreement by agreeing to the terms and conditions set forth herein.
AGREEMENT
---------
1. Sales by Founders.
(a) Notice of Sales.
(i) If any Founder proposes to accept one or more bona fide
offers (a "Purchase Offer") from any persons to purchase shares of the Company's
Common Stock, including any shares of Common Stock pursuant to a stock split or
a stock dividend granted with respect to such shares of Common Stock (the
"Shares"), from such Founder (other than as set forth in subsection 1 (e)
hereof), such Founder shall promptly deliver a notice (the "Notice") to the
Company and the Investors stating the terms and conditions of such Purchase
Offer including, without limitation, the number of shares of the Company's
capital stock to be sold or transferred (the "Transfer Shares"), the nature of
such sale or transfer, the consideration to be
<PAGE>
paid (the "Offered Price"), and the name and address of each prospective
purchaser or transferee (the "Proposed Transferees").
The Company agrees that in the event that the Company declines to exercise
in full any right of first refusal that it may have with respect to the Transfer
Shares to be sold by such Founder (the "Right of First Refusal"), the Company
will provide the Investors with notice of such determination at least fifteen
(15) business days prior to the end of the period in which the Right of First
Refusal expires.
(b) Co-Sale Right. Each Investor shall have the right (the "Co-Sale
Right"), exercisable upon written notice to the Company within fifteen (15)
business days after receipt of the Notice to participate in such Founder's sale
of Transfer Shares pursuant to the specified terms and conditions of such
Purchase Offer. To the extent the Investor exercises such Co-Sale Right in
accordance with the terms and conditions set forth below, the number of Shares
which such Founder may sell pursuant to such Purchase Offer shall be
correspondingly reduced. The Co-Sale Right of the Investor shall be subject to
the following terms and conditions:
(i) Calculation of Shares. The Investor may sell all or any part
of that number of shares of Common Stock of the Company issued or issuable upon
conversion of Preferred Stock or Common Stock received in connection with any
stock dividend, stock split or other reclassification thereof (the "Conversion
Shares") equal to the product obtained by multiplying (x) the aggregate number
of shares of Common Stock covered by the Purchase Offer by (y) a fraction, the
numerator of which is the number of Conversion Shares at the time owned by the
Investor and the denominator of which is the combined number of shares of Common
Stock of the Company. The provisions of this Agreement do not confer any co-sale
rights with respect to any shares of Common Stock or other securities held by an
Investor that are not Conversion Shares.
(ii) Delivery of Certificates. The Investor may effect its
participation in the sale by delivering to the selling Founder for transfer to
the purchase offeror one or more certificates, properly endorsed for transfer,
which represent the number of shares of Preferred Stock, or Common Stock issued
upon conversion thereof, which the Investor elects to sell.
(c) Transfer. The stock certificate or certificates which the Investor
delivers to the selling Founder pursuant to Section 1 (b) shall be delivered by
such Founder to the purchase offeror in consummation of the sale pursuant to the
terms and conditions specified in the Notice, and such Founder shall promptly
thereafter remit to the Investor that portion of the sale proceeds to which the
Investor is entitled by reason of its participation in such sale. To the extent
that any prospective purchaser or purchasers prohibits such assignment or
otherwise refuses to purchase shares of capital stock of the Company from an
Investor exercising its Co-Sale Right hereunder, the selling Founder or Founders
shall not sell to such prospective purchaser or purchasers any shares of Company
stock unless and until, simultaneously with such sale, the selling Founder or
Founders shall purchase such shares from the Investor for the same consideration
and on the same terms and conditions as the proposed transfer described in the
Notice (which terms and
-2-
<PAGE>
conditions shall be no less favorable than those governing the sale to the
purchaser by the Founder or Founders).
(d) No Adverse Effect. The exercise or non-exercise of the rights of
the Investor hereunder to participate in one or more sales of Shares made by a
Founder shall not adversely affect their rights to participate in subsequent
sales of Common Stock by a Founder.
(e) Permitted Transactions. The provisions of Section 1 of this
Agreement shall not pertain or apply to:
(i) Any pledge of the Company's Common Stock made by a Founder
pursuant to a bona fide loan transaction which creates a mere security interest;
provided, that (x) the Founder(s) shall inform the Investor of such pledge,
prior to effecting it, and (y) the pledgee or transferee (collectively, the
"Permitted Transferees") shall furnish the Investor with a written agreement to
be bound by and comply with all provisions of this Agreement as applicable to
the Founders;
(ii) Any repurchase of Common Stock by the Company;
(iii) Any sale or transfer of shares of Common Stock among the
Founders; or
(iv) Any sale or transfer to the extent such sale or transfer
does not result in the Founders collectively holding less than 50% of the
outstanding Common Stock of the Company (calculated assuming the conversion into
Common Stock of all outstanding shares of Preferred Stock).
2. Prohibited Transfers. Any attempt by a Founder to transfer shares of
the Company in violation of Section 1 hereof shall be void and the Company
agrees it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the written consent of the
holders of a majority of the Conversion Shares.
3. Legended Certificates. Each certificate representing shares of the
Common Stock of the Company now or hereafter owned by the Founders or issued to
any Permitted Transferee pursuant to Section 1 (e) shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO-
SALE AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN
HOLDERS OF COMMON AND PREFERRED STOCK OF THE CORPORATION. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
The foregoing legend shall be removed upon termination of this Agreement in
accordance with the provisions of Section 4(a).
-3-
<PAGE>
4. Miscellaneous Provisions.
(a) Termination. This Agreement shall terminate upon the earliest to
occur of any one of the following events (and shall not apply to any transfer by
a Founder in connection with any such event):
(i) The liquidation, dissolution or indefinite cessation of
the business operations of the Company;
(ii) The execution by the Company of a general assignment for
the benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
(iii) The closing of the Company's initial public offering of
securities; provided that all shares of the Company's Preferred Stock are
converted into shares of Common Stock prior to or in connection with such
offering; or
(iv) The closing of any acquisition, merger, reorganization or
other transaction which results in the stockholders of the Company immediately
prior to such transaction owning less than 50% of the Company's voting stock
immediately after such transaction.
(b) Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below or on Exhibit A hereto, or as
subsequently modified by written notice.
(c) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The rights of the Investors hereunder shall be assignable only (i) by each of
the Investors to any other Investor or (ii) an assignee or transferee who
acquires not less than 1,000,000 shares of the Company's Common Stock (as
adjusted for stock splits, stock dividends and the like, and assuming conversion
of all Preferred Stock held by the Investor); provided that such limitation
shall not apply to transfers by an Investor to constituent shareholders,
constituent partners or retired constituent partners (including any constituent
of a constituent) of the Investor (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire the Preferred
Stock or Common Stock issued upon conversion thereof) if all such transferees or
assignees irrevocably agree in writing to appoint a single representative as
their attorney in fact for the purpose of receiving any notices and exercising
their rights under this Agreement.
(d) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith.
-4-
<PAGE>
In the event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
(e) Modifications and Amendments. Any term hereof may be amended or
waived with the written consent of the Company, holders of a majority of the
Series A Preferred Stock, holders of a majority of the Series B Preferred Stock
and holders of a majority of the Founders' shares (or their respective
successors and assigns) each voting as a separate class. Any amendment or waiver
effected in accordance with this Section 4(e) shall be binding upon the Company,
the holders of Series A Preferred Stock, the holders of the Series B Preferred
Stock and any holder of Founders' Shares, and each of their respective
successors and assigns. This Agreement supersedes and replaces in its entirety
the Existing Agreement.
(f) Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
(g) Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
-5-
<PAGE>
The parties have executed this Agreement as of the date first written above.
COMPANY:
TENFOLD CORPORATION
By:
----------------------
Gary D. Kennedy
President
Address: 180 West Election Road, Ste 100
Draper, UT 84020
SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT
-6-
<PAGE>
INVESTORS:
INDUS INTERNATIONAL, INC.
By:
------------------------
Name: Robert W. Felton
Title: Chairman & CEO
Address: 60 Spear Street
San Francisco, CA 94105
WINTER HARBOR, L.L.C.
By: First Media, L.P., Manager
By: First Media Corporation
its sole general partner
By: /s/ Ralph W. Hardy Jr.
Name: Ralph W. Hardy Jr.
Title: Secretary
Address: 11400 Skipwith Lane
Potomac, Maryland 20854
SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT
-7-
<PAGE>
FOUNDERS:
----------------------
Gary D. Kennedy
Address: 7814 South Pheasantwood Drive
Sandy, UT 84093
----------------------
Jeffrey L. Walker
Address: 30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT
-8-
<PAGE>
FOUNDERS:
THE WALKER CHILDREN'S TRUST
By:
-------------------------
Name:
Title: Trustee
Address: 30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT
-9-
<PAGE>
EXHIBIT A
---------
INVESTOR
--------
NAME/ADDRESS NO. OF SHARES
- ------------ -------------
Indus International, Inc. 2,920,779
Winter Harbor, L.L.C. 3,340,330
-10-
<PAGE>
EXHIBIT 10.2
TENFOLD CORPORATION
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series B Preferred Stock Purchase Agreement (the "Agreement") is made
as of the 24th day of November, 1997 by and between TenFold Corporation, a
Delaware corporation (the "Company") and Winter Harbor, L.L.C., a Delaware
limited liability company. (the "Purchaser").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 Sale and Issuance of Series B Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Second
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit A (the "Restated Certificate").
- ---------
(b) Subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to the Purchaser at the Closing 3,340,330 shares of Series B Convertible
Preferred Stock for the aggregate purchase price of $7,014,693.00. The shares of
Series B Convertible Preferred Stock issued to the Purchaser pursuant to this
agreement shall hereinafter be referred to as the "Stock."
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock shall take place at the
offices of the Company's counsel at 10 a.m. Eastern Standard Time, on November
24, 1997, or at such other time and place as the Company and the Purchaser
mutually agree upon, orally or in writing (which time and place are designated
as the "Closing"). At the Closing the Company shall deliver to the Purchaser a
certificate registered in the name of the Purchaser representing the Series B
Convertible Preferred Stock being purchased thereby against payment of the
purchase price therefor. The Company and the Purchaser shall take such
additional actions and execute and deliver such additional agreements and other
instruments and documents as necessary or appropriate to effect the transactions
contemplated by this Agreement in accordance with its terms. If at the Closing
any of the conditions specified in Section 4 shall not have been fulfilled, the
Purchaser shall, at its election, be relieved of all of its obligations under
this Agreement without thereby waiving any other rights it may have by reason of
such failure or such non-fulfillment.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
hereby represents, warrants and covenants to the Purchaser that, except as set
forth on the Schedule of Exceptions dated November 24, 1997, previously
delivered to the Purchaser (the "Schedule of Exceptions"), which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) Six Million Two Hundred Sixty-one Thousand One Hundred
Twenty-nine (6,261,129) shares of Preferred Stock, of which Two Million Nine
Hundred Twenty Thousand Seven Hundred Ninety-nine (2,920,799) shares have been
designated Series A Convertible Preferred Stock, all of which are issued and
outstanding and Three Million Three Hundred Forty Thousand Three Hundred Thirty
(3,340,330) shares have been designated Series B Convertible Preferred Stock,
none of which are issued or outstanding. The rights, privileges and preferences
of the Preferred Stock are as stated in the Restated Certificate. All of the
outstanding shares of Preferred Stock have been duly authorized and fully paid,
are nonassessable and were issued in compliance with all applicable Federal and
state securities laws.
(b) Fourty-four (44,000,000) shares of Common Stock, Twenty-three
Million Five Hundred Sixty-three Thousand Seven Hundred Four (23,563,704) shares
of which are issued and outstanding. All of the outstanding shares of Common
Stock have been duly authorized, fully paid and are nonassessable and issued in
compliance with all applicable Federal and state securities laws. The Company
has reserved Two Million Nine Hundred Twenty Thousand Seven Hundred Ninety Nine
(2,920,799) shares of Common Stock for issuance upon conversion of the Series A
Convertible Preferred Stock and Three Million, Three Hundred Forty Thousand
Three Hundred Thirty (3,340,330) shares of Common Stock for issuance upon
conversion of the Series B Convertible Preferred Stock.
(c) The Company has reserved Eight Million (8,000,000) shares of
Common Stock for issuance to officers, directors, employees and consultants of
the Company pursuant to its 1993 Flexible Stock Incentive Plan duly adopted by
the Board of Directors and approved by the Company's stockholders (the "Stock
Plan"). Of such reserved shares of Common Stock, options for the purchase of
494,000 shares were exercised, options to purchase 3,519,000 are outstanding,
options for the purchase of 737,000 shares have been approved for grant by the
Board of Directors subject to regulatory approval by the State of California and
-2-
<PAGE>
3,250,000 shares of Common Stock remain available for issuance to officers,
directors, employees and consultants pursuant to the Stock Plan.
(d) Except as set forth in the Schedule of Exceptions, described in
this Section 2.2 or provided in this Agreement, (i) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or otherwise) to
issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, and (iii) the Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
(e) The Company shall adopt and file with the Secretary of State of
the State of Delaware on or before the Closing the Restated Certificate in the
form attached hereto as Exhibit A.
---------
(f) Included in the Schedule of Exceptions is a true and complete list
of the stockholders of the Company, showing the number of shares of Common Stock
or Preferred Stock held by each stockholder as of the date of this Agreement.
Except as provided in this Agreement and in the Schedule of Exceptions, there
are no agreements, written or oral, between the Company and any holder of its
capital stock, or, to the best of the Company's knowledge, among any holders of
its capital stock, relating to the acquisition (including without limitation
rights of first refusal or preemptive rights), disposition, registration under
the Securities Act, or voting of the capital stock of the Company.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Amended and Restated Investor's Rights
Agreement, in the form attached hereto as Exhibit B (the "Investors'
---------
Rights Agreement"), Amended and Restated Voting Agreement in the form attached
hereto as Exhibit C (the "Voting Agreement") and the Amended and Restated Co-
---------
Sale Agreement in the form attached hereto as Exhibit D ( the "Co-Sale
---------
Agreement"), the Indemnity Agreement between the Company and the director
nominated by Winter Harbor in the form attached hereto as Exhibit E (the
---------
"Indemnity Agreement" and with this Agreement, the Investors' Rights Agreement,
the Voting Agreement, and the Co-Sale Agreement, collectively, the
"Agreements"), the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance and delivery of the Stock and the
Common Stock issuable upon conversion of the Stock has been taken or will be
taken prior to the Closing, and the Agreements, when executed and delivered by
the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors'
-3-
<PAGE>
rights generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, or (ii) to the
extent the indemnification provisions contained in the Investor's Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Securities. The Series B Convertible Preferred
----------------------------
Stock that is being issued to Purchaser hereunder, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and free
of restrictions on transfer other than restrictions on transfer under this
Agreement, Section 1.14 of the Investors' Rights Agreement, and applicable state
and Federal securities laws. Based in part upon the representations of the
Purchaser in this Agreement and subject to the provisions of Section 2.6 below,
the Stock will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Series B
Preferred Stock purchased hereunder has been duly and validly reserved for
issuance, and upon issuance in accordance with the terms of the Restated
Certificate, shall be duly and validly issued, fully paid and nonassessable and
free of restrictions on transfer other than restrictions on transfer under this
Agreement, Section 1.14 of the Investors' Rights Agreement and applicable
Federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any Federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to applicable state
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act").
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries, nor is the Company aware that
there is any basis for the foregoing. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its subsidiaries currently pending or which the Company or any
of its subsidiaries intends to initiate.
2.8 Patents and Trademarks. To its knowledge, the Company owns or
----------------------
possesses sufficient legal rights to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, licenses, information and proprietary
rights and processes (collectively, the "Intellectual Property Rights")
necessary for its business as now conducted and as proposed to be conducted. To
its knowledge, the Company has not violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks,
tradenames, copyrights, trade secrets or other proprietary rights or processes
of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interest of the Company
or that would conflict with the Company's business as proposed to be conducted.
Neither the execution or delivery of this
-4-
<PAGE>
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as proposed, will, to the
best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of its Restated Certificate or Bylaws or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound or, to
its knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Agreements and the consummation of the transactions contemplated hereby or
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any Intellectual Property Right the loss of which would
reasonably be expected to have or does have a material adverse effect upon the
business, prospects, financial condition or results of operation of the Company.
2.10 Agreements; Action. The Schedule of Exceptions sets forth a list
------------------ --------------------------
of all material agreements or commitments of any nature to which the Company is
a party or by which it is bound, including without limitation:
(a) Agreements, understandings or proposed transactions between
the Company and any of its officers, directors, affiliates, or any affiliate
thereof.
(b) Agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$50,000, (ii) any agreement relating to the Intellectual Property Rights (iii)
the grant of rights to manufacture, produce, assemble, license, market, or sell
its products to any other person or affect the Company's exclusive right to
develop, manufacture, assemble, distribute, market or sell its products and (iv)
all employment and consulting agreements.
2.11 Absence of Liabilities; Other Agreements
----------------------------------------
-5-
<PAGE>
(a) Neither the Company nor any of its subsidiaries has (i) declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(b) The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Certificate or Bylaws, that adversely affects its business as now conducted or
as proposed to be conducted, its properties or its financial condition.
(c) The Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.12 Disclosure. The Company has fully provided the Purchaser with all the
----------
information which such Purchaser has requested for deciding whether to acquire
the Stock. To the Company's knowledge, no representation or warranty of the
Company contained in this Agreement and the exhibits attached hereto, any
certificate furnished or to be furnished to the Purchaser at the Closing (when
read together) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
2.13 No Conflict of Interest. The Company is not indebted, directly or
-----------------------
indirectly, to any of its officers or directors or to their respective spouses
or children, in any amount whatsoever other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees. None of the Company's officers or directors, or any
members of their immediate families, are, directly or indirectly, indebted to
the Company (other than in connection with purchases of the Company's stock) or,
to the best of the Company's knowledge, have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded companies that may compete with the
Company. To the best of the Company's knowledge, none of the Company's officers
or directors or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company. The Company is
not a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
-6-
<PAGE>
2.14 Rights of Registration and Voting Rights. Except as contemplated
----------------------------------------
in the Investors' Rights Agreement the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. To the Company's knowledge, except as contemplated in the Voting
Agreement and the First Amended and Restated Voting Agreement dated March 4,
1997, among and between the Company, Jeffrey C. Walker, the Walker Children's
Trust and Gary D. Kennedy, no stockholders of the Company have entered into any
agreements with respect to the voting of capital shares of the Company.
2.15 Private Placement. Subject in part to the truth and accuracy of
-----------------
the Purchaser's representations set forth in this Agreement, the offer sale and
issuance of the Stock as contemplated by this Agreement is exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.16 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.17 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.18 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due.
2.19 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company maintains valid policies of
workers compensation insurance.
2.20 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its
-7-
<PAGE>
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment.
2.21 Proprietary Information and Inventions Agreements. Each
-------------------------------------------------
employee, consultant and officer of the Company has executed an agreement with
the Company regarding confidentiality and proprietary information substantially
in the form attached as Exhibit H. The Company, after reasonable investigation,
---------
is not aware that any of its employees or consultants is in violation thereof,
and the Company will use its best efforts to prevent any such violation. All
consultants to or vendors of the Company with access to confidential information
of the Company are parties to a written agreement substantially in the form or
forms provided to counsel for the Purchaser under which, among other things,
each such consultant or vendor is obligated to maintain the confidentiality of
confidential information of the Company. The Company, after reasonable
investigation, is not aware that any of its consultants or vendors are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.
2.22 Permits. The Company and each of its subsidiaries has all
-------
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects, or
financial condition of the Company and believes that it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted. The Company is not in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
2.23 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchaser. The copy of the
minute books of the Company provided to Purchaser' counsel contains minutes of
all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.24 Real Property Holding Corporation. The Company is not a United
---------------------------------
States real property holding corporation within the meaning of Internal Revenue
Code Section 897(c)(2) and Section 1.897-2(c) of the Regulations promulgated
thereunder.
2.25 Financial Statements. The Company has made available to the
--------------------
Purchaser its unaudited financial statements (including balance sheet and income
statement) as of, and for the nine months ended, September 30, 1997
(collectively, the "Financial Statements"). The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, and have been prepared in
accordance with generally accepted accounting principles consistently applied,
except that the Financial Statements have been prepared for the internal use of
management and may not be in accordance with generally accepted accounting
principles because of the absence of footnotes and are subject to normal year-
end audit adjustments which in the aggregate will not be material. Except as
set forth in the Financial Statements, the Company has no material liabilities,
contingent or
-8-
<PAGE>
otherwise, other than (i) liabilities paid or incurred in the ordinary course of
business subsequent to September 30, 1997 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business, which, in both
cases, individually or in the aggregate are not material to the financial
condition or operating results of the Company.
2.26 Changes. Since September 30, 1997 there has not been:
-------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted);
(e) any material change to a material contract or agreement by which
the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer or key
employee of the Company; and the Company, to the best of its knowledge, does not
know of any impending resignation or termination of employment of any such
officer or key employee;
(i) receipt of notice that there has been a loss of, or order
cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its properties or assets, except
liens for taxes not yet due or payable;
-9-
<PAGE>
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(1) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company; or
(m) any arrangement or commitment by the Company to do anything
described in this Section 2.26.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby
represents and warrants to the Company that:
3.1 Authorization. The Agreements, when executed and delivered by
-------------
the Purchaser will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon Purchaser's representation to the Company, which
by Purchaser's execution of this Agreement, the Purchaser hereby confirms, that
the Stock (or Common Stock issuable upon conversion thereof) to be acquired by
will be acquired for investment for Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any-contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Stock (or the Common Stock issuable upon
conversion thereof). The Purchaser represents that it has full power and
authority to enter into this Agreement.
3.3 Disclosure of Information. Without in any way limiting the
-------------------------
representations and warranties of the Company set forth herein, the Purchaser
has had an opportunity to discuss the Company's business, management, financial
affairs and the terms and conditions of the offering of the Stock with the
Company's management and has had an opportunity to review the Company's
facilities.
3.4 Restricted Securities. The Purchaser understands that the Stock
---------------------
(and the Common Stock issuable upon conversion thereof) has not been, and
subject to the Purchasers rights under the Investors' Rights Agreement will not
be, registered under the Securities Act, by
-10-
<PAGE>
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of Purchaser's representations as
expressed herein. The Purchaser understands that the Stock (and the Common Stock
issuable upon conversion thereof) are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such Stock (and the Common Stock issuable upon
conversion thereof) may be resold without registration under the Securities Act
only in certain limited circumstances. The Purchaser acknowledges that the Stock
(and the Common Stock issuable upon conversion thereof) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including a requirement that the securities be held prior to
resale for the applicable holding periods specified in the rule, the existence
of a public market for the shares, and, in some cases, the availability of
certain current public information about the Company, compliance with the manner
of sale requirements of the rule, and the number of shares being sold during any
three-month period not exceeding specified limitations.
3.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Stock or the underlying Common Stock.
3.6 Legends. The Purchaser understands that the Stock (and the
-------
Common Stock issuable upon conversion thereof), and any securities issued in
respect thereof or exchange therefor, may bear one or all of the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
(b) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Act.
4. CONDITIONS OF PURCHASER'S OBLIGATIONS AT CLOSING. The obligations of
the Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
-11-
<PAGE>
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Company on
or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Purchaser at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 Opinion of Company Counsel. The Purchaser shall have received
--------------------------
from Venture Law Group, A Professional Corporation, counsel for the Company, an
opinion, dated as of the Closing, in substantially the form of Exhibit G.
---------
4.6 Board of Directors. As of the Closing, the Board shall be
------------------
increased to five members and be comprised of Jeffrey L. Walker, Gary D. Kennedy
and Robert Felton with two vacancies. One such vacancy to be filled by a
director to be nominated by Winter Harbor and one such vacancy to be filled by
an individual not affiliated with the Company, each of whom will have entered
into, or will be given the opportunity to enter into upon their appointment to
the Board, an indemnification agreement with the Company in the form attached
hereto as Exhibit E.
---------
4.7 Investors' Rights Agreement. The Company, the Purchaser and the
---------------------------
other parties thereto shall have executed and delivered the Investors' Rights
Agreement in substantially the form attached as Exhibit B.
---------
4.8 Voting Agreement. The Company, the Purchaser and the other
----------------
parties thereto shall have executed and delivered the Voting Agreement in
substantially the form attached as Exhibit C.
---------
4.10 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the Closing
Date, which shall continue to be in full force and effect as of the Closing
Date.
-12-
<PAGE>
4.11 Co-Sale Agreement. The Company, the Purchaser and the other
-----------------
parties thereto shall have executed and delivered the Co-Sale Agreement in
substantially the form attached hereto as Exhibit D.
---------
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Purchaser under this Agreement are subject to the fulfillment,
on or before the Closing, of each of the following conditions, unless otherwise
waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement to be performed by the Purchaser on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Investors' Rights Agreement. The Purchaser shall have executed
---------------------------
and delivered the Investors' Rights Agreement in substantially the form attached
as Exhibit B.
---------
5.4 Voting Agreement. The Purchaser shall have executed and
----------------
delivered the Voting Agreement in substantially the form attached as Exhibit C.
---------
5.5 Co-Sale Agreement. The Purchaser shall have executed and
-----------------
delivered the Co-Sale Agreement in substantially the form attached hereto as
Exhibit D.
- ---------
6. MISCELLANEOUS.
6.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and
Purchaser contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
6.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.3 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
-13-
<PAGE>
6.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
6.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth below or on Exhibit A hereto, or as subsequently
modified by written notice, and (a) if to the Company, with a copy to:
Donald M. Keller, Jr.
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94205
Telephone: (415) 854-4488
Facsimile: (415) 854-1121
or (b) if to the Purchaser, with a copy to:
Ralph W. Hardy, Jr.
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Telephone: (202) 776-2000
Facsimile: (202) 776-2222
6.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. The Purchaser agree to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Purchaser or any of their officers, employees,
or representatives are responsible. The Company agrees to indemnify and hold
harmless the Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.8 Expenses. Each party shall bear its own costs on expenses;
--------
provided, however, that the Company shall pay the reasonable fees of the counsel
for the Purchaser,
-14-
<PAGE>
incurred with respect to this Agreement, the documents referred to herein and
the transactions contemplated hereby and thereby, provided such fees do not
exceed Ten Thousand Dollars ($10,000).
6.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
6.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended with the written consent of the Company and the holders of at least a
majority of the Common Stock issued or issuable upon conversion of the Stock.
Any amendment or waiver effected in accordance with this Section 6.10 shall be
binding upon the Purchaser and each transferee of the Stock (or the Common Stock
issuable upon conversion thereof), each future holder of all such securities,
and the Company.
6.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
6.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any of the Stock, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
6.13 Entire Agreement. This Agreement, and the documents referred to
----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
6.14 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this
-15-
<PAGE>
Agreement, the performance of its obligations hereunder or the ownership of
Stock purchased hereunder. The provisions of this Section 6.15 shall be in
addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect to the
transactions contemplated hereby.
[Signature Pages Follow]
-16-
<PAGE>
The parties have executed this Series B Preferred Stock Purchase Agreement as
of the date first written above.
COMPANY:
TENFOLD CORPORATION
By: /s/ Gary D. Kennedy
----------------------
Gary D. Kennedy
President
Address: 180 West Election Road, Ste 100
Draper, UT 84020
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
-17-
<PAGE>
PURCHASER:
WINTER HARBOR, L.L.C.
By: FIRST MEDIA, L.P., Manager
By: FIRST MEDIA CORPORATION,
its sole general partner
By: /s/ Ralph W. Hardy Jr.
-------------------------
Name: Ralph W. Hardy Jr.
-------------------------
Title: Secretary
-------------------------
11400 Skipwith Lane
Potomac, Maryland 20854
SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT
-18-
<PAGE>
EXHIBIT 10.3
TENFOLD CORPORATION
AMENDED AND RESTATED VOTING AGREEMENT
-------------------------------------
This Amended and Restated Voting Agreement (the "Agreement") is made as of
the 24th day of November, 1997, by and among TenFold Corporation, a Delaware
corporation (the "Company"), Jeffrey L. Walker, the Walker Children's Trust and
Gary D. Kennedy (the "Founders"), Indus International, Inc. ("Indus"), a
California corporation, and Winter Harbor, L.L.C., a Delaware limited liability
company ("Winter Harbor" and collectively with Indus, the "Investors" and
individually an "Investor").
RECITALS
--------
1. The Company and Indus entered into a Voting Agreement (the "Existing
Agreement") on March 4, 1997, in connection with the purchase by Indus of
certain shares of Series A Preferred Stock of the Company.
2. The Company and Winter Harbor have entered into a Series B Preferred
Stock Purchase Agreement (the "Purchase Agreement") of even date herewith
pursuant to which the Company desires to sell to Winter Harbor and Winter Harbor
desires to purchase from the Company shares of the Company's Series B Preferred
Stock. A condition to Winter Harbor's obligations under the Purchase Agreement
is that the Company, the Founders and the Investors enter into this Agreement
for the purpose of setting forth the terms and conditions pursuant to which the
Investors and the Founders shall vote their shares of the Company's voting stock
on Change of Control Transactions (as defined below) and certain other
agreements. The Company, the Investors and the Founders each desire to
facilitate the arrangements set forth in this Agreement, and the sale and
purchase of shares of Series B Preferred Stock pursuant to the Purchase
Agreement, by agreeing to the terms and conditions set forth herein.
AGREEMENT
---------
The parties hereby agree as follows:
1. Agreement to Vote.
(a) Except in the case of an Excluded Transaction as defined in
paragraph (b) below, during the term of this Agreement and unless otherwise
provided in the Company's Amended and Restated Certificate of Incorporation, in
any Change of Control Transaction, as such term is defined below, the Investors
agree to vote the shares of the Company's capital stock now or hereafter owned
by them to approve or not approve such Change of Control Transaction in the same
manner and in the same percentage, rounded up to the nearest whole share, as the
percentage by which the holders of the Company's Common Stock, in the aggregate
voted their shares on such matter. For purposes of this Section 1, a "Change of
Control Transaction" shall
<PAGE>
mean: (i) the acquisition of the Company by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation, or transfer of outstanding equity
shares, but excluding any merger effected exclusively for the purpose of
changing the domicile of the Company); or (ii) a sale of all or substantially
all of the assets of the Company, unless the Company's stockholders of record as
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Company's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity in approximately the same
relative percentages after such acquisition or sale as before such acquisition
or sale.
(b) The Company agrees that it will not, during the term of this
Agreement, enter into a Change of Control Transaction with an Excluded Entity
(an "Excluded Transaction") without the written consent of Indus. For purposes
of this Agreement, "Excluded Entities" shall mean: SAP AG; Project Software
Development; Inc.; Marcam, Inc.; Revere, Inc.; Severn Trent, and Synercom, a
Division of Health Care Computer Corporation.
2. Legends. Each certificate representing securities of the Company
purchased by the Founders or Investor shall be endorsed by the Company with a
legend reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND AMONG
THE COMPANY, THE FOUNDERS AND THE INVESTOR (A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON
ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND
BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT."
3. Termination.
(a) This Agreement shall terminate upon the earlier of (i) the
consummation of the Company's initial public offering on a firm underwriting
basis of any of its securities or (ii) ten (10) years from the date hereof.
(b) Section 1 (b) of this Agreement shall terminate upon the earlier
to occur of (i) any of the events described in Section 3(a) of this Agreement,
(ii) March 4, 2002, and (iii) the date that Indus holds less than 50% of the
number of shares (as appropriately adjusted to take account for stock splits and
dividends) of the Company's capital stock held by it as of March 4, 1997.
4. Grant of Proxy. Should the provisions of this Agreement be construed
to constitute the granting of proxies, such proxies shall be deemed coupled with
an interest and, to the extent permitted by law, shall be irrevocable for the
term of this Agreement.
5. Specific Enforcement. It is agreed and understood that monetary
damages would not adequately compensate an injured party for the breach of this
Agreement by any other party
-2-
<PAGE>
hereto, that this Agreement shall be specifically enforceable, and that any
breach or threatened breach of this Agreement shall be the proper subject of a
temporary or permanent injunction or restraining order. Further, each party
hereto waives any claim or defense that there is an adequate remedy at law for
such breach or threatened breach.
6. Manner of Voting. Each party to this Agreement may vote its shares of
the Company's capital stock that are subject to this Agreement in person, by
proxy, by written consent, or in any other manner permitted by applicable law.
7. Amendments; Waivers. Any term hereof may be amended or waived only
with the written consent of the Company, holders of a majority of the Series A
Preferred Stock, holders of a majority of the Series B Preferred Stock, and
holders of a majority of the Founders' shares (or their respective successors
and assigns). Any amendment or waiver effected in accordance with this Section 7
shall be binding upon the Company, holders of the Series A Preferred
Stockholders of the Series B Preferred Stock, and any holder of Founders'
Shares, and each of their respective successors and assigns. Notwithstanding
the foregoing, any amendment or waiver of the provisions of Sections 1(b) or
3(b) hereof may be effected with the written consent of the Company and holders
of a majority of the Series A Preferred Stock. This Agreement supersedes in its
entirety the Existing Agreement.
8. Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below or on Exhibit A hereto, or as
subsequently modified by written notice.
9. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms. In
the event that this Agreement is held to be unenforceable in its entirety by a
court of competent jurisdiction, then the parties to this Agreement agree to (i)
establish a voting trust agreement (the "Voting Trust") to effectuate the intent
of this Agreement and (ii) transfer all the securities owned by them that are
subject to this Agreement into the Voting Trust.
10. Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-3-
<PAGE>
12. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
[Signature Pages Follow]
-4-
<PAGE>
The parties hereto have executed this Voting Agreement as of the date first
written above.
COMPANY:
TENFOLD CORPORATION
By:
Gary D. Kennedy
President
Address: 180 West Election Road, Ste 100
Draper, UT 84020
SIGNATURE PAGE TO AMENDED AND RESTATED VOTING AGREEMENT
-5-
<PAGE>
INDUS INTERNATIONAL, INC.
By:
Name: Robert W. Felton
Title: Chairman & Ceo
Address: 60 Spear Street
San Francisco, CA 94105
SIGNATURE PAGE TO AMENDED AND RESTATED VOTING AGREEMENT
-6-
<PAGE>
WINTER HARBOR
WINTER HARBOR, L.L.C.
By: First Media, L.P., Manager
By: First Media Corporation
its sole general partner
By:
----------------------
Name: Ralph W. Hardy Jr.
Title: Secretary
Address: 11400 Skipwith Lane
Potomac, Maryland 20854
SIGNATURE PAGE TO AMENDED AND RESTATED VOTING AGREEMENT
-7-
<PAGE>
FOUNDERS:
Gary D. Kennedy
Address: 7814 South Pheasantwood Drive
Sandy, UT 84093
Jeffrey L. Walker
Address: 30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO AMENDED AND RESTATED VOTING AGREEMENT
-8-
<PAGE>
THE WALKER CHILDREN'S TRUST
By:
Name:
Title: Trustee
Address: 30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO AMENDED AND RESTATED VOTING AGREEMENT
-9-
<PAGE>
EXHIBIT A
INVESTORS
NAME/ADDRESS NO. OF SHARES
- ------------ -------------
Indus International, Inc. 2,920,799
Winter Harbor, L.L.C. 3,340,330
-10-
<PAGE>
EXHIBIT 10.4
TENFOLD CORPORATION
FIRST AMENDED AND RESTATED VOTING AGREEMENT
-------------------------------------------
This First Amended and Restated Voting Agreement (the "Agreement") is
---------
effective as of the 4th day of March, 1997, by and among TenFold Corporation, a
Delaware corporation (the "Company"), Jeffrey L. Walker ("Mr. Walker"), the
------- ----------
Walker Children's Trust (the "Trust") and Gary D. Kennedy ("Mr. Kennedy").
----- -----------
RECITALS
--------
The Company, Mr. Walker and Mr. Kennedy had previously entered into an
agreement effective September 1, 1996 (the "Initial Agreement") setting forth
-----------------
the terms and conditions pursuant to which Mr. Kennedy and Mr. Walker would vote
their shares of the Company's Common Stock on all matters on which the holders
of the Company's Common Stock are entitled to vote. The Company, Mr. Walker and
Mr. Kennedy hereby desire to amend and restate such agreement to make the Trust
a party thereto, and the Trust hereby desires to become a party to such voting
agreement.
AGREEMENT
---------
The parties hereby agree as follows:
1. VOTING POWER. So long as Mr. Kennedy is employed by the Company as the
------------
Company's President and Chief Executive Officer, on all matters on which the
holders of the Company's Common Stock are entitled to vote, (i) the Trust agrees
to vote all of the shares of the Company's Common Stock then held of record by
the Trust as directed by Mr. Kennedy, and (ii) Mr. Kennedy shall have the power
to vote that number of shares of the Company's Common Stock then held of record
by Mr. Walker that, when combined with the number of shares of the Company's
Common Stock then held of record by Mr. Kennedy and his Controlled Affiliates
(as hereinafter defined) and the Trust, equals fifty percent (50%) of the
aggregate number of shares of the Company's Common Stock over which Mr. Kennedy
and his Controlled Affiliates, Mr. Walker and his Controlled Affiliates and the
Trust have the power to vote. As used herein with respect to any person,
"Controlled Affiliate" means any member of such person's immediate family
(including, without limitation, his spouse, children, parents and siblings) and
any other person or entity which, directly or indirectly, is at any time
controlled by such person, but does not mean any officer of the Company. For
purposes of this definition, "control" of a person or entity means the power,
whether by contact or otherwise, to direct or cause the direction of the voting
of the shares of the Company's Common Stock held by such person.
<PAGE>
2. MANNER OF VOTING. In connection with all matters on which the holders
-----------------
of the Company's Common Stock are entitled to vote, each of Mr. Walker, the
Trust and Mr. Kennedy (each a "Party" and, collectively, the "Parties") agrees
to inform each of the other Parties in writing at least 24 hours before casting
its vote or taking action by written consent in which such Party intends to vote
or act by written consent. In the event that the Parties intend to vote (or act
by written consent) differently on any such matter on which the holders of the
Company's Common Stock are entitled to vote (or act by written consent), the
Parties agree to vote their shares of Common Stock (or act) in a manner
consistent with the recommendation of the Company's Board of Directors.
3. TERMINATION. This Agreement shall terminate upon the earlier of (a) the
-----------
consummation of the Company's initial public offering on a firm underwriting
basis of any of its securities, (b) September 1, 2006 or (c) such date as Mr.
Kennedy ceases to be employed by the Company as the Company's Chief Executive
Officer.
4. AMENDMENTS; WAIVERS. Any term hereof may only be amended or waived
-------------------
with the written consent of each of the Company Mr. Walker, Mr. Kennedy and the
Trust. Any amendment or waiver effected in accordance with this Section 4 shall
be binding upon the Company, Mr. Walker, Mr. Kennedy, the Trust and each of
their respective successors and assigns.
5. NOTICES. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below, or as subsequently modified by
written notice.
6. SEVERABILITY. If any term or provision of this Agreement or the
------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
7. GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
8. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument. This Agreement supersedes in its
entirety the Initial Agreement and represents the entire agreement and
understanding between the parties as to the subject matter hereof.
-2-
<PAGE>
9. SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
[Signature Pages Follow]
-3-
<PAGE>
By signing below, the parties hereto hereby agree that this Voting
Agreement shall be effective as of the date first written above.
COMPANY:
TENFOLD CORPORATION
By:
-------------------
Name: Gary D. Kennedy
---------------
Title: President
---------
Address: 475 Sansome Street, Suite 860
San Francisco, CA 94111
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
---------------------
Jeffrey L. Walker
Address: P.O. Box 1309
30 Hill Road
Ross, CA 94957
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
-------------------
Gary D. Kennedy
Address: 7814 South Pheasantwood Drive
Sandy, UT 84093
SIGNATURE PAGE TO FIRST AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
FOUNDERS:
THE WALKER CHILDREN'S TRUST
By:
-----------------
Name:
Title: Trustee
Address: 421 Aviation Boulevard
Santa Rosa, CA 95403
-7-
<PAGE>
EXHIBIT 10.6
KEYTEX CORPORATION
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is effective as of September 1,
---------
1996, by and between Gary D. Kennedy ("Employee") and Keytex Corporation, a
--------
Delaware corporation (the "Company").
-------
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
-----------------
and shall have a term of five (5) years (the "Original Term"). Subject to each
-------------
party's obligations set forth below, this Agreement may be terminated by either
party, with or without cause, on thirty (30) days' written notice to the other
party. After the end of the Original Term, this Agreement shall be automatically
extended for additional successive one (1) year periods unless the parties
hereto mutually agree in writing to terminate the Agreement in accordance with
the terms hereof prior to the commencement of any such one (1) year period.
2. DUTIES.
------
(a) POSITION. Employee shall be employed as the President and Chief
--------
Executive Officer of the Company and will report to the Company's Board of
Directors. In addition, the Company shall cause the election of Employee to the
Company's Board of Directors.
(b) OBLIGATIONS TO THE COMPANY. Employee agrees to the best of his
--------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote all of his business time
and attention to the business of the Company, the Company will be entitled to
all of the benefits and profits arising from or incident to all such work
services and advice, Employee will not render commercial or professional
services of any nature to any person or organization whether or not for
compensation, without the prior written consent of the Company's Board of
Directors, and Employee will not directly or indirectly engage or participate in
any business that is competitive in any manner with business of the Company.
Nothing in this Agreement will prevent Employee from accepting speaking or
presentation engagements in exchange for honoraria or from serving on boards of
charitable organizations. Employee will comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during the term of Employee's employment.
3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If Employee's employment terminates for any reason, Employee
shall not be entitled to any payments, benefits, damages, award or compensation
other than as provided in this Agreement, or as may otherwise be available in
accordance with the Company's established written plans and written policies at
the time of termination.
-1-
<PAGE>
4. COMPENSATION. For the duties and services to be performed by Employee
------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 5.
(a) SALARY. Employee shall receive a monthly salary of $14,000, which
------
is equivalent to $168,000 on an annualized basis. Employee's monthly salary will
be payable in equal payments per month pursuant to the Company's normal payroll
practices. In the event that during the term of this Agreement, the base salary
shall be reviewed from time to time by the Board of its compensation Committee,
and any increase will be effective as of the date determined appropriate by the
Board or its Compensation Committee.
(b) SALE AND ISSUANCE OF THE COMMON STOCK. Concurrently herewith,
-------------------------------------
Employee and the Company shall enter into the restricted stock purchase
agreement in substantially the form attached hereto as Exhibit A (the "Purchase
---------
Agreement") pursuant to which the Company shall issue and sell to Employee
2,265,052 shares of the Company's Common Stock for the aggregate purchase price
of $1,000,000 subject to the terms and conditions set forth in the Purchase
Agreement.
(c) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be
------------------------------------------
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
(d) BONUSES. Employee's entitlement to incentive bonuses from the
-------
Company is discretionary and shall be determined by the Board or its
Compensation Committee of the Company in good faith based upon the extent to
which Employee's individual performance objectives and the Company's
profitability objectives and other financial and nonfinancial objectives are
achieved during the applicable bonus period. In the event of Employee's death or
disability during the term of this Agreement, the Company shall pay to Employee
or Employee's estate the bonus Employee would have earned during the entire year
in which death or disability occurred.
(e) ADDITIONAL BENEFITS. Employee will be eligible to participate in
-------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience.
(f) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur
-------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
------------------------------------------------
-2-
<PAGE>
(a) TERMINATION OF EMPLOYMENT. This Agreement may be terminated
-------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events:
(i) The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below) ("Termination for
---------------
Cause");
- -----
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
-------------------------
or
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his or her
employment with the Company ("Voluntary Termination"). [What happens if Kaz does
---------------------
not give one year notice?]
(b) SEVERANCE BENEFITS. Employee shall be entitled to receive
------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) VOLUNTARY TERMINATION. If Employee's employment terminates
---------------------
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
(ii) INVOLUNTARY TERMINATION If Employee's employment is
-----------------------
terminated other than by reason of Employee's Voluntary Termination and other
than by reason of a Termination for Cause, including a Constructive Termination
(as defined below) (an "Involuntary Termination"), Employee will be entitled to
-----------------------
receive payment or severance benefits equal to Employee's regular monthly salary
for the lesser of (i) until Employee finds full-time employment, part-time
employment, or some combination thereof pursuant to which Employee works or is
paid for an equivalent of at least thirty (30) hours per week or (ii) six (6)
months (the "Severance Period"). Such payments shall be made ratably over the
----------------
Severance Period according to the Company's standard payroll schedule. Employee
will also be entitle to receive payment on the date of termination of any bonus
payable under Section 4(d). Health insurance benefits with the same coverage
provided to Employee prior to the termination (e.g. medical, dental, optical,
mental health) and in all other respects significantly comparable to those in
place immediately prior to the termination will be provided at the Company's
cost over the Severance Period.
(iii) TERMINATION FOR CAUSE. If Employee's employment is
---------------------
terminated for Cause, then Employee shall not be entitled to receive payment of
severance benefits. Employee's benefits will be continued under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with the terms
of this Agreement.
(iv) CONSTRUCTIVE TERMINATION. "Constructive Termination" shall
------------------------ ------------------------
be deemed to occur if (A) (1) there is a material adverse change in Employee's
position causing
-3-
<PAGE>
such position to be of less stature or of less responsibility or (2) a reduction
of more that 20% of Employee's base compensation unless in connection with
similar decreases of other similarly situated employees of the Company, and (B)
within the thirty (30) day period immediately following such material change or
reduction Employee elects to terminate his or her employment.
6. DEFINITION OF TERMINATION FOR CAUSE. For purposes of this Agreement,
-----------------------------------
"Cause" for Employee's termination will exist at any time after the happening of
one or more of the following events:
(a) Employee's willful misconduct or gross negligence in performance
of his duties hereunder, including Employee's refusal to comply in any material
respect with the legal directive of the company's Board of Directors so long as
such directives are not inconsistent with the Employee's position and duties,
and such refusal to comply is not remedied within ten (10) working days after
written notice from Company, which written notice shall state that failure to
remedy such conduct may result in Termination for Cause;
(b) Dishonest or fraudulent conduct, a deliberate attempt to do an
injury to the Company, or conduct that materially discredits the Company or is
materially detrimental to the reputation of the Company; or
(c) Employee's incurable material breach of any element of the
Company's Employee Proprietary Information and Invention Assignment Agreement,
including without limitation, Employee's theft or other misappropriation of the
Company's proprietary information.
7. CONFIDENTIALITY AGREEMENT. Employee shall sign, or has signed, an
-------------------------
Employee Proprietary Information and Invention Assignment Agreement
substantially in the form attached hereto as Exhibit B.
---------
8. NONCOMPETITION COVENANT. Employee hereby agrees that he shall not,
-----------------------
during the term of his employment pursuant to this Agreement and during the two
year period thereafter, do any of the following without the prior written
consent of the Company's board of Directors:
(a) COMPETE. Carry on any business or activity (whether directly or
-------
indirectly, as a partner, shareholder, principal, agent, director, affiliate,
employee or consultant) which is competitive with the business conducted by the
Company (as now or during the term of Executive's employment conducted), nor
engage in any other activities that conflict with Executive's obligations to the
Company.
(b) SOLICIT BUSINESS. Solicit or influence or attempt to influence,
----------------
either directly or indirectly, any existing or potential client or customer of
the Company's products and/or services into purchasing such products and/or
services from any person, firm, corporation, institution or other entity in
competition with the business of the Company.
(c) SOLICIT PERSONNEL. Solicit or influence or attempt to influence
-----------------
any person employed by the Company to terminate or otherwise cease his or her
employment with the Company or become an employee of any competitor or the
Company. This Section 8(c) is to be
-4-
<PAGE>
read in conjunction with Section 6 of the Confidential Information and Invention
Assignment Agreement executed by Employee.
9. CONFLICTS. Employee represents that his performance of all the terms
---------
of this Agreement will not breach any other agreement to which Employee is a
party. Employee has not, and will not during the term of this Agreement, enter
into any oral or written agreement in conflict with any of the provisions of
this Agreement. Employee further represents that he is entering into or has
entered into an employment relationship with the Company of his own free will
and that he has not been solicited as an employee in any way by the Company.
10. REPRESENTATIONS OF THE COMPANY. The company hereby represents as
------------------------------
follows:
(a) RELOCATION OF CORPORATE HEADQUARTERS; MAINTENANCE OF CORPORATE
--------------------------------------------------------------
APARTMENT. The Company shall use its best efforts to cause the relocation of
- ---------
its corporate headquarters to Salt Lake city, Utah and to obtain and maintain an
acceptable corporate apartment in San Francisco and Salt Lake City.
(b) TITLE AND RESPONSIBILITIES OF MR. WALKER. The Company shall
----------------------------------------
appoint Jeffrey L. Walker Vice President, Development, of the company, in which
position Mr. Walker shall report to Employee. The Company shall also use its
best efforts to maintain Mr. Walker in the position of Chairman of the Board of
the Company.
(c) COMPANY TRANSITION PLAN; OBJECTIVES FOR LINE MANAGERS; CORPORATE
----------------------------------------------------------------
GOVERNANCE POLICY. Mr. Walker and Employee shall work together on the
- -----------------
following: (i) to define a transition plan by the end of calendar 1996 for the
conversion of the Company from a San Francisco, California-based development
company to a Salt Lake City, Utah-based working company, (ii) to develop
Mission, Objective and Key Results for the Company's line managers for calendar
1997 and (iii) to define the Company's corporate governance policies, including,
but not limited to, the composition of the Company's Board of Directors and
appointment of new Board members.
11. SUCCESSORS. Any successor to the company (whether direct or indirect
----------
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
12. NOTICE. Any notice required or permitted by this Agreement shall be
------
in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth below, or as subsequently modified by
written notice.
-5-
<PAGE>
13. MISCELLANEOUS PROVISIONS.
------------------------
(a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate
-------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) WAIVERS, ETC. No amendment of this Agreement and no waiver of any
------------
one or more of the provisions hereof shall be effective unless set forth in
writing by such person against whom enforcement is sought.
(c) SOLE AGREEMENT. This Agreement, including the Exhibit hereto,
--------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) AMENDMENT. This agreement may be amended, modified, suppressed or
---------
canceled only by an agreement in writing executed by both parties hereto.
(e) CHOICE OF LAW. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) SEVERABILITY. If any term or provision of this Agreement or the
------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(G) COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
[Remainder of Page Left Intentionally Blank]
-6-
<PAGE>
The parties have executed this Agreement the date first above written.
KEYTEX CORPORATION
/s/ Jeffrey L. Walker
By: Jeffrey L. Walker
Title: Chairman
"EMPLOYEE"
/s/ Gary D. Kennedy
Signature
Gary D. Kennedy
-----------------------------
Printed Name
-7-
<PAGE>
EXHIBIT A
---------
RESTRICTED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT B
---------
EMPLOYEE PROPRIETARY INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
<PAGE>
EXHIBIT 10.7
KEYTEX CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement"), by and between
---------
KeyTex Corporation, a Delaware corporation (the "Company"), and Gary D. Kennedy
-------
("Purchaser") is effective as of September 1, 1996 (the "Effective Date").
---------
1. SALE OF STOCK. Subject to the terms and conditions of this Agreement,
-------------
on the Closing Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 2,265,052 shares
of the Company's Common Stock (the "Shares") at a purchase price of $0.4415 per
------
Share for a total purchase price of $1,000,020.45 The term "Shares" refers to
------
the purchased Shares and all securities received in replacement of or in
connection with the Shares pursuant to stock dividends or splits, all securities
received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. CLOSING. The closing of the purchase and sale of the Shares under this
-------
Agreement (the "Closing") shall be held at the principal office of the Company
-------
on October 31, 1996 at 10:00 a.m. or on such other date as the Company and
Purchaser shall agree (the "Closing Date"). At the Closing, the Company will
------------
deliver to Purchaser a certificate representing the Shares to be purchased by
him or her (which shall be issued in Purchaser's name) against payment of the
purchase price therefor by Purchaser by check made payable to the Company or by
wire transfer to the Company's Jackson State bank account.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Unvested Share Repurchase Option (as defined below), except as
provided below. After any Shares have been released from such Unvested Share
Repurchase Option, Purchaser shall not assign, encumber or dispose of any
interest in such Shares except in compliance with the provisions below and
applicable securities laws.
(a) UNVESTED SHARE REPURCHASE OPTION.
--------------------------------
(i) In the event of the Voluntary Termination or Termination for
Cause (as such terms are as defined in the Employment Agreement effective as of
September 1, 1996 by and between the Company and Purchaser (the "Employment
----------
Agreement")) of Purchaser's employment with the Company (including death or
- ---------
disability), the Company shall upon the date of such termination (the
"Termination Date") have an irrevocable, exclusive option (the "Unvested Share
---------------- --------------
Repurchase Option") for a period of 60 days from such date to repurchase all or
- -----------------
any portion of the Shares held by Purchaser as of the Termination Date that
exceed the Purchaser's Vested Shares as defined in paragraph 3(a)(iii) below
(the "Unvested Shares") at the purchase price of $0.01 per Share (adjusted for
---------------
any stock splits, stock dividends and the like).
<PAGE>
However, in the event of the Involuntary Termination (as defined in the
Employment Agreement) of the Purchaser's employment with the Company, the
Unvested Share Repurchase Option shall apply to the number of Shares equal to
the Unvested Shares less the number of Shares equal to the product of 0.5
----
multiplied by an amount equal to the difference of (A) 1,132,526 less (B)
- ---------- -- ----
226,505 multiplied by the number of full twelve month periods that Purchaser
has been continuously employed by the Company from and after the Effective Date
through the Termination Date. Notwithstanding the foregoing, the Unvested Share
Repurchase Option shall continue in any case for a period of up to one year from
the Termination Date to the extent that the Company reasonably determines that
such an extension of time is necessary to prevent the repurchase of Purchaser's
Shares from causing other capital stock of the Company to not qualify as "small
business stock" under Section 1202 of the Internal Revenue Code of 1986, as
amended.
(ii) The Unvested Share Repurchase Option shall be exercised by
the Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Unvested Shares being repurchased, or (C) by a
combination of (A) and (B) so that the combined payment and cancellation of
indebtedness equals such purchase price. Upon delivery of such notice and
payment of the purchase price in any of the ways described above, the Company
shall become the legal and beneficial owner of the Unvested Shares being
repurchased and all rights and interest therein or related thereto, and the
Company shall have the right to transfer to its own name the number of Unvested
Shares being repurchased by the Company, without further action by Purchaser.
(iii) 1,698,789 of the Shares shall initially be subject to the
Unvested Share Repurchase Option. The total number of Shares equivalent to
566,263, plus 1,698,789 multiplied by the Vested Ratio as set forth in paragraph
----
3(a)(iv) below, are Vested Shares until all Shares are released from the
Unvested Share Repurchase Option. Fractional shares shall be rounded to the
nearest whole share.
(iv) Determination of "Vested Ratio":
Vested Ratio
------------
On the Effective Date. 0
Plus
----
For the last day of each full twelve 1/7.5
month period of Purchaser's
continuous employment by the
Company from the Effective Date.
In no event shall the Vested Ratio
exceed 1/1.
-2-
<PAGE>
The following table sets forth the number of Vested Shares and the Vested
Ratio at the end of each full twelve-month period of Purchaser's continuous
employment by the Company from the Effective Date:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF 12-MONTH PERIODS OF CONTINUOUS EMPLOYMENT/DATE
- ----------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 7.5
(8/31/1997) (8/31/1998) (8/31/1999 (8/31/2000) (8/31/2001) (8/31/2002) (8/31/2003 (2/28/2004)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VESTED
RATIO 1/7.5 2/7.5 3/7.5 4/7.5 5/7.5 6/7.5 7/7.5 7.5/7.5
- ----------------------------------------------------------------------------------------------------------------
# OF
VESTED
SHARES 792,768 1,019,273 1,245,778 1,472,283 1,698,788 1,925,293 2,151,798 2,265,052
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing, in the event any of the
Performance Objectives are met as determined in paragraph 3(a)(v) below, the
numerator of the Vested Ratio then in effect (as set forth in the foregoing
table) shall be amended automatically upon such determination as follows:
(A) If Performance Objective "A" is met, the numerator of
the Vested Ratio then in effect shall be increased by 1; and
(B) If Performance Objective "B" is met, the numerator of
the Vested Ratio then in effect shall be further increased by 1.5.
(v) "Performance Objectives" shall mean the achievement of the
following milestones:
(A) Performance Objective "A": the Company's attainment of
a market capitalization of $200 million or more;
(B) Performance Objective "B": the Company's attainment of
a market capitalization of $500 million or more.
For purposes of determining whether either of the foregoing Performance
Objectives have been achieved, the Company's market capitalization shall be the
average of two estimates of such market capitalization as calculated by two
separate "top-eight" investment banks, one of which shall be selected by
Purchaser and one of which shall be selected by Jeffrey L. Walker.
Notwithstanding the preceding sentence, in no case shall the Company's market
capitalization for purposes hereof equal less than the sum of the value of the
Company's cash, accounts receivable and investments in securities of other
public companies as of the date of the Company's latest balance sheet, less the
----
Company's liabilities as of the date of such balance sheet.
(vi) Notwithstanding the foregoing, upon a Change of Control, all
Shares shall be released from the Unvested Share Repurchase Option. For
purposes of this Agreement, a "Change of Control" shall mean the closing of (i)
any acquisition of the Company by means of merger, consolidation or other form
of corporate reorganization with or into another
-3-
<PAGE>
corporation as a result of which transaction the shareholders of the Company
own, directly or indirectly, 50% or less of the voting power of the surviving
entity (other than a mere reincorporation transaction), or (ii) a sale, transfer
or lease (other than a pledge or grant of a security interest to a bona fide
lender) of all or substantially all of the assets of the Company.
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such
-4-
<PAGE>
period, or if the Holder proposes to change the price or other terms to make
them more favorable to the Proposed Transferee, a new Notice shall be given to
the Company, and the Company and/or its assignees shall again be offered the
Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
--------------------------------------
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death by
will or intestacy to the Optionee's immediate family or a trust for the benefit
of the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
----------------
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(c) INVOLUNTARY TRANSFER.
--------------------
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce) or
all or a portion of the Shares by the record holder thereof, the Company shall
have an option to purchase all of the Shares transferred at the greater of the
purchase price paid by Purchaser pursuant to this Agreement or the fair market
value of the Shares on the date of transfer. Upon such a transfer, the person
acquiring the Shares shall promptly notify the Secretary of the Company of such
transfer. The right to purchase such Shares shall be provided to the Company
for a period of thirty (30) days following receipt by the Company of written
notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within thirty (30) days after receipt by it of written notice of
the transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
-5-
<PAGE>
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase under Section 3(a). Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are met.
(f) TERMINATION OF RIGHTS. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act. Upon
termination of the right of first refusal described in Section 3(b) and the
expiration or exercise of the Company's repurchase option described in Section
3(a) above, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) herein and delivered to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Company's
Unvested Share Repurchase Option described in Section 3(a), to deliver such
certificate(s), together with an Assignment Separate from Certificate in the
form attached to this Agreement as Exhibit A executed by Purchaser and by
---------
Purchaser's spouse (if required for transfer), in blank, to the Secretary of the
Company, or the Secretary's designee, to hold such certificate(s) and Assignment
Separate from Certificate in escrow and to take all such actions and to
effectuate all such transfers and/or releases as are in accordance with the
terms of this Agreement. Purchaser hereby acknowledges that the Secretary of
the Company, or the Secretary's designee, is so appointed as the escrow holder
with the foregoing authorities as a material inducement to make this Agreement
and that said appointment is coupled with an interest and is accordingly
irrevocable. Purchaser agrees that said escrow holder shall not be liable to
any party hereof (or to any other party). The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
-6-
<PAGE>
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the securities. Purchaser understands that the
certificate evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of issuance of the
securities, such issuance will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the securities
exempt under Rule 701 may be resold by Purchaser ninety (90) days thereafter,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including, among other things: (1) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and
(2) in the case of an affiliate, the availability of certain public information
about the Company, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable. Notwithstanding this Section 5(d), Purchaser acknowledges and
agrees to the restrictions set forth in Section 5(f) hereof.
In the event that the Company does not qualify under Rule 701 at the time
of purchase, then the securities may be resold by Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than two years after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three years, (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three month period not exceeding
the specified limitations stated therein, if applicable. PURCHASER UNDERSTANDS
THAT PAYMENT FOR THE SHARES WITH A PROMISSORY NOTE IS NOT DEEMED TO BE FULL
PAYMENT UNDER RULE 144 UNLESS THE NOTE IS SECURED BY ASSETS OTHER THAN THE
SHARES.
(e) Purchaser further understands that at the time he or she wishes
to sell the securities there may be no public market upon which to make such a
sale, and that, even if such a
-7-
<PAGE>
public market then exists, the Company may not be satisfying the current public
information requirements of Rule 144 or 701, and that, in such event, Purchaser
would be precluded from selling the securities under Rule 144 or 701 even if the
two-year minimum holding period had been satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
(g) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
(ii) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop
-8-
<PAGE>
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
-----------
Shares pursuant to the Unvested Share Repurchase Option set forth in Section
3(a) of this Agreement. Purchaser understands that Purchaser may elect to be
taxed at the time the Shares are purchased, rather than when and as the Unvested
Share Repurchase Option expires, by filing an election under Section 83(b) (an
"83(b) Election") of the Code with the Internal Revenue Service within 30 days
--------------
from the date of purchase. Even if the fair market value of the Shares at the
time of the execution of this Agreement equals the amount paid for the Shares,
the election must be made to avoid income and alternative minimum tax treatment
under Section 83(a) in the future. Purchaser understands that failure to file
such an election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit B. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
9. MARKET STANDOFF AGREEMENT. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than
-9-
<PAGE>
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the public offering.
10. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
----------------------
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
-10-
<PAGE>
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Remainder of Page Left Intentionally Blank]
-11-
<PAGE>
By signing below, the parties hereby agree that this Agreement shall be
effective as of the date first set forth above.
KEYTEX CORPORATION
By: /s/ Jeffrey L. Walker
Title: Chairman
PURCHASER:
GARY D. KENNEDY
/s/ Gary D. Kennedy
(Signature)
Address:
7814 South Pheasantwood Drive
Sandy, UT 84093
I, ________________________________, spouse of Gary D. Kennedy, have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or other such interest shall be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
_______________________________
Spouse of Gary D. Kennedy
SIGNATURE PAGE TO RESTRICTED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT A
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and KeyTex Corporation,
---------
effective as of September 1, 1996 (the "Agreement"), Purchaser hereby sells,
---------
assigns and transfers unto _________________________________ (________) shares
of the Common Stock of KeyTex Corporation, standing in Purchaser's name on the
books of said corporation represented by Certificate No. ___ herewith and does
hereby irrevocably constitute and appoint
________________________________________________ to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.
Dated: ____________, 19__.
Signature:
__________________________________________
Gary D. Kennedy
__________________________________________
Spouse of Gary D. Kennedy (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between the undersigned ("Purchaser") and KeyTex Corporation,
---------
effective as of September 1, 1996 (the "Agreement"), Purchaser hereby sells,
---------
assigns and transfers unto _______________________ (________) shares of the
Common Stock of KeyTex Corporation, standing in Purchaser's name on the books of
said corporation represented by Certificate No. CertificateNo herewith and
does hereby irrevocably constitute and appoint ____________________________ to
transfer said stock on the books of the within-named corporation with full power
of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED
BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: ____________, 199__.
Signature:
__________________________________________
Gary D. Kennedy
__________________________________________
Spouse of Gary D. Kennedy (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
EXHIBIT B
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(B) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of 2,265,052 shares (the "Shares") of Common Stock of KeyTex Corporation, a
------
Delaware corporation (the "Company"), pursuant to a Restricted Stock Purchase
-------
Agreement effective as of September 1, 1996 (the "Agreement") hereby states as
---------
follows:
1. The undersigned has carefully reviewed the Agreement.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing shares pursuant to the Agreement, and
particularly regarding the advisability of making elections pursuant
to Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code") and pursuant to the corresponding provisions, if any, of
----
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Restricted Stock Purchase Agreement, an executed form entitled
"Election Under Section 83(b) of the Internal Revenue Code of 1986;"
or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares pursuant to the
Agreement or of the making or failure to make an election pursuant to Section
83(b) of the Code or the corresponding provisions, if any, of applicable state
law.
Date:_______, 199__ ____________________________
Gary D. Kennedy
Date:_______, 199__ ____________________________
Spouse of Gary D. Kennedy
-2-
<PAGE>
ACKNOWLEDGMENT AND STATEMENT OF DECISION
-----------------------------------------
REGARDING SECTION 83(B) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of 2,265,052 shares of Common Stock of KeyTex Corporation, a Delaware
corporation (the "Company"), pursuant to a Restricted Stock Purchase Agreement
-------
effective as of September 1, 1996 (the "Agreement"), hereby states as follows:
---------
1. The undersigned has carefully reviewed the Agreement.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing shares pursuant to the Agreement, and
particularly regarding the advisability of making elections pursuant
to Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code") and pursuant to the corresponding provisions, if any, of
----
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Restricted Stock Purchase Agreement, an executed form entitled
"Election Under Section 83(b) of the Internal Revenue Code of 1986;"
or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares pursuant to the
Agreement or of the making or failure to make an election pursuant to Section
83(b) of the Code or the corresponding provisions, if any, of applicable state
law.
Date:_______, 199__ ___________________________
Gary D. Kennedy
Date:_______, 199__ ___________________________
Spouse of Gary D. Kennedy
-2-
<PAGE>
EXHIBIT C
---------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: Gary D. Kennedy
NAME OF SPOUSE: ________________
ADDRESS: 7814 South Pheasantwood Drive
Sandy, UT 84093
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: 1996
2. The property with respect to which the election is made is described as
follows:
2,265,052 shares of the Common Stock (the "Shares"), $0.001 par value, of
------
KeyTex Corporation, a Delaware corporation (the "Company").
-------
3. The date on which the property was transferred is: October 31, 1996
4. The property is subject to the following restrictions:
Repurchase option at the purchase price of $0.01 per Share in favor of the
Company upon termination of taxpayer's employment relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $1,000,020.45
6. The amount (if any) paid for such property: $1,000,020.45
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ____________, 1996 ________________________________________
Gary D. Kennedy
Dated: ____________, 1996 ________________________________________
Spouse of Gary D. Kennedy
<PAGE>
ELECTION UNDER SECTION 83(B)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: Gary D. Kennedy
NAME OF SPOUSE: ________________
ADDRESS: 7814 South Pheasantwood Drive
Sandy, UT 84093
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
2,265,052 shares of the Common Stock (the "Shares"), $0.001 par value, of
------
KeyTex Corporation, a Delaware corporation (the "Company").
-------
3. The date on which the property was transferred is: October 31, 1996
4. The property is subject to the following restrictions:
Repurchase option at the purchase price of $0.01 per Share in favor of the
Company upon termination of taxpayer's employment relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $1,000,020.45
6. The amount (if any) paid for such property: $1,000,020.45
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ____________, 1996 ________________________________________
Gary D. Kennedy
Dated: ____________, 1996 ________________________________________
Spouse of Gary D. Kennedy
<PAGE>
RECEIPT
-------
KeyTex Corporation, hereby acknowledges receipt of a check or wire transfer
for $1,000,020.45 given by Gary D. Kennedy as consideration for Certificate No.
CS-10 for 2,265,052 shares of Common Stock of KeyTex Corporation
Dated: October 31, 1996
KeyTex Corporation
By:_____________________________
Title:__________________________
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. CS-10 for 2,265,052 shares of Common Stock of KeyTex Corporation (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: October 31, 1996
_________________________________________
Gary D. Kennedy
<PAGE>
Exhibit 10.8
TENFOLD
- -------------------------------------------------------------------------------
March 3, 1999
Mr. Bernard C. Mazon
112 Father Hugo Drive
Greer, SC 29560
Dear Bernie:
When you joined TenFold we discussed our plans to structure an incentive plan
that would provide you with an opportunity to share in the appreciation in
value of the TenFold Insurance Group.
I am confirming to you that TenFold intends to form during 1999 a subsidiary
from which TenFold will operate its insurance business. Once formed, we expect
to grant to you options (similar in form to your options in TenFold
Corporation) to acquire three percent of the outstanding shares of capital
stock of this subsidiary, with an exercise price per share equal to the fair
market value, at the date of grant, of a share of the subsidiary's common
stock, as determined by TenFold's Board. The options will vest over five
years, commencing July 20, 1998.
Please confirm by signing and returning a copy of this letter that the plans
described above are consistent with our prior discussions regarding your right
to receive equity in this insurance business.
Sincerely,
/s/ Gary D. Kennedy
- -------------------
Gary D. Kennedy
President and Chief Executive Officer
Confirmed,
/s/ Bernard C. Mazon
- --------------------
Bernard C. Mazon
<PAGE>
EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of __________
---------
___, 199__ by and between TenFold Corporation, a Delaware corporation (the
"Company"), and IndemniteeName (the "Indemnitee").
-------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order,
<PAGE>
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to any criminal
action or proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. Any advances to be made under this
Agreement shall be paid by the
-2-
<PAGE>
Company to Indemnitee within twenty (20) days following delivery of a written
request therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
-3-
<PAGE>
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total
-4-
<PAGE>
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such expenses, judgments, fines or penalties to which Indemnitee is
entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
-5-
<PAGE>
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have
-6-
<PAGE>
acted in a manner "not opposed to the best interests of the Company" as referred
------------------------------------------------
to in this Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-7-
<PAGE>
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
TENFOLD CORPORATION
By: _____________________________
Title: _____________________________
Address: CompanyAddress1
CompanyAddress2
CompanyAddress3
AGREED TO AND ACCEPTED:
By: _____________________________
_________________________________
(Signature)
Address: IndemniteeAddress1
IndemniteeAddress2
-9-
<PAGE>
EXHIBIT 10.11
TENFOLD CORPORATION
1999 STOCK PLAN
---------------
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business. Options
granted under the Plan may be either Incentive Stock Options (as defined under
Section 422 of the Code) or Nonstatutory Stock Options, as determined by the
Administrator at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or its Committee appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns an equity interest or which, together with the
Company, is under common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Change of Control" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means one or more committees or subcommittees of the
---------
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
<PAGE>
(h) "Common Stock" means the Common Stock of the Company.
------------
(i) "Company" means TenFold Corporation, a Delaware corporation.
-------
(j) "Consultant" means any person, including an advisor, who renders
----------
services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "Continuous Service Status" means the absence of any interruption
-------------------------
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of (i) sick leave; (ii) military leave; (iii)
any other leave of absence approved by the Administrator, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parent(s), Subsidiaries, Affiliates or their respective successors.
Unless otherwise determined by the Administrator or the Company, a change in
status from an Employee to a Consultant or from a Consultant to an Employee will
not constitute a termination of Continuous Service Status.
(l) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(m) "Director" means a member of the Board.
--------
(n) "Employee" means any person (including, if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system including without limitation the National Market of the
National Association of Securities Dealers, Inc. Automated Quotation ("Nasdaq")
------
System, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such system or
exchange on the date of determination (or if no trading or bids occurred on the
date of determination, on the last trading day prior to the date of
determination), as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling
2
<PAGE>
prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the date
of determination (or if no bids occurred on the date of determination, on the
last trading day prior to the date of determination); or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(q) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(r) "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(s) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(t) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
------
(v) "Option Agreement" means a written document, the form(s) of which
----------------
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(w) "Option Exchange Program" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(y) "Optionee" means an Employee or Consultant who receives an Option.
--------
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(aa) "Participant" means any holder of one or more Options or Stock
-----------
Purchase Rights, or the Shares issuable or issued upon exercise of such awards,
under the Plan.
(bb) "Plan" means this 1999 Stock Plan.
----
3
<PAGE>
(cc) "Reporting Person" means an Officer, Director or greater than 10%
----------------
stockholder of the Company within the meaning of Rule 16a-2 of the Exchange Act,
who is required to file reports pursuant to Rule 16a-3 of the Exchange Act.
(dd) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(ee) "Restricted Stock Purchase Agreement" means a written document,
-----------------------------------
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(ff) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as amended from time to time, or any successor provision.
(gg) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(hh) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(ii) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(jj) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(kk) "Ten Percent Holder" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of shares that may be sold under the Plan
is 6,500,000 Shares of Common Stock, plus an annual increase on the first day of
each of the Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lesser of (i) 1,000,000 Shares, (ii) three percent (3%) of the
Shares outstanding on the last day of the immediately preceding fiscal year, or
(iii) such lesser number of Shares as the Board shall determine. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable for any reason without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be
4
<PAGE>
available under the Plan. Shares issued under the Plan and later repurchased by
the Company pursuant to any repurchase right that the Company may have shall not
be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants.
(b) Administration with respect to Reporting Persons. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are
5
<PAGE>
not limited to the exercise or purchase price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option, Optioned Stock, Stock
Purchase Right or Restricted Stock, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted and to
make any other amendments or adjustments to any Option that the Administrator
determines, in its discretion and under the authority granted to it under the
Plan, to be necessary or advisable, provided however that no amendment or
adjustment to an Option that would materially and adversely affect the rights of
any Optionee shall be made without the prior written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(e) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Participants.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Option Right may,
if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
(b) Type of Option. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options are exercisable for
the first time by an Optionee during any
6
<PAGE>
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the date of grant of such Option.
(c) No Employment Rights. The Plan shall not confer upon any
--------------------
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the effective date
------------
of the registration statement on Form S-1 for the initial public offering of the
Common Stock. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided however that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in Section 14 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 1,000,000.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator and set forth in the Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
7
<PAGE>
(A) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code; or
(B) granted to any person other than a Named Executive, the
per Share exercise price shall be such price as is determined by the
Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) Permissible Consideration. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate (subject to the provisions of Section 153 of the
Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other
Shares that (x) in the case of Shares acquired upon exercise of an Option either
have been owned by the Optionee for more than six months on the date of
surrender (or such other period as may be required to avoid a charge to the
Company's earnings) or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option is exercised; (6)
authorization from the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised; (7) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect exercise of the Option and
prompt delivery to the Company of the sale or loan proceeds required to pay the
exercise price and any applicable withholding taxes; (8) any combination of the
foregoing methods of payment; or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under the Applicable
Laws. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is not in the
best interests of the Company at such time.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the terms of the Plan, and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee. The
Administrator shall have the discretion to determine whether and to what
8
<PAGE>
extent the vesting of Options shall be tolled during any unpaid leave of
absence; provided however that in the absence of such determination, vesting of
Options shall be tolled during any such leave.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 9(b) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Status as an Employee or Consultant. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Service Status, such Optionee may,
but only within three (3) months (or such other period of time, not less than
thirty (30) days, as is determined by the Administrator, with such determination
in the case of an Incentive Stock Option being made at the time of grant of the
Option) after the date of such termination (but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement),
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of such termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified above, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan. Unless
otherwise determined by the Administrator or the Company, no termination shall
be deemed to occur and this Section 10(b) shall not apply if (i) the Optionee is
a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who
becomes a Consultant.
(c) Disability of Optionee. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Service Status as a result
of his or her total and permanent disability (as defined in Section 22(e)(3) of
the Code), such Optionee may, but only within twelve (12) months (or such other
period of time as is determined by the Administrator, with such determination in
the case of an Incentive Stock Option made at the time of grant of the Option)
from the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent he or
9
<PAGE>
she was entitled to exercise it at the date of such termination. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise the Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Service Status since the date of grant of the
Option, or within 30 days following termination of the Optionee's Continuous
Service Status, the Option may be exercised at any time within twelve (12)
months following the date of death (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement) by such
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or, if earlier, the date of termination of the
Optionee's Continuous Service Status. To the extent that the Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
Status from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in
the Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.
(f) Buy-Out Provisions. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted under the
Plan based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer. The purchase price of Shares subject to Stock Purchase
Rights shall be as determined by the Administrator. The offer to purchase
Shares subject to Stock Purchase Rights shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company
10
<PAGE>
for any reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original purchase price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at such rate as the Administrator may determine.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once a Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) In the case of Participant other than an Employee (or in the case
of an Employee where the next payroll payment is not sufficient to satisfy such
tax obligations, with respect to any remaining tax obligations), in the absence
of any other arrangement and to the extent permitted under the Applicable Laws,
the Participant shall be deemed to have elected to have the Company withhold
from the Shares to be issued upon exercise of the Option or Stock Purchase Right
that number of Shares having a Fair Market Value determined as of the applicable
Tax Date (as defined below) equal to the amount required to be withheld. For
purposes of this Section 12, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from
11
<PAGE>
the Company, have been owned by the Participant for more than six (6) months on
the date of surrender, and (ii) have a Fair Market Value determined as of the
applicable Tax Date equal to the amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution; provided however that the Administrator may in its
discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying (i) the manner in which such Nonstatutory Stock Options
are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option or Stock Purchase Right may be exercised,
during the lifetime of the holder of Option or Stock Purchase Right, only by
such holder or a transferee permitted by this Section 13.
14. Adjustments Upon Changes in Capitalization, Corporate Transactions and
----------------------------------------------------------------------
Certain Other Transactions.
- --------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of Shares set forth
in Sections 3(a)(i) and 8 above, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock (including any change
in the number of Shares of Common Stock effected in connection with a change of
domicile of the Company), or any other increase or decrease in the number of
issued Shares of Common Stock effected without receipt of consideration by the
Company; provided however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the
12
<PAGE>
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the dissolution or
--------------------------
liquidation of the Company, each outstanding Option or Stock Purchase Right
shall terminate immediately prior to the consummation of the transaction, unless
otherwise provided by the Administrator.
(c) Corporate Transactions; Change of Control. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right shall be substituted by the successor
corporation or a Parent or Subsidiary of such successor corporation (such
entity, the "Successor Corporation"), unless the Successor Corporation does not
---------------------
agree to such assumption or substitution, in which case such Options and Stock
Purchase Rights shall terminate upon consummation of the transaction.
Notwithstanding the preceding sentence, in the event of a Change of Control,
each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right shall be substituted by the Successor Corporation,
unless the Successor Corporation does not agree to such assumption or
substitution, in which case the vesting of each Option shall accelerate and the
Options shall become exercisable in full (including with respect to Shares as to
which an Option would not otherwise be vested and exercisable), and any
repurchase right in favor of the Company with respect to any Shares purchased
upon exercise of an Option or Stock Purchase Right shall lapse in full, prior to
consummation of the transaction at such time and on such conditions as the
Administrator shall determine. To the extent an Option or Stock Purchase
Right is not exercised prior to consummation of a Change of Control in which
the vesting of Options or the lapse of repurchase rights is being accelerated,
such Option or Stock Purchase Right shall terminate upon such consummation and
the Administrator shall notify the Optionee or holder of the Stock Purchase
Right of such fact at least five (5) days prior to the date on which the
Option or Stock Purchase Right terminates.
For purposes of this Section 14(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction or a
Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the Option or Stock
Purchase Right the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option or the Stock Purchase Right at such time (after giving effect to
any adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 14); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option or Stock Purchase Right to be solely common stock of the Successor
Corporation equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
13
<PAGE>
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuance or termination (other than an adjustment made
pursuant to Section 14 above) shall be made that would materially and adversely
affect the rights of any Optionee or holder of Stock Purchase Rights under any
outstanding grant, without his or her consent.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall materially and adversely affect Options or Stock Purchase
Rights already granted, unless mutually agreed otherwise between the Optionee or
holder of the Stock Purchase Rights and the Administrator, which agreement must
be in writing and signed by such Optionee or holder and the Company.
17. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
14
<PAGE>
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
15
<PAGE>
EXHIBIT 10.12
TENFOLD CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of TenFold Corporation
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means TenFold Corporation, a Delaware corporation.
-------
(e) "Compensation" means all regular straight time gross earnings,
------------
commissions and bonuses and shall not include payments for overtime, shift
premium, other incentive payments, and other compensation.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if
<PAGE>
the issuance of options to such Subsidiary's Employees pursuant to the Plan
would not cause the Company to incur adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan, except that in the case of an individual who becomes an
eligible Employee after the first business day of an Offering Period but prior
to the first business day of the fourth calendar month within such Offering
Period, the term "Offering Date" means the first business day of such fourth
calendar month coinciding with or next succeeding the day on which that
individual becomes an eligible Employee.
Options granted after the first business day of an Offering Period
will be subject to the same terms and conditions as the options granted on the
first business day of such Offering Period except that they will have a
different grant date (and thus, potentially, a different Purchase Price) and,
because they expire at the same time as the options granted on the first
business day of such Offering Period, a shorter term.
(m) "Offering Period" means a period of six (6) months commencing on
---------------
February 1 and August 1 of each year, except for the first Offering Period as
set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Price" means with respect to an Offering Period an
--------------
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan (including without
limitation an automatic increase pursuant to Section 12(a) below or as a result
of a stockholder-approved amendment to the Plan), and (ii) all or a portion of
such additional Shares are to be issued with respect to an Offering Period that
is underway at the time of such increase ("Additional Shares"), and (iii) the
-----------------
Fair Market Value of a Share of Common Stock on the date of such increase (the
"Increase Date Fair Market Value") is higher than the Fair Market Value on the
- --------------------------------
Offering Date for any such Offering Period, then in such instance the Purchase
Price with respect to Additional Shares shall be 85% of the Increase Date Fair
Market Value or the Fair Market Value of a Share of Common Stock on the Purchase
Date, whichever is lower.
-2-
<PAGE>
(q) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 18 of the Plan.
(r) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods, with new Offering Periods commencing on or about February 1
and August 1 of each year (or at such other time or times as may be determined
by the Board of Directors). The first Offering Period shall commence on the
beginning of the effective date of the Registration Statement on Form S-1 for
the initial public offering of the Company's Common Stock (the "IPO Date") and
--------
continue until January 31, 2000. The Plan shall continue until terminated in
accordance with Section 19 hereof. The Board of Directors of the Company shall
have the power to change the duration and/or the frequency of Offering Periods
with respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
-3-
<PAGE>
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the
Purchase Date of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than ten percent (10%) (or such greater percentage as the Board may
establish from time to time before an Offering Date, which percentage shall not
exceed twenty percent (20%)) of such participant's Compensation on each payday
during the Offering Period. All payroll deductions made by a participant shall
be credited to his or her account under the Plan. A participant may not make
any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period
may increase and on one occasion only during the Offering Period may decrease
the rate of his or her Contributions with respect to the Offering Period by
completing and filing with the Company a new subscription agreement authorizing
a change in the payroll deduction rate. The change in rate shall be effective
as of the beginning of the next calendar month following the date of filing of
the new subscription agreement, if the agreement is filed at least ten (10)
business days prior to such date and, if not, as of the beginning of the next
succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to end
during the current calendar year to 0% at such time that the aggregate of all
payroll deductions accumulated with respect to such Offering Period and any
other Offering Period ending within the same calendar year equal $21,250.
Payroll deductions shall re-commence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on the Purchase Date for the Offering Period a number of Shares of the
Company's Common Stock determined by dividing such Employee's Contributions
accumulated prior to the Purchase Date and retained in the participant's account
as of the Purchase Date by the applicable Purchase Price; provided however that
the maximum number of Shares an Employee may purchase during each Offering
Period shall be 3,000 Shares (subject to any adjustment pursuant to Section 18
below), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12.
-4-
<PAGE>
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the high bid and low asked prices per Share
of the Common Stock as reported by Nasdaq or, in the event the Common Stock is
listed on a stock exchange, the Fair Market Value per share shall be the closing
sales price on such exchange on such date (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding trading date), as
reported in The Wall Street Journal. For purposes of the Offering Date that
-----------------------
coincides with the IPO Date, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on the Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after a Purchase Date, the
--------
Company shall arrange the delivery to each participant, as appropriate, of a
certificate representing the Shares purchased upon exercise of his or her
option. Any payroll deductions accumulated in a participant's account which are
not sufficient to purchase a full Share shall be retained in the participant's
account for the subsequent Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 below. Any other amounts left over in a
participant's account after a Purchase Date shall be returned to the
participant.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
a Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of
-5-
<PAGE>
his or her death, to the person or persons entitled thereto under Section 14,
and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during an
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
12. Stock.
-----
(a) Subject to adjustment as provided in Section 18, the maximum
number of Shares which shall be made available for sale under the Plan shall be
1,000,000 Shares, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the
lesser of (i) 300,000 Shares, (ii) three-quarters of one percent (0.75%) of the
Shares outstanding on the last day of the immediately preceding fiscal year, or
(iii) such lesser number of Shares as is determined by the Board. If the Board
determines that, on a given Purchase Date, the number of Shares with respect to
which options are to be exercised may exceed (i) the number of Shares of Common
Stock that were available for sale under the Plan on the Offering Date of the
applicable Offering Period, or (ii) the number of Shares available for sale
under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the Company shall make a pro rata allocation of the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and continue
the Plan as then in effect, or (y) that the Company shall make a pro rata
allocation of the Shares available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate the Plan pursuant to Section 19 below. The Company may make pro
rata allocation of the Shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional Shares for issuance under the Plan by the Company's
stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
-6-
<PAGE>
13. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
16. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
-7-
<PAGE>
18. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of Shares of
--------
Common Stock which may be purchased by a participant in an Offering Period, the
number of Shares of Common Stock set forth in Section 12(a)(i) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Offering Period then in progress will
terminate immediately prior to the consummation of such action, unless
otherwise provided by the Board. In the event of a Corporate Transaction, each
option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation
refuses to assume or substitute for outstanding options, the Offering Period
then in progress shall be shortened and a new Purchase Date shall be set (the
"New Purchase Date"). The New Purchase Date shall be on or before the date of
-----------------
consummation of the transaction and the Board shall notify each participant in
writing, at least ten (10) days prior to the New Purchase Date, that the
Purchase Date for his or her option has been changed to the New Purchase Date
and that his or her option will be exercised automatically on the New Purchase
Date, unless prior to such date he or she has withdrawn from the Offering
Period as provided in Section 10. For purposes of this Section 18, an option
granted under the Plan shall be deemed to be assumed, without limitation, if,
at the time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of
stock or the same amount of property, cash or securities as such holder would
have been entitled to receive upon the occurrence of the transaction if the
holder had been, immediately prior to the transaction, the holder of the
number of Shares of Common Stock covered by the option at such time (after
giving effect to any adjustments in the number of Shares covered by the option
as provided for in this Section 18); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the
Code), the Board may, with the consent of the
-8-
<PAGE>
successor corporation, provide for the consideration to be received upon
exercise of the option to be solely common stock of the successor corporation or
its parent equal in Fair Market Value to the per Share consideration received by
holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 18, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period then in progress if the
Board determines that termination of the Plan and/or the Offering Period is in
the best interests of the Company and the stockholders or if continuation of the
Plan and/or the Offering Period would cause the Company to incur adverse
accounting charges as a result of a change in the generally accepted
accounting rules applicable to the Plan after the effective date of the Plan.
Except as provided in Section 18 and in this Section 19, no amendment to the
Plan shall make any change in any option previously granted which materially
and adversely affects the rights of any participant. In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any successor rule or provision or any applicable
law or regulation), the Company shall obtain stockholder approval in such a
manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been materially and adversely
affected, the Board (or its committee) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-9-
<PAGE>
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 19.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-10-
<PAGE>
TENFOLD CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
NEW ELECTION ______
CHANGE OF ELECTION ______
1. I, ________________________, hereby elect to participate in the TenFold
Corporation 1999 Employee Stock Purchase Plan (the "Plan") for the Offering
----
Period ______________, ____ to _______________, ____, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 10% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "TenFold Corporation 1999 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ____________________________________
(First) (Middle) (Last)
_______________________ ____________________________________
(Relationship) (Address)
____________________________________
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date (the last day of the Offering Period), I will be treated for federal income
tax purposes as having received ordinary compensation income at the time of such
disposition in an amount equal to the excess of the fair market value of the
shares on the Purchase Date over the price which I paid for the shares,
regardless of whether I disposed of the shares at a price less than their fair
market value at the Purchase Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase
-2-
<PAGE>
price which I paid for the shares under the option, or (2) 15% of the fair
market value of the shares on the Offering Date. The remainder of the gain or
loss, if any, recognized on such disposition will be treated as capital gain or
loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE:__________________________
SOCIAL SECURITY #:__________________
DATE:_______________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
____________________________________
(Signature)
____________________________________
(Print name)
-3-
<PAGE>
TENFOLD CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the TenFold Corporation 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ____________________________
Signature of Employee
____________________________
Social Security Number
<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 2, 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
March 4, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 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 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 9,022 15,373
<SECURITIES> 0 0
<RECEIVABLES> 1,149 1,691
<ALLOWANCES> 0 500
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,443 23,223
<PP&E> 1,569 6,157
<DEPRECIATION> 305 1,147
<TOTAL-ASSETS> 12,044 29,566
<CURRENT-LIABILITIES> 2,921 11,493
<BONDS> 0 0
8,640 9,555
0 0
<COMMON> 24 25
<OTHER-SE> 459 3,723
<TOTAL-LIABILITY-AND-EQUITY> 12,044 29,566
<SALES> 14,123 40,167
<TOTAL-REVENUES> 14,123 40,167
<CGS> 0 0
<TOTAL-COSTS> 15,012 38,324
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 500
<INTEREST-EXPENSE> 0 20
<INCOME-PRETAX> (710) 2,218
<INCOME-TAX> (110) 495
<INCOME-CONTINUING> (600) 1,723
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (874) 808
<EPS-PRIMARY> (0.04) 0.04
<EPS-DILUTED> (0.04) 0.02
</TABLE>
