<PAGE>
As filed with the Securities and Exchange Commission on July 21, 1999
Registration No. 333-78657
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Tanning Technology Corporation
(Exact name of registrant as specified in its charter)
Delaware 7379 84-1381662
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
----------------
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
(303) 220-9944
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Henry F. Skelsey
Chief Financial Officer
Tanning Technology Corporation
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
(303) 220-9944
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Joseph A. Stern, Esq. William J. Whelan, III, Esq.
Fried, Frank, Harris, Shriver & Cravath, Swaine & Moore
Jacobson 825 Eighth Avenue
One New York Plaza New York, New York 10019
New York, New York 10004 (212) 474-1000
(212) 859-8000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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,
check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share.......................... 4,600,000 $11.00 $50,600,000 $14,066.80(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Registration fee was paid with the initial filing of the Registration
Statement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 21, 1999
4,000,000 Shares
[TANNING LOGO]
Tanning Technology Corporation
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$9.00 and $11.00 per share. Our common stock has been approved for listing on
The Nasdaq Stock Market's National Market under the symbol "TANN."
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 4.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Tanning
-------- ------------- -----------
<S> <C> <C> <C>
Per Share ................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Salomon Smith Barney
CIBC World Markets
ING Barings
Adams, Harkness & Hill, Inc.
The date of the prospectus is , 1999.
<PAGE>
[Inside Front Cover]
OUTSIDE PORTION OF GATEFOLD:
TANNING TECHNOLOGY CORPORATION
TANNING IS AN INFORMATION TECHNOLOGY SERVICES PROVIDER
THAT SPECIALIZES IN LARGE, COMPLEX, INTEGRATED SOLUTIONS.
FOR MANY OF OUR CUSTOMERS, THE SYSTEMS WE BUILD ARE AT
THE CORE OF THEIR EFFORTS TO CAPITALIZE ON INFORMATION
TECHNOLOGY AND THE INTERNET.
[Graphic of pyramid superimposed over graphics of globe and finger on key of
computer]
e-xperience Architecting real solutions for the new economy
<PAGE>
LEFT-HAND PAGE OF GATEFOLD:
Tanning
Solutions
Tanning specializes in three solution areas central to success
in the new digital economy:
[_] Electronic commerce
[_] Enterprise customer relationship management
[_] Core operations
People
Customer-focused, Tanning's information technology professionals have an
average of more than ten years of industry experience.
Culture
Tanning consistently attracts and retains leading information technology talent
interested in solving the industry's toughest challenges.
Based on constant innovation, learning and knowledge sharing, Tanning
encourages the free flow of ideas, where expertise within and across the
organization is channeled into strategic projects that deliver results to
Global 1000 clients.
Assessment
Architecture
Development & Integration
Deployment
Operational Support
[Three photos of Tanning employees]
Tanning staffs projects based on its philosophy that there is no substitute for
experience.
Highly-skilled professional staff, with industry-specific expertise.
[Graphic of a pyramid]
e-xperience Architecting real solutions for the new economy
<PAGE>
RIGHT-HAND PAGE OF GATEFOLD:
CUSTOMERS
Federal Express
A global overnight delivery service provider
The Challenge
Enable Federal Express to more efficiently manage the flow of millions of
packages globally.
The Tanning Solution
We worked with Federal Express to develop a comprehensive intranet system for
reporting measures of package volume and flow efficiency for its global package
delivery operations in a timely manner. We created an online transaction
processing system capable of handling 1,000 transactions per second on a one-
plus terabyte database. As a result, Federal Express is able to obtain
information about the performance of its package delivery system in
significantly shorter timeframes (hours vs. days).
Maersk Line
A leading worldwide ocean container transportation corporation
The Challenge
Help Maersk Line improve customer service across over 400 offices in nearly
every country around the world.
The Tanning Solution
We were engaged by Maersk Line to develop an application architecture for their
customer service applications as well as to establish an architecture for
future applications within Maersk Line. We were subsequently engaged to use
that architecture to design, develop and deploy new customer service
applications in five phases over two and one-half years. The solution
facilitates adoption of common customer service procedures in Maersk Line
offices worldwide while enabling regional and country specific variations where
necessary. The solution was deployed to function with their then-existing
global infrastructure.
Blockbuster
The world's leading retail chain of video rental stores
The Challenge
Help Blockbuster understand its customer demographics and purchase patterns in
order to stock movies according to regional tastes and to more accurately
target customer promotions.
The Tanning Solution
We redesigned Blockbuster's existing enterprise architecture and created a new
system that allows Blockbuster to assemble customer data and account activity
information for over 40 million customers and more than 6,000 stores. The
system enables Blockbuster to measure demand for specific products at the
single store level and therefore to predict minimum stock requirements. As a
result, the system supports the ability of Blockbuster to advertise "In Stock
or It's Free."
<PAGE>
E*Trade
A leading online brokerage firm
The Challenge
Assist E*Trade in building a global brand by creating a standardized platform
for its international expansion.
The Tanning Solution
We designed international extensions to E*Trade's domestic trading system,
enabling support for multiple languages and the ability to handle diverse
character sets and content types. We deployed this system in Sweden as the
first stage of E*Trade's international expansion. The new system can
accommodate rapid business growth because the system architecture was designed
to handle significantly greater numbers of transactions than currently
experienced by E*Trade. The "look and feel" of the user interface and the set
of features and functions offered to the user are standardized to facilitate
global brand recognition.
Electronic Commerce is rapidly advancing from simple Web-based front-end
solutions to large, complex systems that must integrate core business
operations. These are the systems that Tanning builds.
[Tanning logo]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 4
Cautionary Notice Regarding Forward-Looking Statements................... 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
Management............................................................... 38
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Relationships and Transactions With Related Parties................ 53
Principal Stockholders..................................................... 56
Description of Capital Stock............................................... 58
Shares Eligible for Future Sale............................................ 61
United States Tax Consequences to Non-United States Holders................ 63
Underwriting............................................................... 66
Notice to Canadian Residents............................................... 69
Legal Matters.............................................................. 70
Experts.................................................................... 70
Where You Can Find More Information........................................ 70
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this prospectus.
Tanning Technology Corporation and the Tanning logo are our trademark. We
have filed for registration of this trademark.
Dealer Prospectus Delivery Obligation
Until , 1999, 25 days after the commencement of the offering, all dealers
that effect 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 their unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before investing in our common stock. You should read this
entire prospectus carefully.
Unless otherwise indicated, all references in this prospectus to the number
of outstanding shares of our common stock:
. give effect to an amendment of our certificate of incorporation to
increase the number of our authorized shares of common stock to 70
million and to convert our existing Class A, Class B and Class C common
stock into one class of common stock on the basis of a 1 for 3.05
reverse stock split in the case of the Class A and Class C common stock,
and a 1 for 2.67 reverse stock split in the case of the Class B common
stock, immediately prior to this offering; and
. do not include the number of shares that we will issue if the
underwriters exercise their over-allotment option.
In addition, the information in this prospectus assumes that the initial public
offering price will be $10.00 per share, the midpoint of the range disclosed on
the cover of this prospectus.
Tanning
We are an information technology services provider that architects, builds
and deploys enterprise solutions for companies in the United States and
internationally. We specialize in large, complex, integrated solutions that
incorporate online transaction processing and very large databases. Internet
technologies are central to many of our solutions, enabling direct interaction
among customers and business partners on the World Wide Web, and among
employees within organizations on their private intranets. Our clients include
Ameritech, Blockbuster, BSkyB, E*Trade, Federal Express, Maersk Line, MCI
WorldCom, R.R. Donnelley Financial and U S WEST.
We focus on the most challenging and critical assignments in the information
technology industry. Our solutions typically involve:
. ultra-high transaction rates (up to millions per hour);
. very large databases (terabytes of information); and
. business-critical operational requirements for reliability, scalability,
flexibility and availability.
Our key solutions are:
. Electronic commerce solutions, which enable businesses to interact with
customers, suppliers and other business partners directly and sell
products and services through the Internet. For example, we designed
international extensions to E*Trade's domestic trading system to enable
it to expand its trading services into foreign countries.
. Enterprise customer relationship management solutions, which enhance a
business' ability to identify, attract, retain and support customers
using emerging and established channels such as the World Wide Web,
direct sales, telemarketing and call centers, direct mail and retail
facilities. For example, we redesigned Blockbuster's existing enterprise
architecture to effectively manage customer data and account activity
information for over 40 million customers and more than 6,000 stores.
. Core operations solutions, which improve business processes such as
billing system integration and order, claim, trade, credit card
transaction and operation transaction processing. For example, we
created an online transaction processing system for Federal Express
capable of handling 1,000
1
<PAGE>
transactions per second on a one-plus terabyte database, enabling
Federal Express to obtain information about the performance of its
package delivery system in significantly shorter time frames (hours vs.
days).
With advances in the Internet and technology, new business models and
innovative information technology solutions are emerging that can transform the
way companies run their businesses. As part of this evolution of business
models, companies are seeking value from electronic commerce, customer
relationship management and core operations solutions. We believe that we are
differentiated by our focus on, and expertise in, the architecture, complex
integration, high volume online transaction processing capabilities and very
large databases required to successfully deploy these advanced solutions. For
many clients, the systems we build are at the core of their efforts to
capitalize on information technology and the Internet.
Our company traces its history back to 1993 and is currently incorporated in
Delaware. Our principal executive office is located at 4600 South Ulster
Street, Suite 380, Denver, Colorado 80237, and our telephone number is (303)
220-9944. We maintain a site on the World Wide Web at http://www.tanning.com;
however, the information found on our website is not part of this prospectus.
2
<PAGE>
The Offering
Common stock offered by Tanning..... 4,000,000 shares.
Common stock to be outstanding
after this offering.................
19,863,166 shares or 20,463,166 shares if
the underwriters exercise their over-
allotment option in full. These shares do
not include 4,121,779 shares reserved for
issuance pursuant to options we may issue
in the future or 8,399,821 shares subject
to outstanding options, in each case
pursuant to our stock option plans, as of
the completion of this offering. In
addition, these shares do not include
1,000,000 shares available for awards
under our employee stock purchase plan.
Use of proceeds..................... For general corporate purposes, including
capital expenditures and working capital.
Proposed Nasdaq symbol.............. TANN
Summary Financial Information
The following table presents our summary condensed consolidated financial
information and has been derived from our audited financial statements for the
three-year period ended December 31, 1998 and from our unaudited interim
financial statements for the three months ended March 31, 1998 and 1999, all of
which are included in another section of this prospectus, and from our
unaudited financial statements for the year ended December 31, 1995. As
adjusted balance sheet data give effect to the sale of 4,000,000 shares of
common stock in this offering. The information below should be read in
conjunction with "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and the notes to our consolidated financial statements,
each of which is included in another section of this prospectus.
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
---------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
----------- ----------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $4,815 $12,809 $26,107 $33,289 $5,183 $11,305
Gross profit............ 2,798 6,240 11,385 18,348 2,295 5,813
Income (loss) from
operations............. 954 2,852 (269) 3,384 (846) 1,134
Net income (loss)....... 954 2,823 73 2,303 (471) 819
Basic and diluted
earnings (loss) per
share.................. $ 0.01 $ 0.15 $ (0.03) $ 0.05
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 7,183 $42,633
Working capital............................................. 15,587 51,037
Total assets................................................ 25,117 60,567
Long-term debt, net of current portion...................... 429 429
Total stockholders' equity.................................. 18,596 54,046
</TABLE>
3
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus,
including our consolidated financial statements and the related notes, before
you purchase any shares of our common stock.
Risks Related to Our Business
Inability to manage our growth could have a material adverse effect on the
quality of our services, our ability to retain key personnel, and our business
Our growth has placed significant demands on our management and other
resources. Our revenues increased approximately 28% from 1997 to 1998. Our
staff increased from 120 full-time employees at December 31, 1997 to 148 at
December 31, 1998, and to 228 at June 30, 1999. Our future success will depend
on our ability to manage our growth effectively, including:
. continuing to train, motivate, manage and retain our existing employees
and attract and integrate new employees;
. improving our business development capabilities;
. maintaining high rates of employee utilization;
. accurately estimating time and resources for engagements;
. developing and improving our operational, financial, accounting and
other internal systems and controls; and
. maintaining project quality.
Our management has limited experience managing a business of Tanning's size.
If we are unable to manage our growth and projects effectively, it could have a
material adverse effect on the quality of our services, our ability to retain
key personnel, and our business and results of operations.
If our revenues do not increase proportionately with our planned increases in
costs and capital expenditures, then our results of operations and liquidity
will suffer
In anticipation of business growth, we expect to incur costs and expend
capital. We can give no assurances that we will continue to grow, or that we
will grow at a pace that will support these costs and expenditures. To the
extent revenues do not increase at a rate commensurate with these additional
costs and expenditures, our results of operations and liquidity could be
materially and adversely affected. In particular, we expect that our plans for
increases in expenses and capital expenditures over the next year to support
our growth will negatively impact profitability.
The loss of our professionals, or the inability to recruit additional
professionals, would make it difficult to complete existing projects and bid
for new projects, which could cause our business to suffer
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable professionals. If a
significant number of our current employees or any of our project managers or
senior technical personnel leave, we may be unable to complete or retain
existing projects or bid for new projects of similar scope and revenue. In
addition, former employees may compete with us in the future.
Even if we retain our current employees, our management must continually
recruit talented professionals in order for our business to grow. There is
currently a shortage of qualified project managers and senior technical
personnel in the information technology services field, and this shortage is
likely to continue.
4
<PAGE>
Furthermore, there is significant competition for employees with the skills
required to perform the services we offer. We cannot give any assurances that
we will be able to attract a sufficient number of qualified employees in the
future, or that we will be successful in motivating and retaining the employees
we are able to attract. If we cannot attract, motivate and retain qualified
professionals, our business, financial condition and results of operations will
suffer.
We depend on our key personnel, and the loss of any key personnel may harm our
ability to obtain and retain client engagements, maintain a cohesive culture
and compete effectively
We believe that our success will depend on the continued employment of our
key management personnel. This dependence is particularly important to our
business because personal relationships are critical to obtaining and
maintaining client engagements and maintaining a cohesive culture. If one or
more members of our key management personnel were unable or unwilling to
continue in their present positions, such persons would be very difficult to
replace and our business could be seriously harmed. In addition, if any of
these key employees joins a competitor or forms a competing company, some of
our clients might choose to use the services of that competitor or new company
instead of our own. Furthermore, clients or other companies seeking to develop
in-house information technology services capabilities may hire away some of our
key employees. This would not only result in the loss of key employees but
could also result in the loss of a client relationship or a new business
opportunity. Any of the foregoing could seriously harm our business.
We depend heavily on our principal clients; a significant reduction in the work
we perform for any of them could harm our revenues and earnings
We derive a large portion of our services revenue from a limited number of
clients. Services revenue constitutes substantially all of our revenues. In
1997, our five largest clients accounted for approximately 81% of our services
revenue, with Ameritech accounting for approximately 41% of our services
revenue and Oxford Health Plans accounting for approximately 23% of our
services revenue. In 1998, our five largest clients accounted for approximately
70% of our services revenue, with Maersk Line accounting for approximately 31%
of our services revenue, U S WEST accounting for approximately 12% of our
services revenue and E*Trade and CSX Technology each accounting for
approximately 10% of our services revenue. In the first three months of 1999,
our five largest clients accounted for approximately 74% of our services
revenue, with Maersk Line accounting for approximately 31% of our services
revenue and U S WEST, E*Trade, and Ameritech each accounting for approximately
12% of our services revenue. The volume of work performed for our principal
clients may not be sustained from year to year, and there is a risk that these
principal clients may not retain us in the future. Any cancellation, deferral
or significant reduction in work performed for these principal clients or a
significant number of smaller clients could have a material adverse effect on
our financial condition and results of operations. See "Business--Clients" for
more information relating to our clients.
Our clients may terminate projects before completion; this could adversely
affect our revenues and earnings
In general, our clients may terminate project engagements upon limited
notice and without significant penalty. This makes our results of operations
difficult to predict. Our clients' termination of our project engagements would
result in lower revenues and underutilized employees and, as a result, would
negatively affect our earnings. For example, a client's termination of a
significant project in the fourth quarter of 1997 adversely affected revenues,
employee utilization and earnings in the first half of 1998. For a further
discussion of the impact of this project termination, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Our international operations and expansion involve risks relating to
difficulties in complying with foreign laws and regulations, staffing
difficulties, currency related risks, difficulties in collecting accounts
receivable, and seasonal reductions in business activity; these risks could
result in increased costs, unanticipated liabilities, operational difficulties
and decreases in revenues and earnings
We currently have significant operations in Europe and intend to expand our
business to other regions, as attractive opportunities arise. Revenues from our
existing international operations represented 35% of services
5
<PAGE>
revenue in 1998 and in the first three months of 1999 and 86% of our income
before income taxes in 1998 and 55% of our income before income taxes in the
first three months of 1999. We may incur significant costs in connection with
our international expansion.
We also encounter risks in doing business in foreign countries, including:
. increased costs due to the need to comply with visa or other work permit
requirements, which may impair our ability to move personnel between
countries and properly staff our projects;
. to the extent we bill for our services in the functional currency of our
foreign subsidiaries, any depreciation of such currencies against the
dollar would negatively impact our results of operations;
. expenses incurred to modify our accounting systems as we do more
business in the countries that are converting their currencies to the
euro;
. difficulties in staffing and managing foreign offices, such as our
office in Chertsey, England, as a result of, among other things,
distance and time zone differences;
. seasonal reductions in business activity, such as the August slowdown in
Europe, which may adversely impact our business and results of
operations;
. longer payment cycles and problems in collecting accounts receivable,
which may adversely impact our results of operations due to required
allowances for doubtful accounts and increased cost of collection
efforts; and
. lack of ability to determine the taxation to which we may be subject in
foreign countries, including the failure to evaluate complex payroll tax
regulations of foreign countries, which could cause us to underestimate
our tax liabilities.
Any of these factors could result in increased costs, unanticipated
liabilities, operational difficulties and decreases in revenues and earnings.
We may fail to accurately estimate the time and resources necessary for the
performance of our services, which could reduce the profitability of, or
result in a loss on, our projects and damage our customer relationships
To date, we have generally provided services to our clients on a time and
materials basis, although we sometimes work on a fixed-fee or capped fee
basis. In the future, we anticipate that an increasing percentage of our
client engagements will be subject to fixed-fee or other arrangements that are
not solely based on time and materials. Because we work with complex
technologies in compressed timeframes and because we have limited experience
in pricing engagements on these terms, it can be difficult to judge the time
and resources necessary to complete a project. Our failure to accurately
estimate the time and resources required for a project, or our failure to
complete our obligations in a manner consistent with the project plan upon
which our fixed-fee or other arrangements are based, could reduce the
profitability of, or result in a loss on, our projects if we are required to
devote additional resources to project engagements for which we will not
receive additional compensation, and could damage our customer relationships
and our reputation.
Quarter to quarter fluctuations in our revenues and earnings could affect the
market price of our common stock
Our revenues and earnings may vary from quarter to quarter as a result of a
number of factors, including:
. number, size and scope of client engagements commenced or completed
during a quarter;
. employee utilization rates;
. unanticipated project terminations, delays or deferrals;
. the accuracy of estimates of resources required to complete ongoing
projects; and
. the contractual terms and degree of completion of projects in which we
are engaged.
6
<PAGE>
Because a high percentage of our expenses, particularly compensation and
rent, are fixed in advance of any particular quarter, any of the factors listed
above could cause significant variations in our revenues and earnings in any
given quarter. Any decline in revenues or earnings or a greater than expected
loss for any quarter could materially adversely affect the market price of our
common stock, even if not reflective of any long-term problems with our
business.
Competition from bigger, more established competitors who have greater
financial and technical resources, and from new entrants, could cause us to
lose current or future business opportunities and harm our business, results of
operations and ability to grow
The business areas in which we compete are intensely competitive and subject
to rapid technological change. We expect competition to continue and intensify.
Our competitors fall into four major categories:
. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;
. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;
. Internet professional service providers, such as Modem Media . Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and
. internal information technology departments of current and potential
clients.
Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in clients' needs.
Further, there are low barriers to entry into our business. We do not own
any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent
or copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and provide information technology
consulting services are relatively low. Therefore, we expect to continue to
face additional competition from new entrants into our industry. See
"Business--Competition" for a further discussion of competition within our
industry.
Year 2000 issues could seriously harm our business as a result of reduced
demand for our services, internal and external operations difficulties, and
potential disputes with, or liabilities to, clients
The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. Clients' and
potential clients' purchasing patterns may be affected by Year 2000 issues as
companies expend significant resources to correct or replace their current
systems for Year 2000 compliance. These clients and potential clients may have
fewer funds available to purchase our services, which could adversely affect
our business, financial condition and results of operations. We may experience
operations difficulties because of undetected errors or defects in the
technology we use in our internal systems. We also rely, directly and
indirectly, on the systems of business enterprises such as clients, suppliers,
utilities, creditors and financial institutions, both domestic and
international, which could be subject to operational difficulties arising out
of Year 2000 issues. In addition, we have made representations to clients
regarding Year 2000 compliance and may become involved in disputes regarding
Year 2000 problems involving solutions that we have developed or implemented.
Any failure on the part of our principal internal systems, other business'
systems or the systems that we create for our clients as a result of the Year
2000 problem could seriously harm our business, reputation, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000."
7
<PAGE>
Expansion of our solutions and service offerings may not be successful and we
may lose opportunities to expand our business
In addition to growing our business within the disciplines on which we
currently focus, an element of our strategy is to expand our solutions in the
area of supply chain management and our service offerings in areas such as
business consulting, process innovation and creative design. Successful
expansion in these areas will require:
. attracting, integrating and retaining talented personnel;
. successfully marketing and delivering these services; and
. successfully establishing relationships with vendors and technology
providers.
Failure to develop additional solutions and service offerings on a timely
basis could cause us to lose opportunities for business with both existing and
potential clients. We cannot assure you that this expansion will be successful.
We may have difficulty responding to changing technology, industry standards
and client preferences, which could cause us to lose business
Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in technology,
evolving industry standards and changing client preferences. We cannot give any
assurances that we will be successful in addressing these developments on a
timely basis or at all. Our failure to respond quickly and cost-effectively to
new developments could cause us to lose current and potential business
opportunities and have a material adverse effect on our business and results of
operations.
In particular, we have derived a significant portion of our revenues from
projects based primarily on:
. open system technologies, which are standards-based, non-proprietary
technologies;
. multi-tier software architecture, in which the key layers of an
application system are separated and optimized independently to improve
performance, scalability and reliability;
. web-based architectures; and
. electronic commerce, generally.
These areas are continuing to develop and are subject to rapid change. Any
factors negatively affecting the acceptance of information processing systems
using client/server and web-based architectures could have a material adverse
effect on our business, especially if we are unable to develop skills and
replacement technologies for these types of information processing systems.
Our business may suffer if growth in the use of the Internet declines
Because Internet technologies are central to many of our solutions, our
business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their customers and suppliers. Capacity
constraints caused by growth in Internet usage may, unless resolved, impede
further growth in Internet use. If the number of users on the Internet does not
increase and commerce over the Internet does not become more accepted and
widespread, demand for our services may decrease and our business and results
of operations could suffer. Factors which may affect Internet usage or
electronic commerce adoption include:
. actual or perceived lack of security of information;
. lack of access and ease of use;
. congestion of Internet traffic or other usage delays;
. inconsistent quality of service;
8
<PAGE>
. increases in access costs to the Internet;
. excessive government regulation;
. uncertainty regarding intellectual property ownership;
. reluctance to adopt new business methods;
. costs associated with the obsolescence of existing infrastructure; and
. economic viability of the Internet commerce model.
Misappropriation of our intellectual property could harm our reputation, affect
our competitive position and cost us money
We believe our intellectual property, including our proprietary
methodologies, is important to our success and competitive position. If we are
unable to protect our intellectual property against unauthorized use by others,
our reputation among existing and potential clients could be damaged and our
competitive position adversely affected.
Our strategies to deter misappropriation could be inadequate in light of the
following risks:
. non-recognition of the proprietary nature of or inadequate protection of
our methodologies in the United States or foreign countries;
. undetected misappropriation of our proprietary methodologies;
. development of similar software or applications by our competitors; and
. unenforceability of the non-competition and confidentiality agreements
entered into by our key employees.
If any of these risks materialize, we could be required to spend significant
amounts to defend our rights and our managerial resources could be diverted. In
addition, our proprietary methodologies may decline in value or our rights to
them may not be enforceable. See "Business--Intellectual property rights" for
more information concerning our intellectual property.
Others could claim that we infringe on their intellectual property rights,
which may result in substantial costs, diversion of resources and management
attention and harm to our reputation
Although we believe that our services do not infringe on the intellectual
property rights of others, we cannot give any assurances that an infringement
claim will be successfully defended. A successful infringement claim against us
could materially and adversely affect us in the following ways:
. we may be liable for damages and litigation costs, including attorneys'
fees;
. we may be enjoined from further use of the intellectual property;
. we may have to license the intellectual property, incurring licensing
fees;
. we may have to develop a non-infringing alternative, which could be
costly and delay projects; and
. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property.
Regardless of the outcome, an infringement claim could result in substantial
costs, diversion of resources and management attention, clients' termination of
project engagements and harm to our reputation.
Our business and our client relationships may suffer if we have disputes over
our right to resell or reuse intellectual property developed for specific
clients
A portion of our business involves the development of software applications
for specific client engagements. Ownership of client-specific software is
generally retained by the client, although we retain rights
9
<PAGE>
to some of the applications, processes and other intellectual property
developed in connection with client engagements. Issues relating to the rights
to intellectual property can be complicated. We cannot give any assurances that
disputes will not arise that affect our ability to resell or reuse such
applications, processes and other intellectual property, damage our
relationships with our clients, divert our management's attention or have a
material adverse effect on our business, financial condition and results of
operations.
Potential acquisitions may result in, among other things, increased expenses,
difficulties in integrating target companies and diversion of management's
attention
An element of our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic acquisitions
and investments when attractive opportunities arise. Some of the risks that we
may encounter in implementing this element of our strategy include:
. expenses and difficulties in identifying potential targets and the costs
associated with acquisitions that are abandoned before completion;
. expenses, delays and difficulties of integrating the acquired company
into our existing organization and our company's culture;
. diversion of management's attention during the acquisition process;
. diversion of management's attention following the acquisition process
where management has options or other equity incentive rights in the
acquired company;
. expenses of amortizing the acquired company's intangible assets, which
could be significant in light of the high valuations of many companies
in the information technology industry;
. impact on our financial condition due to the timing of the acquisition;
and
. expenses of any undisclosed or potential legal liabilities of the
acquired company, including intellectual property, employment, and
warranty and product liability-related problems.
If realized, any of these risks could have a material adverse effect on our
business, financial condition and results of operations.
If we are unable to maintain our reputation and expand our name recognition, we
may have difficulty attracting new business and retaining current clients, and
our business may suffer
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and expanding our client base. We also
believe that the importance of reputation and name recognition will increase
due to the growing number of information technology services providers. If our
reputation is damaged or if potential clients are not familiar with us or the
services we provide, we may become less competitive or lose our market
position. Promotion and enhancement of our name will depend largely on our
success in continuing to provide large, complex, integrated information
technology solutions. If clients do not perceive our solutions to be effective
or of high quality, our brand name and reputation will suffer. In addition, if
solutions we provide have defects, critical business functions of our clients
may fail, and we would likely suffer adverse publicity as well as economic
liability.
Lack of detailed written contracts could impair our ability to collect fees,
protect our intellectual property and protect ourselves from liability to
others
We try to protect ourselves by entering into detailed written contracts with
our clients covering the terms and contingencies of the project engagement. In
some cases, however, consistent with what we believe to be industry practice,
work is performed for clients on the basis of a limited statement of work or
verbal agreements before a detailed written contract can be finalized. To the
extent that we fail to have detailed written contracts in place, our ability to
collect fees, protect our intellectual property and protect ourselves from
liability to others may be impaired.
10
<PAGE>
Concentration of ownership of our common stock may limit your ability to
influence corporate matters
Immediately following this offering, our executive officers and directors,
or entities controlled by them, together with Stephen Brobst and entities
controlled by AEA Tanning Investors Inc. will own approximately 78% of the
outstanding shares of our common stock.
Holders of approximately 64% of the outstanding shares of our common stock
immediately following this offering are parties to an agreement under which
they have agreed to vote in favor of their nominees to our board of directors.
As a result of their voting power, they will have the ability to cause their
nominees to be elected. If our significant stockholders choose to act or vote
together on other matters, they will have the power to control the approval of
any other action requiring the approval of our stockholders, including any
amendments to our certificate of incorporation and mergers, acquisitions or
sales of all of our assets. In addition, without the consent of these
stockholders, we could be prevented from entering into transactions that could
be beneficial to us. Also, third parties could be discouraged from making a
tender offer or bid to acquire our company at a price per share that is above
the then-prevailing market price. See "Certain Relationships and Transactions
with Related Parties--Stock Purchase Agreement, Shareholder Agreement and
Registration Rights Agreement" and "Principal Stockholders" for more
information regarding the stock ownership of our officers, directors and
significant stockholders.
Government regulation and legal uncertainties relating to the Internet could
result in decreased demand for our services, increased costs, or otherwise harm
our business
Increased regulation of the Internet might slow the growth in use of the
Internet, which could decrease demand for our services, increase our cost of
doing business or otherwise harm our business. Congress, federal regulatory
agencies and the states have recently passed legislation or taken other actions
regulating certain aspects of the Internet, including:
. on-line content;
. interaction with children;
. copyright infringement;
. user privacy;
. taxation;
. access charges;
. liability for third-party activities;
. transmission of sexually explicit material;
. defamation;
. consumer protection; and
. jurisdiction.
Foreign governments have also taken actions to regulate aspects of the
Internet, including user privacy and on-line content. In addition, federal,
state and local governmental organizations as well as foreign governments are
considering other legislative and regulatory proposals that would regulate
these and other aspects of the Internet. We do not know how courts will
interpret laws governing the Internet or the extent to which they will apply
existing laws to the Internet. Therefore, we are not certain how existing or
future laws governing the Internet or applied to the Internet will affect our
business.
11
<PAGE>
Risks Related to this Offering
Our common stock has not traded publicly; the initial public offering price may
not be indicative of the market price of our common stock after this offering,
and the market price of our common stock, like the market prices of the stocks
of other technology companies, may fluctuate widely and rapidly
There is currently no public market for our common stock, and we cannot
assure you that an active trading market will develop or be sustained after
this offering. The initial public offering price will be determined through
negotiation between us and representatives of the underwriters and may not be
indicative of the market price for our common stock after this offering.
The market price of our common stock could fluctuate significantly as a
result of:
. our susceptibility to quarter to quarter variations in our operating
results, which may cause us to fail to meet analysts' or investors'
expectations;
. economic and stock market conditions specific to information technology
services providers;
. changes in financial estimates by securities analysts following our
stock;
. earnings and other announcements by, and changes in market evaluations
of, providers of information technology services;
. changes in business or regulatory conditions affecting information
technology services;
. announcements or implementation by us or our competitors of
technological innovations or new products or services; and
. trading volume of our common stock.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels, often following
their initial public offerings. These levels may not be sustainable and may not
bear any relationship to these companies' operating performances. If the market
price of our common stock reaches an elevated level following this offering, it
may materially and rapidly decline. In the past, following periods of
volatility in the market price of a company's securities, stockholders have
often instituted securities class action litigation against the company. If we
were involved in a class action suit, it could divert the attention of senior
management, and, if adversely determined, have material adverse effect on our
business and financial condition.
The sale or availability for sale of substantial amounts of our common stock
could adversely affect its market price
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could
occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our
common stock. There will be 19,863,166 shares of common stock outstanding
immediately after this offering, or 20,463,166 shares if the underwriters
exercise their over-allotment option in full. The 4,000,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless held by our "affiliates" as that term is
defined in Rule 144 under the Securities Act. The 15,863,166 shares of common
stock outstanding prior to this offering are "restricted securities" as defined
in Rule 144 and may not be sold in absence of registration other than in
accordance with Rule 144 or Rule 701 under the Securities Act or another
exemption from registration.
In connection with this offering, we, our executive officers and directors
and a number of our stockholders have agreed, except in limited circumstances,
not to sell any shares of common stock for 180 days after completion of this
offering without the underwriters' consent; however, the underwriters may
release these
12
<PAGE>
shares from these restrictions at any time. We cannot predict what effect, if
any, market sales of shares held by principal stockholders or any other
stockholder or the availability of these shares for future sale will have on
the market price of our common stock. See "Shares Eligible for Future Sale" for
a more detailed description of the restrictions on selling shares of our common
stock after this offering.
A number of our stockholders are parties to an agreement with us that
provides these stockholders with the right to require us to register the sale
of shares owned by them. These rights cover approximately 80% of our issued and
outstanding common stock and will also cover any shares obtained by these
stockholders from time to time. Registration of these shares of our common
stock would permit the sale of these shares without regard to the restrictions
of Rule 144. For a further discussion of these registration rights, see
"Certain Relationships and Transactions with Related Parties--Stock Purchase
Agreement, Shareholder Agreement and Registration Rights Agreement."
The net proceeds of this offering may be allocated in ways with which you and
other stockholders may not agree
Our management has significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific investment or transaction, you cannot determine at this time
the value or propriety of our management's application of the proceeds on our
behalf and you and other stockholders may not agree with our management's
decisions. See "Use of Proceeds" for a more detailed description of how
management intends to apply the proceeds of this offering.
Investors in this offering will experience immediate and substantial dilution
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$7.23 per share, representing the difference between our net tangible book
value per share as of March 31, 1999, after giving effect to this offering and
the assumed public offering price of $10.00 per share. In addition, you may
experience further dilution to the extent that shares of our common stock are
issued upon the exercise of stock options or under our employee stock purchase
plan. Substantially all of the shares issuable upon the exercise of currently
outstanding stock options, and shares that may be sold in the initial offering
period under our employee stock purchase plan, will be issued at a purchase
price less than the public offering price per share in this offering. See
"Dilution" for a more complete description of how the value of your investment
in our common stock will be diluted upon the completion of this offering.
Anti-takeover provisions of Delaware's General Corporation Law and our
certificate of incorporation could delay or deter a change in control
Amendments we intend to make to our certificate of incorporation and our
bylaws, as well as various provisions of the Delaware General Corporation Law,
may make it more difficult to effect a change in control of our company. The
existence of these provisions may adversely affect the price of our common
stock, discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their common stock. For example, we
intend to amend our certificate of incorporation to authorize our board of
directors to issue up to 5 million shares of "blank check" preferred stock and
to attach special rights and preferences to this preferred stock. The issuance
of this preferred stock may make it more difficult for a third party to acquire
control of us. We also intend to amend our certificate of incorporation to
provide for the division of the board of directors into three classes as nearly
equal in size as possible with staggered three-year terms. This classification
of the board of directors could have the effect of making it more difficult for
a third party to acquire our company, or of discouraging a third party from
acquiring control of our company. See "Description of Capital Stock--Preferred
stock," and "Description of Capital Stock--Anti-takeover effects of our
certificate of incorporation and bylaws and provisions of Delaware law" for a
more complete description of our capital stock, our certificate of
incorporation and the effects of the Delaware General Corporation Law that
could hinder a third party's attempts to acquire control of us.
13
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All statements
other than statements of historical fact in this prospectus, including
statements regarding our competitive strengths, business strategy, future
financial position, budgets, projected costs and plans and objectives of
management are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "should," "intend," "estimate,"
"anticipate," "believe," "continue" or similar terminology. We can give no
assurance that the expectations reflected in forward-looking statements will
prove to have been correct. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of factors
including those set forth under the "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
sections, and elsewhere in this prospectus. All written and oral forward-
looking statements attributable to us are expressly qualified in their entirety
by the factors we disclose that could cause our actual results to differ
materially from our expectations. We undertake no obligation to update publicly
or revise any forward-looking statements.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $35.5
million, or approximately $41.0 million if the underwriters' over-allotment
option is exercised in full, from the sale of the shares of common stock
offered by us, at an assumed initial public offering price of $10.00 per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by us.
We expect to use the net proceeds of the offering for general corporate
purposes, including:
. working capital;
. additional personnel;
. increased facilities; and
. computers and network equipment.
An element of our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic acquisitions
and investments when attractive opportunities arise. At the present time, we
have no understanding, commitment or agreement with respect to any acquisition
or investment. Pending these uses, we intend to invest the net proceeds from
this offering in U.S. government securities and other investment-grade,
interest-bearing instruments.
The foregoing represents our present intentions with respect to the
allocation of the net proceeds of this offering based upon our present plans
and business conditions. The occurrence of unforeseen events or changed
business conditions could result in the application of the proceeds of this
offering in a manner other than as described in this prospectus. See "Risk
Factors--The net proceeds of this offering may be allocated in ways with which
you and other stockholders may not agree" for a discussion of this risk.
DIVIDEND POLICY
Our board of directors has never declared or paid any cash dividends on our
common stock and does not expect to do so in the foreseeable future. We
currently intend to retain any earnings to finance the expansion and
development of our business. Our board of directors will make any future
determination of the payment of dividends based on conditions then existing,
including our earnings, financial condition and capital requirements, as well
as such economic and other conditions as the board of directors may deem
relevant. In addition, the payment of dividends may be limited by financing
agreements that we may enter into in the future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (1) on an actual basis as
of March 31, 1999 and (2) as adjusted to give effect to an amendment of our
certificate of incorporation to increase the number of our authorized shares of
common stock to 70 million and preferred stock to 5 million, and to the sale of
4 million shares of common stock offered hereby.
This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to our
consolidated financial statements, each of which is included in this
prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------
Actual As adjusted
---------- ------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................ $ 7,183 $ 42,633
========== ==========
Long-term debt, net of current portion............... $ 429 $ 429
Stockholders' equity:
Preferred stock, $0.01 par value: no shares
authorized, no shares issued and outstanding,
actual (5,000,000 shares authorized, no shares
issued and outstanding, as adjusted).............. -- --
Common stock, $0.01 par value: 23,753,631 shares
authorized, 15,498,618 shares issued and
outstanding, actual (70,000,000 shares authorized,
19,498,618 shares issued and outstanding, as
adjusted)(1)(2)................................... 451 195
Additional paid-in capital(2)...................... 15,226 50,932
Retained earnings.................................. 2,979 2,979
Accumulated comprehensive income (loss)............ (60) (60)
---------- ----------
Total stockholders' equity....................... 18,596 54,046
---------- ----------
Total capitalization........................... $ 19,025 $ 54,475
========== ==========
</TABLE>
- --------
(1) Excludes, as of the completion of this offering, 4,121,779 shares reserved
for issuance pursuant to options we may issue in the future and 8,399,821
shares subject to outstanding options, in each case pursuant to our stock
option plans. In addition, these shares do not include 1,000,000 shares
available for awards under our employee stock purchase plan.
(2) Actual par value and actual additional paid-in capital amounts do not give
effect to the reverse stock split of all existing classes of our common
stock; as adjusted amounts do give effect to the reverse stock split.
15
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999 was approximately $18.6
million, or $1.20 per share. Net tangible book value per share is equal to our
total tangible assets minus our total liabilities divided by the number of
shares of our common stock outstanding. Assuming we had sold the 4 million
shares of common stock offered hereby at an initial public offering price of
$10.00, and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our net tangible book value at March
31, 1999 would have been approximately $54.0 million, or $2.77 per share. This
represents an immediate increase in net tangible book value of $1.57 per share
to existing stockholders and an immediate dilution of $7.23 per share to new
investors. Dilution is determined by subtracting net tangible book value per
share after this offering from the amount of cash paid by a new investor for a
share of common stock. The following table illustrates the substantial and
immediate per share dilution to new investors:
<TABLE>
<CAPTION>
Per share
------------
<S> <C> <C>
Assumed initial public offering price.......................... $10.00
Net tangible book value as of March 31, 1999................. $1.20
Increase attributable to new investors....................... 1.57
-----
Net tangible book value after this offering.................... 2.77
------
Dilution to new investors...................................... $ 7.23
======
</TABLE>
The following table summarizes as of March 31, 1999 the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and by new investors at
an assumed offering price of $10.00 per share and without giving effect to the
underwriting discount and assumed offering expenses:
<TABLE>
<CAPTION>
Shares purchased Total consideration
------------------ ------------------- Average price
Number Percent Amount Percent per share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 15,498,618 79% $15,677,374 28% $ 1.01
New investors.............. 4,000,000 21 40,000,000 72 10.00
---------- --- ----------- ---
Total.................... 19,498,618 100% $55,677,374 100%
========== === =========== ===
</TABLE>
If the underwriters exercise their over-allotment option in full, the pro
forma net tangible book value per share of common stock as of March 31, 1999
would have been $2.97 share, which would result in dilution to the new
investors of $7.03 share, and the number of shares held by the new investors
will increase to 4,600,000, or 23% of the total number of shares to be
outstanding after this offering.
The foregoing tables assume no exercise of any outstanding stock options to
purchase common stock. As of March 31, 1999, there were outstanding options to
purchase an aggregate of 5,402,410 shares of common stock at a weighted average
exercise price of $3.60 per share under our stock option plans. If all of these
options had been exercised on March 31, 1999 before the issuance of common
stock from this offering, our net tangible book value would have been
approximately $38.0 million or $1.82 per share. On issuance of common stock
from this offering, our pro forma net tangible book value on March 31, 1999
would have been approximately $73.5 million, or $2.95 per share, the increase
in net tangible book value attributable to new investors would have been $1.13
per share and the dilution in net tangible book value to new investors would
have been $7.05 per share.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to our consolidated financial statements, each of
which is included in this prospectus. The selected financial data presented are
for the four years from our formation in February 1995 through year end 1998
and for the three months ended March 31, 1998 and March 31, 1999. The statement
of operations data for the three-year period ended December 31, 1998 and the
balance sheet information as of December 31, 1997 and 1998 are derived from our
financial statements, which have been audited by Ernst & Young LLP, independent
auditors, and are included elsewhere in this prospectus. The balance sheet data
as of December 31, 1996 are derived from our audited financial statements,
which are not included in this prospectus. The statement of operations data for
the year ended December 31, 1995 and the balance sheet data as of December 31,
1995 are derived from our unaudited financial statements, which are not
included in this prospectus. The statement of operations data for each of the
three-month periods ended March 31, 1998 and 1999, and the balance sheet
information at March 31, 1999 are derived from our unaudited financial
statements, which are included in this prospectus. In the opinion of
management, the unaudited interim financial information includes all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of such information. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year.
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
-------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------ ------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Services revenue........ $4,815 $12,763 $25,235 $30,313 $4,613 $11,305
Product sales........... -- 46 872 2,976 570 --
------ ------- ---------- ---------- ---------- ----------
Net revenues.......... 4,815 12,809 26,107 33,289 5,183 11,305
Project personnel
costs.................. 2,017 6,569 14,722 14,941 2,888 5,492
------ ------- ---------- ---------- ---------- ----------
Gross profit.......... 2,798 6,240 11,385 18,348 2,295 5,813
Selling, marketing and
administrative......... 574 2,055 7,856 12,178 2,321 4,679
Product development
costs.................. -- 431 1,608 2,786 820 --
Sign-on bonus related to
stock purchase
agreement.............. -- -- 2,117 -- -- --
Management fees--related
parties................ 1,270 902 73 -- -- --
------ ------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 954 2,852 (269) 3,384 (846) 1,134
Interest income
(expense) and other,
net.................... -- (29) 130 285 96 163
------ ------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 954 2,823 (139) 3,669 (750) 1,297
Income tax provision
(benefit).............. -- -- (212) 1,366 (279) 478
------ ------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 954 $ 2,823 $ 73 $ 2,303 $ (471) $ 819
====== ======= ========== ========== ========== ==========
Basic and diluted
earnings (loss) per
share.................. $ 0.01 $ 0.15 $ (0.03) $ 0.05
========== ========== ========== ==========
Basic weighted average
shares outstanding..... 13,718,710 14,968,974 14,647,552 15,345,327
========== ========== ========== ==========
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
========== ========== ========== ==========
Gross profit from
services............... $2,798 $ 6,194 $10,513 $15,372 $1,725 $ 5,813
Income (loss) from
operations from
services............... $ 954 $ 3,238 $ 467 $ 3,194 $ (596) $ 1,134
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------ ---------------
1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 47 $1,612 $ 7,769 $10,446 $ 6,361 $ 7,183
Working capital................ 840 (82) 10,204 14,005 10,002 15,587
Total assets................... 2,118 3,233 16,846 23,923 16,464 25,117
Long-term debt, net of current
portion....................... 203 1,000 -- 460 544 429
Total stockholders' equity..... 1,100 83 12,737 16,772 12,265 18,596
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to our consolidated financial
statements, each of which is included in this prospectus. This prospectus
contains forward-looking statements relating to future events and our future
financial performance. Actual results could be significantly different from
those discussed in this prospectus. Factors that could cause or contribute to
such differences include those summarized in the section entitled "Risk
Factors," as well as those discussed in other sections of this prospectus.
Overview
Our revenue is comprised primarily of fees generated for professional
services. To date, we have generally provided services to our clients on a time
and materials basis, although we sometimes work on a fixed-fee basis. Under
time and materials contracts, we recognize revenue as services are provided.
Under fixed-fee contracts, we recognize revenue on a percentage of completion
basis. In the future, we anticipate that an increasing percentage of our client
engagements will be subject to fixed-fee or other arrangements that are not
solely based on time and materials. We are generally reimbursed for reasonable
expenses under our contracts.
Our revenue from foreign operations represents revenue for professional
services performed for clients outside the United States. Revenue from foreign
operations has made an increasing contribution to our total services revenue
and we anticipate continued growth in revenue from foreign operations. Foreign
operations represented approximately 35% of services revenues in 1998 and the
first three months of 1999 and 86% of income before income taxes in 1998 and
55% of income before income taxes in the first three months of 1999. The higher
relative profitability from foreign operations principally arises because of
better employee utilization due to longer term projects of greater dollar
value. Additionally, our foreign operations incurred lower overhead costs as
compared to our domestic operations due to a lesser number of clients.
Sales by Tanning Technology Europe Limited, a United Kingdom subsidiary, are
currently made in U.S. dollars or its functional currency of pounds sterling.
Historically, we have not experienced material fluctuations in our results of
operations due to foreign currency exchange rate changes.
Revenue from a limited number of clients has comprised a very substantial
portion of our revenues and is expected to represent a very substantial portion
of our revenues in the foreseeable future. In 1997, our five largest clients
accounted for approximately 81% of our services revenue. In 1998, our five
largest clients accounted for approximately 70% of our services revenue. In the
first three months of 1999, our five largest clients accounted for
approximately 74% of our services revenue. Any cancellation, deferral or
significant reduction in work performed for these principal clients or a
significant number of smaller clients could have a material adverse effect on
our business, financial condition and results of operations. Historically, we
have been able to collect the applicable accounts receivable for work performed
up to the termination date from clients that have terminated projects. See
"Business--Clients."
In 1998, we had revenue from both services and, to a lesser extent, product
sales. We completed the sale of the rights to one of our software products in
the third quarter of 1998. We have shifted our business focus to concentrate
solely on generating revenues from services.
Project personnel costs represent our most significant expense and consist
primarily of salaries, bonuses and employee benefits for company personnel
dedicated to client assignments, and fees paid to subcontractors for work
performed on our projects. Subcontractors generally cost us more than our own
project personnel; consequently, we usually generate lower gross profit margins
by using subcontractors. Non-billable time incurred by our project personnel
resulting from start-up time for new hires and training time incurred to
upgrade the skills of existing staff may cause gross profit margins to
decrease. We plan to increase the number of our project personnel in order to
support our planned revenue growth.
18
<PAGE>
Selling, marketing and administrative expenses consist primarily of
salaries, bonuses and employee benefits for non-project personnel, occupancy
costs, staff recruiting costs, travel expenses, depreciation expenses and
promotional costs. Our sales and marketing costs are expected to increase as a
percentage of revenue in the future as we enhance our selling effort. We also
expect to expand geographically by opening new offices in 1999 and 2000. This
will require us to purchase office equipment and computer and networking
equipment, both of which will increase our depreciation expenses.
In anticipation of business growth, we expect to incur costs and expend
capital. We can give no assurances that we will continue to grow, or that we
will grow at a pace that will support these costs and expenditures. To the
extent revenues do not increase at a rate commensurate with these additional
costs and expenditures, our results of operations and liquidity could be
materially and adversely affected. In particular, we expect that our plans for
increases in expenses and capital expenditures over the next year to support
our growth will negatively impact profitability.
Our predecessor is Tanning Technology Group, LLC, which was formed on
February 8, 1995 as a result of the combination of four entities affiliated
with our co-founders, Larry G. Tanning, Bipin Agarwal, Toni S. Hippeli and
Stephen Brobst. Pursuant to a stock purchase agreement entered into with AEA
Tanning Investors Inc., the managing member of TTC Investors I LLC, TTC
Investors IA LLC, TTC Investors II LLC and TTC Investors IIA LLC (together with
AEA Tanning Investors Inc., the "TTC Investors Group"), our predecessor was
converted into a Delaware corporation and the TTC Investors Group purchased,
between January 1997 and June 1998, a total of 5,696,770 shares of our common
stock for an aggregate purchase price of $14.6 million.
Results of operations
The following table presents the relative composition of revenue and
selected statements of operations data as a percentage of revenue, as well as
certain other revenue and profitability statistics.
<TABLE>
<CAPTION>
Three months
ended
Year ended December 31, March 31,
---------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Services revenue............. 100% 97 % 91% 89 % 100%
Product sales................ 0 3 9 11 0
------- ------- ------- ------ ------
Net revenues................ 100 100 100 100 100
Project personnel costs...... 51 56 45 56 49
------- ------- ------- ------ ------
Gross profit margin......... 49 44 55 44 51
Selling, marketing and
administrative.............. 16 30 37 45 41
Product development costs.... 3 6 8 16 0
Sign-on bonus related to
stock purchase agreement.... 0 8 0 0 0
Management fees--related
parties..................... 7 0 0 0 0
------- ------- ------- ------ ------
Income (loss) from
operations.................. 22 (1) 10 (16) 10
Interest income (expense) and
other, net.................. 0 0 1 2 1
------- ------- ------- ------ ------
Income (loss) before income
taxes....................... 22 (1) 11 (14) 11
Income tax provision
(benefit)................... 0 (1) 4 (5) 4
------- ------- ------- ------ ------
Net income (loss)............ 22% 0 % 7% (9)% 7%
======= ======= ======= ====== ======
Growth in net revenues....... 104 % 28% 118%
Growth in services revenue... 98 20 145
Gross profit margin from
services.................... 49% 42 51 37 % 51
Income (loss) from operations
from services............... 25 2 11 (13) 10
</TABLE>
19
<PAGE>
Comparison of three months ended March 31, 1998 and 1999
Net revenues
Our net revenues increased $6.1 million, or 118%, to $11.3 million for the
first quarter of 1999 from $5.2 million for the first quarter of 1998. Included
in the first quarter of 1998 net revenue is $0.6 million of revenue from
product sales; there was no revenue from product sales in the first quarter of
1999. The increase in services revenue of 145% reflects increases in both the
size and number of client projects as well as higher average billing rates.
During the first quarter of 1999, as compared to the first quarter of 1998, the
number of clients we provided services for increased by 27%, and our average
revenue per customer increased by 93%. The increase in services revenue from
our foreign operations also significantly contributed to this increase in
revenue. The revenue from foreign operations increased $2.9 million, or 264%,
to $4.0 million for the first quarter of 1999 from $1.1 million for the first
quarter of 1998. Revenues from our five largest clients as a percentage of
total net revenues were 74% for the first quarter of 1999 and 77% for the same
period in 1998.
Project personnel costs
Our project personnel costs increased $2.6 million, or 90%, to $5.5 million
for the first quarter of 1999 from $2.9 million for the first quarter of 1998.
The increase in project personnel costs for the first three months of 1999 was
primarily due to an increase in project personnel from 79 at March 31, 1998 to
127 at March 31, 1999, as well as higher salaries. Our gross profit margin from
services has increased from 37% for the first quarter of 1998 to 51% for the
same period in 1999, principally as a result of higher average billing rates
and an increased utilization of project personnel.
Selling, marketing and administrative
Our selling, marketing and administrative expenses increased $2.4 million,
or 102%, to $4.7 million for the first quarter of 1999 from $2.3 million for
the first quarter of 1998. The increase in selling, marketing and
administrative expenses was primarily the result of our decision to expand our
marketing effort to support revenue growth. Our sales, marketing and
administrative staff grew from 31 employees at March 31, 1998 to 50 employees
at March 31, 1999, and staffing expenses increased to $1.5 million. Selling,
marketing and administrative expenses decreased as a percentage of net revenues
from 45% in the first quarter of 1998 to 41% for the same period in 1999 due to
increases in revenues without a proportional increase in these expenses.
Product development costs
We incurred costs associated with software product sales during the first
quarter of 1998 of $0.8 million, or 16% of net revenues. No such costs were
incurred in 1999.
Provision for (benefit from) income taxes
Income tax expense represents combined federal, state, and foreign taxes.
Our income tax provision increased to $0.5 million on pre-tax profits of $1.3
million at the end of the first quarter of 1999 compared to a tax benefit of
$0.3 million on pre-tax losses of $0.8 million at the end of the first quarter
of 1998. The tax benefit was recorded in the first quarter of 1998 on the pre-
tax losses in anticipation of applying the tax benefit to future tax provisions
as we generate future profits. Our effective tax rate was 37% for the first
quarter of 1999 and for the same period in 1998.
Comparison of years ended December 31, 1997 and 1998
Net revenues
Our net revenues increased $7.2 million, or 28%, to $33.3 million in 1998
from $26.1 million in 1997. The increase in services revenue of 20% in 1998
reflects increases in both the size and number of client
20
<PAGE>
projects. During 1998, as compared to 1997, the number of clients we provided
services for increased by 3%, and our average revenue per customer increased by
16%. Utilization and revenues were adversely affected for the first half of
1998, principally as a result of a significant project termination in the
fourth quarter of 1997 following a change in the client's strategic plans due
in part to regulatory changes. As a result of this termination, we generated
$5.7 million less revenues from this client in the first half of 1998 than we
did in the second half of 1997, without a proportionate decrease in project
personnel costs. Utilization and revenues improved in the second half of 1998
as new projects commenced, including additional work for the same client. Our
net revenues from foreign operations increased $7.5 million, or 253%, from $3.0
million in 1997 to $10.5 million in 1998. In 1997, we earned revenues of $0.9
million from the sale of software products compared to $3.0 million earned in
1998. The software sales in 1998 included the sale of the rights to certain
software products. Revenues derived from our five largest clients as a
percentage of total net revenues were 65% in 1998 and 78% in 1997.
Project personnel costs
Project personnel costs increased $0.2 million, or 1%, to $14.9 million in
1998 from $14.7 million in 1997. The increase in project personnel costs in
1998 was due to an increase in project personnel from 81 at the end of 1997 to
107 at the end of 1998, which was nearly offset by a decrease in fees paid to
subcontractors. The gross profit margin from services increased from 42% in
1997 to 51% in 1998 as a result of improved utilization and a shift in staffing
mix to using fewer subcontractors and more internal project personnel.
Selling, marketing and administrative
Selling, marketing and administrative expenses increased $4.3 million, or
55%, to $12.2 million in 1998 from $7.9 million in 1997. Selling, marketing and
administrative expenses increased as a percentage of revenues from 30% in 1997
to 37% in 1998. These increases were primarily a result of our decision to
expand our selling and marketing group and the administrative staff to support
revenue growth. Also contributing to the increase in staffing expenses of $2.2
million were increases in occupancy costs of $0.6 million and increases in
depreciation expense of $0.8 million associated with fixed asset additions
during 1998. Our sales, marketing and administrative staff grew from 28
employees at the end of 1997 to 37 employees at the end of 1998.
Product development costs
We incurred costs associated with software product sales of $1.6 million in
1997 and $2.8 million in 1998, representing 6% of 1997 net revenues and 8% of
1998 net revenues. We have no plans to continue the development of software for
resale purposes.
Sign-on bonus related to stock purchase agreement
In conjunction with the stock purchase agreement entered into with the TTC
Investors Group, we paid sign-on bonuses aggregating $2.1 million in order to
retain the members and certain employees of our predecessor. This expense was a
single occurrence in 1997 and was not incurred in any other periods reported.
Management fees--related parties
We incurred management fees of $73,000 to members of our predecessor in
January 1997. No management fees were incurred after the formation of our
company in January 1997. These fees represent payment for services performed on
behalf of our predecessor. Subsequent to the formation of our company, the
payments made to members of our predecessor are reflected in salary expenses in
selling, marketing and administrative expenses, or as project personnel cost
for billable time incurred by these employees.
Provision for (benefit from) income taxes
Our provision for income taxes increased to approximately $1.4 million on
pre-tax profits of $3.7 million for 1998 compared to a tax benefit of
approximately $0.2 million on pre-tax losses of $0.1 million in 1997. Our
21
<PAGE>
effective tax rate in 1998 was 37%. The 1997 tax benefit is the result of 11
months of net (loss) from operations before taxes of $0.4 million and the
implications of a change in that status after the merger of Tanning Technology
Group, LLC into Tanning Technology Corporation on January 31, 1997. No income
taxes were paid by Tanning Technology Group since members included their
distributive shares of revenue and deductions of the limited liability company
in their personal capacities, pursuant to Subchapter K of the Internal Revenue
Code.
Comparison of years ended December 31, 1996 and 1997
Net revenues
Our net revenues in 1997 increased $13.3 million, or 104%, to $26.1 million
from $12.8 million in 1996. The increase in services revenue of 98% in 1997
reflects increases in both the size and number of client projects. During 1997,
as compared to 1996, the number of clients we provided services for increased
by 3%, and our average revenue per customer increased by 92%. Our revenues from
foreign operations increased $2.5 million, or 549%, from $0.5 million in 1996
to $3.0 million in 1997. In 1997, we earned revenues of $0.9 million from the
sale of software products compared to $46,000 earned in 1996. Revenues derived
from our five largest clients as a percentage of total net revenues were 78% in
1997 and 80% in 1996.
Project personnel costs
Project personnel costs in 1997 increased $8.2 million, or 124%, to $14.7
million from $6.5 million in 1996. The increase in project personnel costs in
1997 was primarily due to an increase in project personnel from 40 at the end
of 1996 to 81 at the end of 1997. In addition, more fees were paid to
subcontractors during 1997. The gross profit margin from services revenue
decreased from 49% in 1996 to 42% in 1997 as a result of the shift in staffing
mix to using more subcontractors.
Selling, marketing and administrative
Selling, marketing and administrative expenses in 1997 increased $5.8
million, or 282%, to $7.9 million from $2.1 million in 1996. Selling, marketing
and administrative expenses increased as a percentage of net revenues from 16%
in 1996 to 30% in 1997. These increases were primarily a result of our decision
to expand our selling and marketing group and the administrative staff to
support revenue growth. Our sales, marketing and administrative staff grew from
9 employees at the end of 1996 to 28 employees at the end of 1997. In addition
to the increase in staff expense of $3.3 million, our facilities expense
increased $0.5 million and depreciation expense increased $0.2 million.
Product development costs
We incurred costs associated with software product sales of $0.4 million in
1996 and $1.6 million in 1997, representing 3% of 1996 net revenues and 6% of
1997 net revenues.
Sign-on bonus related to stock purchase agreement
In conjunction with the stock purchase agreement entered into with the TTC
Investors Group, we paid sign-on bonuses aggregating $2.1 million in order to
retain the members and certain employees of our predecessor. This expense was a
single occurrence in 1997 and was not incurred in any other periods reported.
Management fees--related parties
We incurred management fees of approximately $902,000 in 1996 and $73,000 in
1997 to members of our predecessor, representing 7% of 1996 net revenues. These
fees represent payment for services performed on behalf of our predecessor. No
management fees were incurred after the formation of our company in January
1997, but payments to former members of our predecessor are reflected in salary
expenses in selling, marketing and administrative expenses, or as project
personnel cost for billable time incurred by these employees.
22
<PAGE>
Provision for (benefit from) income taxes
Our income taxes benefit realized in 1997 was $0.2 million on pre-tax losses
of $0.1 million in 1997. No income taxes were paid by our predecessor, Tanning
Technology Group, LLC, in 1996.
Quarterly results
The following table presents our unaudited quarterly results of operations
for 1998 and the first quarter of 1999. We derived these data from unaudited
consolidated financial statements, and, in the opinion of management, they
include all necessary adjustments, which consist only of normal recurring
adjustments necessary to present fairly the financial results for the periods.
Results of operations for any fiscal quarter do not necessarily indicate what
results may be for any future period.
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Services revenue........ $4,613 $5,574 $9,185 $10,941 $11,305
Product sales........... 570 58 2,309 39 --
------ ------ ------ ------- -------
Net revenues.......... 5,183 5,632 11,494 10,980 11,305
Project personnel
costs.................. 2,888 2,873 4,004 5,176 5,492
------ ------ ------ ------- -------
Gross profit.......... 2,295 2,759 7,490 5,804 5,813
Selling, marketing and
administrative......... 2,321 2,649 3,212 3,996 4,679
Product development
costs.................. 820 703 1,181 82 --
------ ------ ------ ------- -------
Income (loss) from
operations............. (846) (593) 3,097 1,726 1,134
Interest income and
other, net............. 96 31 105 53 163
------ ------ ------ ------- -------
Income (loss) before
income taxes........... (750) (562) 3,202 1,779 1,297
Income tax provision
(benefit).............. (279) (209) 1,192 662 478
------ ------ ------ ------- -------
Net income (loss)....... $ (471) $ (353) $2,010 $ 1,117 $ 819
====== ====== ====== ======= =======
Gross profit from
services............... $1,725 $2,701 $5,181 $ 5,765 $ 5,813
Income (loss) from
operations from
services............... (596) 52 1,969 1,769 1,134
</TABLE>
Stock-based compensation
We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for our employee stock options. Under Accounting Principles Board
Opinion No. 25, because the exercise price of our employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recorded. We have adopted the disclosure-only provisions of the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123.
Liquidity and capital resources
Prior to January 1997, we financed our operations and investments in
property and equipment primarily through cash generated from operations,
unsecured and secured borrowings and capital lease financing. During 1997, we
issued common stock resulting in net proceeds to us of approximately $12.7
million. The proceeds were used to fund operations, purchase property and
equipment as well as to pay down $700,000 of outstanding debt during 1997.
During 1998, we financed our operations and investments in property and
equipment primarily through cash generated from operations, the sale of common
stock and, to a lesser extent, borrowings. Outstanding debt of $1.1 million was
paid off in 1998 with the net proceeds from the sale of common stock of $1.9
million. At
23
<PAGE>
March 31, 1999, we had a bank note outstanding of approximately $550,000, the
proceeds of which were used to acquire office furniture and fixtures. The note
bears interest at 8.71% and principal and interest payments are payable over a
60-month term.
Cash and cash equivalents increased to $7.2 million at March 31, 1999 from
$1.6 million at December 31, 1996. The increase was primarily due to cash
provided as a result of the completion of our stock transactions and cash
provided by operations. We invest available cash in short-term liquid
investments.
We anticipate that we will expend capital to develop the infrastructure
needed to support our future growth. As a result, we expect to use cash from
operations and the net proceeds from this offering to meet capital expenditures
and working capital necessary to support our growth. We currently have no
material commitments for capital expenditures. Based on our current business
plan, we believe that the cash provided from operations, cash on hand and our
net proceeds from this offering will be sufficient to meet our cash
requirements, including for working capital and capital expenditures, at least
through the end of 2000.
Qualitative and quantitative disclosures about market risk
We provide our services to customers primarily in the United States, the
United Kingdom and Denmark. As a result, our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in those foreign markets. Sales by Tanning Technology
Europe Limited, a United Kingdom subsidiary, are currently made in U.S. dollars
or its functional currency of pounds sterling. To the extent Tanning Technology
Europe has monetary assets and liabilities denominated in any currency other
than pounds sterling, any significant variation in exchange rate between the
pound sterling and these other currencies could have a material effect on our
operating results. To the extent that we bill clients in a currency other than
their local currency, exchange rate fluctuations that strengthen the currency
in which we bill relative to their local currency could make our services less
competitive to such clients. Historically, we have not experienced material
fluctuations in our results of operations due to foreign currency exchange rate
changes.
Year 2000
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
These programs were unable to distinguish properly between the year 1900 and
the year 2000, and as such, risk failure with the changing of the century. This
circumstance is frequently referred to as the "Year 2000 issue."
We rely on information technology systems, applications and devices in
several aspects of our business, including service delivery, time reporting,
and financial accounting. In this regard, we have conducted an assessment of
our information technology systems and believe that significant changes will
not be necessary in order to achieve a Year 2000 date conversion with no effect
on customers or disruption of business operations. We have obtained written
and/or verbal confirmation, either directly or through published materials,
from our major third-party software providers that those applications currently
being used are Year 2000 compliant or that revised versions that are compliant
will become available. Internally generated applications have been largely
tested and deemed compliant as well. Our computer hardware platforms,
principally servers, have been confirmed as Year 2000 compliant by the server
manufacturers, or have been appropriately upgraded in order to achieve
compliance. Based on currently available information, we believe that the total
expense related to these efforts will not have a material impact on our results
of operations.
In addition to our internal systems, we also rely, directly and indirectly,
on the systems of business enterprises such as clients, suppliers, utilities,
creditors and financial institutions, both domestic and international. We plan
to obtain assurances from those material third-party vendors with which we
transact business that there will be no interruption of service as a result of
the Year 2000 issue. To the extent that
24
<PAGE>
assurances are not given, we intend to devise contingency plans to mitigate the
negative effects on our company in the event the Year 2000 issue results in the
unavailability of services. In addition, the failure of the accounting systems
of our clients due to the Year 2000 issue could result in a delay in the
payment of invoices we have issued for services rendered. A delay in payment of
invoices could have a material negative effect on us. Although we have not yet
done so, we intend to inquire of, and obtain assurances from, our major
customers regarding the compliance of their accounting systems. We also plan to
assess risks related to the potential failure of our non-information technology
systems, which include, among other things, our climate control systems and
elevators. We expect to complete our comprehensive risk assessment and related
contingency plan in the third quarter of 1999.
Although our principal service offerings generally do not include Year 2000
remediation services, former, present and future clients could assert claims
against us related to the Year 2000 issue. There can be no assurance that all
information technology systems we have designed, developed, recommended or
deployed will be Year 2000 compliant. Any Year 2000-related failure of critical
client systems in which we were involved could result in claims being asserted
against us, regardless whether the failure is related to the services provided
by us. If asserted, liability that may result, and the time and resources used
in resolving these claims, could have a material adverse effect on us.
25
<PAGE>
BUSINESS
Overview
We are an information technology services provider that architects, builds
and deploys enterprise solutions for companies in the United States and
internationally. We specialize in large, complex, integrated solutions that
incorporate online transaction processing and very large databases. Internet
technologies are central to many of our solutions, enabling direct interaction
among customers and business partners on the World Wide Web, and among
employees within organizations on their private intranets. Our clients include
Ameritech, Blockbuster, BSkyB, E*Trade, Federal Express, Maersk Line, MCI
WorldCom, R.R. Donnelley Financial and U S WEST.
Our key solutions are:
. electronic commerce solutions;
. enterprise customer relationship management solutions; and
. core operations solutions.
Industry background
The explosive growth in demand for information technology services providers
in the 1990s has been driven by corporate recognition that information
technology can be used to achieve competitive advantage. GartnerGroup's
Dataquest, an information technology market research firm, estimates that the
worldwide information technology services market will grow from approximately
$361 billion in 1998 to approximately $722 billion by 2003.
Within the overall information technology services market, some segments are
experiencing particularly rapid growth. For example, according to International
Data Corporation, an information technology market research firm, the market
for Internet services will grow from $7.8 billion in 1998 to $78.6 billion in
2003, representing a compound annual growth rate of 59%. In addition, AMR
Research, Inc., an information technology market research firm, predicts that
the market for customer relationship management services will grow from $404
million in 1997 to $4.0 billion in 2002, representing a compound annual growth
rate of 58%.
With advances in the Internet and information technology, companies are
transforming the way they run their businesses and manage information. New
business models and innovative information technology solutions are emerging
that create business value by:
. compiling and coordinating customer information and contacts across the
enterprise and all customer channels;
. profiling and scoring customers and performing predictive selling in
real-time, which involves understanding each customer's needs and
preferences so that the most appropriate products and services can be
offered during a particular online interaction;
. integrating the business operations and content of business partners;
. coordinating the complex business transactions of the supply chain;
. providing dynamic personalized content to web page users; and
. enabling complex transaction processing systems that support core
business operations.
As part of this evolution of business models, today's electronic commerce,
customer relationship management and core operations solutions must be
architected and deployed to function reliably in an environment of rapidly
growing website traffic, numbers of customers, order volumes, customer service
inquiries and other business transactions. Advanced information technology
solutions must also be built with
26
<PAGE>
the flexibility required to rapidly add features and functions, accommodate new
content and business partners and support modified business processes as the
business environment becomes more competitive. These advanced business
solutions must address the following technology challenges:
. dramatic increases in the volume of data and transactions processed;
. the emergence of rich data types, including text, images, video and
sound;
. the evolution of batch to online processing to support real-time
customer interactions;
. improved performance and response times to support real-time customer
access from a variety of technology environments;
. improved reliability, accuracy and security of transactions;
. integration of legacy systems and databases across the enterprise; and
. high degrees of integration among applications, networks and platforms
within a company as well as among diverse business enterprises.
Many information technology services providers focus on the less technically
demanding areas of creative web design and simple transaction systems.
Moreover, they do not have the skills to design a solution with the required
scalability, flexibility and performance characteristics, or to deploy it in an
environment that may combine many generations of computing platforms and
technologies, all while facing the demands of real-time business operations.
Their solutions are often cobbled together from software packages, custom
software components and legacy systems, and fail to provide for the enormous
growth in transaction and data volumes that are experienced after going to
market. Forrester Research, an information technology research firm, cites
recent high-visibility web site outages at a number of electronic commerce
leaders in support of its conclusion that many of today's electronic commerce
solutions are unreliable, unscalable and deliver service levels that are not
adequate for online commerce.
We believe that we are differentiated by our focus on, and expertise in, the
architecture, complex integration, high volume online transaction processing
capabilities and very large databases required to successfully deploy advanced
electronic commerce, customer relationship management and core operations
solutions. As a result, we believe that we are particularly well positioned to
benefit from the growing demand for these skills.
The Tanning Difference
We believe that the following capabilities and characteristics differentiate
us from other information technology services providers.
Large, complex solutions
We specialize in architecting, developing and deploying large and complex
business-critical solutions that require high degrees of integration across
diverse portfolios of applications and technologies. Clients that seek to
transform their businesses with advanced electronic commerce, customer
relationship management and core operations solutions rely on the systems we
build to run their businesses without failure. Our solutions typically involve
ultra-high transaction rates (up to millions per hour) in online transaction
processing environments and very large databases (terabytes of information). We
believe that we are able to address our clients' greatest information
technology challenges because we are able to extend the accepted performance
and feasibility limits of leading-edge technologies. For many clients, the
systems we build are at the core of their efforts to capitalize on information
technology and the Internet.
Business-value driven
We focus on delivering solutions to our clients' business challenges, not
simply on technology. These solutions provide value to our clients by enhancing
their ability to communicate with their customers and
27
<PAGE>
business partners, allowing our clients to offer new or enhanced products and
services, and providing them opportunities for revenue enhancement and cost
reductions. We align technology deployment with business objectives and
processes and plan deployments in phases to deliver business benefits rapidly.
Through extensive business analysis and work with clients to define and
articulate their business goals and constraints, we are able to discern a
project's critical business requirements before proceeding to technology
considerations.
Architecture-based solutions
Our architecture-based approach enables us to provide large and complex
integrated solutions that accommodate our clients' goals in a rapidly changing
business environment. Our overall architecture identifies the component and
technology frameworks required for the successful construction and deployment
of our solutions. Through rigorous systems analysis, we design solutions that
address requirements for:
. reliability, to ensure accurate processing and robust backup and
recovery;
. scalability, to accommodate the rapid growth associated with electronic
commerce, customer relationship management and core operations solutions
under changing business conditions;
. full time availability (24 hours a day and 7 days a week);
. performance, to deliver the required end-user response times and
transaction rates;
. flexibility, to accommodate new functions and interfaces;
. complex interfaces to, and coexistence with, legacy systems, software
packages and departmental solutions in a heterogeneous technology
environment;
. transaction and data integration, both within a company's business and
among the company and its trading partners; and
. the ability to dynamically change features, services or product
offerings based on real-time Internet customer interaction.
Deployment-focused
We deliver high-value business solutions that are deployment-focused, rather
than development-focused. Our deployment focus allows us to architect and
design solutions for successful roll-out to, and use by, the hundreds,
thousands and potentially millions of users of that system. We focus on
deployment to ensure that our solution is constructed for scalable performance,
reliable and consistent service levels, and high levels of flexibility and
longevity. We identify performance and service level requirements in the early
stages of the solution process, architect and design the system so that it will
meet these requirements and benchmark and develop proofs of concept to ensure
that our solution will work before construction of the application begins.
Benchmarking is a process of evaluating the performance of alternative system
configurations and components in order to determine which approach would best
meet the client's goals. We develop proofs of concept in order to demonstrate
the feasibility of our innovative architectures and combinations of components
as well as emerging technologies.
The project lifecycles of many information technology service providers and
companies do not adequately address the constraints of interfaces or the
challenges of operating the system in the intended environment. Consequently,
clients often engage us to "rescue" systems that were unsuccessfully developed
or deployed. We believe our focus on deployment allows us to deliver successful
projects and business value for our clients and constitutes a significant
competitive advantage. As a result, since 1993, we have established a strong
track record of repeat business from large corporations throughout the world,
including Ameritech, Maersk Line, R.R. Donnelley Financial and BSkyB.
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<PAGE>
Experienced and talented staff
Today's complex, data-intensive business solutions require broad, as well as
deep, technology skills to successfully tackle the technological challenges and
integration complexities typically encountered. We staff our projects based on
our philosophy that there is no substitute for experience, in contrast to the
common approach of relying on primarily inexperienced staff and building a
heavily "leveraged" staffing model that depends on methodology rather than
experience to guide the judgments and activities of project teams. Our
information technology professionals have an average of more than ten years of
industry experience. Our breadth of skills comes from the experience our staff
has with four generations of technology--mainframe and parallel processing
environments, minicomputers, client/server architectures and web technology
architectures. Our depth of skills began with our early work in benchmarking
large applications and databases that required multi-tier software
architecture, in which the key layers of an application system are separated
and optimized independently to improve performance, scalability and
reliability.
Our employees have expertise in a broad range of competencies, including
project management, business analysis, object modeling, architecture, software
development, database modeling and administration, quality assurance,
integration and testing, architecture and performance tuning, and system and
network management. We believe our staff is recognized in the industry for its
rich capabilities in building applications that deal with high transaction
volumes and very large database requirements.
Flexible pricing
We offer clients a choice of the most appropriate pricing model for a
particular engagement. Many of our engagements are based on time and materials
pricing, particularly in situations where the parameters of a project or
particular phase of a project cannot yet be specified. In other situations, a
client may prefer a fixed price/fixed time contract in order to cap its costs
while retaining guaranteed delivery of a solution. We offer flexible pricing
options to accommodate our clients' goals as well as to provide the most
appropriate pricing model for the project.
Strategy
Our strategy for growth centers around scaling our capabilities in
architecting, developing and deploying large, complex, business-critical
enterprise solutions. We will continue to identify areas of growing demand for
these types of solutions and differentiate ourselves based upon our experience,
capabilities and references. These areas may take the form of geographic
regions, industries or solution areas.
To achieve our objectives, we plan to:
. Maintain our leading edge capabilities
We believe that our clients choose to work with us because of our
reputation for successfully handling information technology's most
challenging assignments. A key source for new and advanced capabilities
is our experience in developing solutions that are innovative, and of
industry-leading scale and complexity. For example, we deployed a
solution for Blockbuster that assembled customer data and account
activity information for over 40 million customers and 6,000 stores.
The solution involved terabytes of information and difficult
integration issues, including hardware design and configuration,
database architecture, fault tolerance and operations support. We plan
to continue to actively manage our portfolio of client engagements to
ensure that we work on complex assignments that will allow us to refine
and advance our capabilities on an ongoing basis. We also believe that
our reputation for working on the industry's most difficult assignments
will assist us in continuing to recruit professionals who further add
to our skills and knowledge base. In addition, we intend to continue
and expand our practice of coordinating with our business and
technology partners to share expertise and innovations.
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<PAGE>
. Expand our solutions and service offerings
We intend to increase our focus on rapidly growing solution areas in
which we believe our expertise is relevant. For example, building off
of our successful engagements with Federal Express and Blockbuster, we
intend to develop an enhanced presence in the area of supply chain
management. We also intend to expand our service offerings in areas
such as business consulting, process innovation and creative design. In
addition, our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic
acquisitions and investments when attractive opportunities arise. In
some cases we may also invest in ventures that may not be directly
related to our business. Our investments may be structured to provide
our management with equity interests in the form of stock options,
carried interests, co-investment rights or other equity arrangements.
Although we believe that the areas in which we currently specialize are
among the fastest growing and critical in the information technology
industry, we believe that our ability to provide expanded integrated
service offerings will allow us to establish relationships with a
greater range of clients who have a need for our expertise and to
engage them earlier in the determination of their business needs.
. Expand our vertical industry focus
We intend to organize our sales and marketing efforts in the
industries in which there is significant potential demand for our
services and expertise. We intend to organize industry practice groups
in sales and marketing because we believe that businesses seek out
service providers who are familiar with the types of issues faced by
their industry and who are conversant with the language of the
industry. Currently, we are formally organized in telecommunications,
an industry in which we have a significant amount of experience. We
plan to organize industry practice groups in other high growth
industries such as media and entertainment, financial services,
healthcare, and logistics and transportation as our business in these
industries grows.
. Expand our relationships with existing clients and develop new clients
We intend to base our growth on long-term client relationships,
rather than on a project-by-project approach. Our client relationship
philosophy is that clients will choose to do business with us based on
the quality of our work, the value of our advice and solutions, and the
level of trust and respect that develops over time. Expanding our
existing client relationships will allow us to jointly plan future
projects and, in particular, develop large, multiyear engagements. This
will improve our ability to forecast projects, thereby helping us to
manage growth. We will continue to assign each of our clients a
relationship manager who will be responsible for ensuring that the
client is satisfied with the services we are providing. Relationship
managers work with their clients in an advisory capacity to clarify and
prioritize their business needs and secure additional high value
projects, based upon their in-depth knowledge of each client's business
and information technology needs.
We also intend to develop new clients through multiple channels
including our sales force, industry analysts, marketing events and
public relations, as well as through relationships with hardware and
software suppliers. Our dedicated sales and marketing team will allow
us to focus on solutions common across industries and will seek out
opportunities for entry-level service offerings such as assessments and
"rescue missions." We will also expand our relationships with hardware
and software suppliers such as IBM, Sun Microsystems, Hewlett Packard
and others to identify project opportunities consistent with our
capabilities and to provide us with client leads.
. Continue to attract and retain experienced, knowledgeable professionals
We have consistently attracted and retained leading information
technology talent interested in solving our industry's toughest
challenges. We plan to continue to recruit experienced staff from
consulting companies, corporate information technology organizations
and the benchmarking and product development centers of the industry's
leading hardware and software product companies. We expect that our
talented staff will also continue to provide us with employee
referrals, which have accounted for over 50% of our new recruits in the
last two years.
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. Serve clients globally
We plan to expand our services and solution capabilities to client
locations around the world. Our expansion will be revenue-based--we
intend to open additional offices primarily where we have existing
clients in the geographic region. We believe this will enable us to
develop closer relationships with and provide more convenience to our
clients who are increasingly seeking service providers with global
presence and experience deploying solutions that address issues of
multiple currencies and languages, infrastructure diversity and around-
the-clock operations. We also expect that global expansion will allow
us to capitalize on high growth geographic regions and diversify our
revenue base.
. Expand our infrastructure for growth
We plan to continue our commitment to growth by making investments
in recruitment and retention, staff development, sales and marketing,
management information systems and other areas of infrastructure. We
have created a "Knowledge Net" on our internal computer network in
order to accumulate and make readily available to our employees (1)
expertise we have derived from our engagements, (2) best practices and
(3) a repository of information that can be used in sales, marketing
and service delivery. We intend to expand our formal employee
orientation program and to assist our technical staff in managing their
career paths. We also intend to improve our scalable global information
systems, in order to more effectively manage client lead generation and
tracking, sales forecasting, project profitability and employee
utilization. We believe that these investments will provide a
foundation for the continued expansion of our client and revenue base.
The Tanning Approach
The Tanning Approach flows directly from the Tanning Difference--we are
business-value driven, architecture-based and deployment-focused. We emphasize
rigorous business alignment during our assessment and architecture phases, and
address critical performance and operational requirements during our
architecture and development phases to ensure successful system deployment and
operation.
The Tanning Approach is composed of distinct phases, and each phase can be
adapted to the unique needs and requirements of an individual project. Each
phase also builds upon the deliverables of the previous phase. Our approach is
designed to deliver business value rapidly, by delivering the results in
several successive installments, rather than committing to extended projects
where business deliverables are produced only at the end of a protracted period
of time. This approach is also flexible, because not all phases are required by
every project. The following diagram illustrates the Tanning Approach.
[GRAPHIC]
System
Development
Enterprise /
Assessment System Deployment Operational
Architecture Package Support
Component
Integration
Our clients typically engage us in one of two alternative project scenarios.
The first is a strategic initiative in which we are engaged to help architect,
develop and deploy a new high-value business solution. Strategic
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initiatives begin with an assessment and continue sequentially through the
phases of the Tanning Approach. The second is a "rescue mission," where the
client engages us to turn around a troubled or failed project. Typically, in
this type of situation, the system has been or is being constructed but is not
meeting the client's expectations. Rescue missions begin with an assessment,
but proceed through a modified version of the Tanning Approach that builds on
the useful work completed by the prior project effort, and proceeds to
emphasize those elements of the Tanning Approach that will successfully deploy
an improved solution. In a rescue mission, we will leverage the existing
information about the system, perform design reviews, and provide deployment
and operational support services to get the system into production.
Assessment
Every project begins with an assessment. Each assessment results in a clear
definition of the client's business problem, a set of recommendations and an
outline of the next steps as well as a statement of the project's contemplated
business benefits. The assessment and the presentation of its results to our
client are key entry level service offerings that enable us to demonstrate our
capabilities and serve as a platform for establishing a more extensive project
engagement and a continuing client relationship.
Assessments typically address one or more of the following:
. business case and business requirements;
. enterprise architecture;
. systems architecture;
. application design;
. development processes;
. integration testing processes;
. application migration considerations;
. deployment considerations; and
. operational readiness considerations.
Enterprise/system architecture
A well-defined architecture provides a critical foundation for the
successful definition, development, deployment and operation of information
technology systems. Enterprise architectures address the entire portfolio of
applications and technologies across the enterprise, while system architectures
address the more focused scope of a specific application or system. The
architecture is particularly critical when an iterative, phased approach for
development and deployment is used because it provides a rational framework for
each of the components and subsystems, as they are developed and deployed. A
well-defined architecture and technical framework greatly reduces the effort
and risk associated with the integration of components and subsystems because
each of the subsystems is integrated using proven interfaces and methods. We
deliver the architecture phase of the Tanning Approach to our clients either as
part of a specific application or solution project, or alternatively, as a
stand-alone engagement that addresses the entire enterprise architecture or
specific components of it.
An architecture is also more than just an inventory of vendors and
standards. It specifies all of the subsystems and components required to deploy
an effective information technology system. Further, this architecture defines
the dependencies and interfaces between the components and the functional,
operational and performance requirements of each subsystem and component.
The architecture phase of the Tanning Approach also focuses on identifying
and mitigating the major risks involved in the project. It can include building
proofs of concept for high-risk system components and new technologies.
Benchmarking may be performed to identify and resolve major system bottlenecks
for
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performance. Prototypes may also be developed to visualize key user scenarios,
functions or processes to make sure that there is consensus in their definition
and that the project is resolving the key business issues and delivering the
expected business value. Prototypes are also used to validate and test critical
components of the architecture. This phase also involves detailing aspects of
the architecture that need further definition before beginning component
development.
Phased development and product integration
This stage of the Tanning Approach is characterized by phased design,
development and testing of various individual components (including user and
system interfaces) of the final business solution. If software packages or
technology components will be integrated into the solution, then this phase
also includes their integration. The phased system components are typically
organized into releases that deliver meaningful business value in rapid time
frames. We use standard methodologies and tools to conduct and document the
design and development of system releases. Each system release goes through
integration testing, as part of our quality assurance, to ensure that the
components function properly as a complete system.
Deployment services
The deployment phase of the Tanning Approach is designed to ensure the
successful deployment of the completed software into the client's computing
environment where it will support real-world business activities. Deployment
addresses issues related to systems management, data center operations and
performance testing to ensure that the system will provide the performance
demanded by business users and defined in the system service level agreements.
Our deployment phase typically includes a period where any systems or
components being replaced are run in parallel with the new system to ensure
proper operation before converting to the exclusive use of the new system.
Operational support services
The operational support phase of the Tanning Approach gives clients the
opportunity to engage us for ongoing maintenance and support of applications
and systems. We can also provide both remote and local system administration to
ensure proper operation, maintenance and enhancement of systems.
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Client solutions
The following chart illustrates some of the solutions that we have created
for our clients.
Federal Express--a global overnight delivery service provider
<TABLE>
<S> <C> <C> <C>
Challenge: Enable Federal Express to more Solution: We worked with Federal Express to
efficiently manage the flow of develop a comprehensive intranet
millions of packages globally system for reporting measures of
package volume and flow
efficiency for its global package
delivery operations in a timely
manner. We created an online
transaction processing system
capable of handling 1,000
transactions per second on a one-
plus terabyte database. As a
result, Federal Express is able
to obtain information about the
performance of its package
delivery system in significantly
shorter timeframes (hours vs.
days).
</TABLE>
Blockbuster--the world's leading retail chain of video rental stores
<TABLE>
<S> <C> <C> <C>
Challenge: Help Blockbuster understand its Solution: We redesigned Blockbuster's
customer demographics and existing enterprise architecture
purchase patterns in order to and created a new system that
stock movies according to allows Blockbuster to assemble
regional tastes and to customer data and account
more accurately target customer activity information for over 40
promotions million customers and more than
6,000 stores. The system enables
Blockbuster to measure demand for
specific products at the single
store level and therefore to
predict minimum stock
requirements. As a result, the
system supports the ability of
Blockbuster to advertise "In
Stock Or It's Free."
</TABLE>
E*Trade--a leading online brokerage firm
<TABLE>
<S> <C> <C> <C>
Challenge: Assist E*Trade in building a Solution: We designed international
global brand by creating a extensions to E*Trade's domestic
standardized platform for its trading system, enabling support
international expansion for multiple languages and the
ability to handle diverse
character sets and content types.
We deployed this system in Sweden
as the first stage of E*Trade's
international expansion. The new
system can accommodate rapid
business growth because the
system architecture was designed
to handle significantly greater
numbers of transactions than
currently experienced by E*Trade.
The "look and feel" of the user
interface of the new system and
the set of features and functions
offered to the user are
standardized across different
countries to facilitate global
brand recognition.
</TABLE>
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Maersk Line--a leading worldwide ocean container transportation corporation
<TABLE>
<S> <C> <C> <C>
Challenge: Help Maersk Line improve customer Solution: We were engaged by Maersk Line to
service across over 400 offices develop an application
in architecture for their customer
nearly every country around the service applications as well as
world to establish an architecture for
future applications within Maersk
Line. We were subsequently
engaged to use that architecture
to design, develop and deploy new
customer service applications in
five phases over two and one-half
years. The solution facilitates
adoption of common customer
service procedures in Maersk Line
offices worldwide while enabling
regional and country specific
variations where necessary. The
solution was deployed to function
with their then-existing global
infrastructure. The first version
of this system was developed and
deployed within six months in
Asia, Africa, Europe and North
and South America. The second
phase of the system is under
development.
</TABLE>
Clients
The following is a representative list of our clients for 1998 and the
current year.
<TABLE>
<S> <C>
Ameritech Maersk Line
Ameritrade MCI WorldCom
Blockbuster MelDisco Footstar
BSkyB Oxford Health Plans
CableTel The Polk Company
CSX Technology Qwest
E*Trade R.R. Donnelley Financial
Energis TeleDanmark
Federal Express U S WEST
The Hartford
</TABLE>
In 1997, our five largest clients accounted for approximately 81% of our
services revenue, with Ameritech accounting for approximately 41% of our
services revenue and Oxford Health Plans accounting for approximately 23% of
our services revenue. In 1998, our five largest clients accounted for
approximately 70% of our services revenue, with Maersk Line accounting for
approximately 31% of our services revenue, U S WEST accounting for
approximately 12% of our services revenue and E*Trade and CSX Technology each
accounting for approximately 10% of our services revenue. In the first three
months of 1999, our five largest clients accounted for approximately 74% of our
services revenue, with Maersk Line accounting for approximately 31% of our
services revenue and U S WEST, E*Trade, and Ameritech each accounting for
approximately 12% of our services revenue. We believe that we will continue to
derive a significant portion of our revenue from a limited number of clients.
Any cancellation, deferral or significant reduction in work performed for these
principal clients or a significant number of smaller clients could have a
material adverse effect on our business, financial condition and results of
operations.
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Marketing and sales
We market and sell our services through multiple channels including our
sales force, long-term client relationships, relationships with industry
analysts, marketing events and public relations. We also cultivate
relationships with hardware and software suppliers such as IBM, Sun
Microsystems, Hewlett Packard and others to identify project opportunities
consistent with our capabilities and to provide us with client leads. For
example, some of these suppliers maintain sales forces in the hundreds and
thousands with a significant presence at large companies around the world.
These suppliers also introduce us to clients and assist in our efforts to
secure business opportunities. In return, we provide them with solution
capabilities, which are of high importance to their clients.
While our marketing channels and relationships with hardware and software
suppliers are used to generate business with new accounts, we also have an
organization of relationship managers who are responsible for managing
relationships with existing clients. Relationship managers seek to ensure
client satisfaction, the successful delivery of projects and are able to
identify additional opportunities for our services at a client site.
Competition
The information technology services business is intensely competitive and
subject to rapid technological change. We expect the competition to continue
and intensify. Our competitors fall into four major categories:
. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;
. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;
. Internet professional service providers, such as Modem Media . Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and
. internal information technology departments of current and potential
clients.
Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have.
In addition, there are low barriers to entry into our business. We do not
own any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent
or copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and to provide information technology
services are relatively low. Therefore, we expect to continue to face
additional competition from new entrants into our industry.
We believe that the principal competitive factors in our business are:
. client value and service;
. the reputation and experience of professionals delivering solutions;
. the success and reliability of the delivered solution;
. technical knowledge and creative skills; and
. the ability to attract and retain professionals.
We believe that we presently compete favorably with respect to each of these
factors. The market for our services is evolving, however, and we cannot be
certain that we will compete successfully in the future.
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Employees
As of June 30, 1999, we had 228 employees. We believe our relationship with
our employees is satisfactory. None of our employees is represented by a union.
Generally, our employees are retained on an at-will basis.
Intellectual property rights
Our success is dependent, in part, upon our proprietary processes,
components, and other intellectual property rights. We do not have any patents
or patent applications pending. We rely on a combination of trade secret,
nondisclosure and other contractual agreements, and copyright and trademark
laws, to protect our proprietary rights. Existing trade secret and copyright
laws afford us only limited protection. We enter into confidentiality
agreements with our employees, generally require that our consultants and
clients enter into similar agreements, and limit access to and distribution of
our proprietary information. In addition, we have entered into non-competition
agreements with certain of our key employees. There can be no assurance that
the steps we have taken in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights.
A portion of our business involves the development of software applications
for specific client engagements. Ownership of client-specific software is
generally retained by the client, although we retain some rights to the
applications, processes and intellectual property developed in connection with
client engagements.
Facilities
Our principal headquarters is located in Denver, Colorado and comprises
23,598 square feet. The lease for our headquarters expires in April 2000 and we
have the option to extend the term to April 2005. We are opening an
approximately 50,000 square-foot new headquarters in Denver, Colorado in the
third quarter of 1999. We also have offices in Phoenix, Arizona; Stamford,
Connecticut; Tampa, Florida; Atlanta, Georgia; Boston, Massachusetts; Portland,
Oregon; Chertsey, England; and Hyderabad, India. We do not own any real estate.
We do not consider any specific leased location to be material to our
operations, and we believe that equally suitable alternative locations are
available in all areas where we currently do business.
Legal proceedings
We are not a party to any pending material legal proceedings.
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MANAGEMENT
Directors and executive officers
The following table contains information regarding our executive officers
and directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Larry G. Tanning........ 52 Chairman of the Board, President and Chief Executive Officer
Bipin Agarwal........... 38 Director and Executive Vice President of Strategy, Planning and
New Ventures
Henry F. Skelsey........ 41 Director, Executive Vice President and Chief Financial Officer
John N. Piccone......... 39 Executive Vice President and Chief Operating Officer
P. Tracy Currie......... 37 Senior Vice President of International Operations
Louis A. D'Alessandro... 44 Vice President of Technical Services
Mark W. Tanning......... 46 Vice President of Human Resources and Administration
Philip A. Purver........ 40 Vice President of European Operations
Frederick H. Fogel...... 39 Vice President of Business Affairs and General Counsel*
Katherine L. Scherping.. 39 Treasurer and Director of Finance
Mark S. Whitfield....... 40 Corporate Controller
Toni S. Hippeli......... 51 Director
Christopher P. Mahan.... 32 Director
Joseph P. Roebuck....... 63 Director
Michael E. Shanahan..... 46 Director designee
</TABLE>
- --------
* Will take office upon completion of this offering.
Larry G. Tanning, a co-founder of Tanning, has been our Chairman of the
Board, President and Chief Executive Officer since January 1997 and served as
the President of our predecessor entities from July 1993. Mr. Tanning has a
B.S. degree in marketing from the University of Minnesota and a M.S. equivalent
degree in business management with the American Management Association in New
York, New York. Larry Tanning and Mark Tanning are brothers.
Bipin Agarwal, a co-founder of Tanning, has been our Executive Vice
President of Strategy, Planning and New Ventures since July 1999 and served as
our Senior Vice President of North American Consulting Operations since July
1998. He has been a director since our incorporation in January 1997. From
August 1997 until June 1998 he was our Senior Vice President of Business
Development and Architecture Practice. Mr. Agarwal was responsible for our
consulting services and those of our predecessors from July 1994 until August
1997. Mr. Agarwal has a M.S. degree in computer science from Roorkee
University, India.
Henry F. Skelsey has been our Executive Vice President and Chief Financial
Officer since September 1998. He has been a director since our incorporation in
January 1997. From March 1988 until August 1998, Mr. Skelsey was a Managing
Director of AEA Investors Inc., the parent of AEA Tanning Investors Inc., which
is a beneficial owner of our common stock. Since August 1998, Mr. Skelsey has
acted as a consultant to AEA Investors Inc. Mr. Skelsey is also a director of
Dal-Tile International Inc. and Rand McNally & Company. Mr. Skelsey has a
M.B.A. from the Darden School at the University of Virginia and a B.S. degree
in economics and finance from George Mason University.
John N. Piccone joined Tanning as our Vice President of Strategy and
Marketing in April 1999 and is now serving as our Executive Vice President and
Chief Operating Officer. From November 1993 until January 1999, Mr. Piccone
served as a Senior Vice President at Cambridge Technology Partners, an
information technology consulting services company. He was a member of
Cambridge Technology Partners's executive committee from October 1997 until
January 1999. Mr. Piccone has a B.S. degree in chemical engineering from the
Massachusetts Institute of Technology.
38
<PAGE>
P. Tracy Currie has been our Senior Vice President of International
Operations since July 1999 and served as our Vice President of International
since October 1998. Mr. Currie was our Vice President--Service Delivery from
May 1996 until October 1998. Mr. Currie was the Director of UNIX Computing at
McKesson Corporation, a healthcare company, from March 1995 until April 1996
and he was McKesson's Manager of Client Network Computing from August 1993
until March 1995. Mr. Currie has a B.S. degree in computer science engineering
from Montana State University.
Louis A. D'Alessandro has been our Vice President of Technical Services
since October 1997. Mr. D'Alessandro served as Vice President of Technology
Implementation at Fidelity Investments, a mutual fund company, from September
1996 until October 1997. He was the Eastern Region Consulting Manager at
Informix Software, a relational database manufacturing service company, from
February 1996 until September 1996. He was the National Director of Systems
Engineering at Pyramid Technology Corporation, a computer hardware
manufacturer, from October 1988 until January 1996. Mr. D'Alessandro has a B.S.
degree and a M.S. degree in computer science from the City University of New
York.
Mark W. Tanning has been our Vice President of Human Resources and
Administration since January 1997. He was the Director of Human Resources at HB
Fuller Company, a multinational specialty chemicals company, from July 1988
until December 1996 and the Director of International Human Resources at HB
Fuller from June 1986 until July 1988. Mr. Tanning has B.A. and M.A. degrees in
economics and business administration from the University of Minnesota. Mr.
Tanning also has a professional certification degree from the Wharton School
and has done post-graduate studies in industrial relations. Mark Tanning and
Larry Tanning are brothers.
Philip A. Purver has been our Vice President of European Operations since
March 1999. Mr. Purver served as Commercial Vice President--Europe at Cambridge
Technology Partners from December 1998 until March 1999 and Director of Sales--
Europe from December 1997 until December 1998. He was Cambridge Technology
Partners' Western European Director of Sales from October 1995 until December
1997. Mr. Purver was the Sales Director for Easel UK Limited, a software
development company, from August 1994 until October 1995. From 1993 until
August 1994, he was in charge of international business development at Legent
P.L.C., a software development company. Mr. Purver has a BSc. in mathematics
and geography from Exeter University, England.
Frederick H. Fogel will be joining us as Vice President of Business Affairs
and General Counsel upon completion of this offering. Mr. Fogel has been a
partner at the law firm of Fried, Frank, Harris, Shriver & Jacobson since 1992,
and was an associate at the firm from 1986 to 1992. Mr. Fogel will continue as
a partner at this law firm following this offering. Mr. Fogel has a J.D. and an
A.B. degree in philosophy from Harvard University.
Katherine L. Scherping has been our Treasurer and Director of Finance since
April 1999. Prior to that, she served as Director of Internal Reporting and
Technical Accounting at AT&T Broadband & Internet Services (formerly Tele-
Communications, Inc.), a television cable services provider, from April 1998
until April 1999. Ms. Scherping was the Corporate Controller at ADT Security
Services, Inc. (formerly Alert Centre Inc.), a security alarm monitoring
company, from January 1996 until September 1997. She was ADT's Treasurer from
July 1993 until January 1996. Ms. Scherping has a B.S. degree in accounting
from Northern Illinois University.
Mark S. Whitfield has been our Corporate Controller since May 1997. Mr.
Whitfield served as Director, Corporate Controller at St. Ives Laboratories
Inc., a manufacturer and distributor of personal care products, from June 1988
until November 1996. Mr. Whitfield has a B.A. degree in economics and public
relations from Syracuse University and a M.B.A. from California State
University.
Toni S. Hippeli, a co-founder of Tanning, has been with us since November
1994. She has been a Director since our incorporation in January 1997 and had
been a managing partner of our predecessor since
39
<PAGE>
January 1995. Ms. Hippeli has been the owner of Hippeli Enterprises, a business
and financial consulting firm and a beneficial owner of our common stock, since
December 1991. From October 1982 until selling the company to BMC Software in
July 1991, Ms. Hippeli was the co-founder and President of Integrity Solutions,
a mainframe computer software company. Ms. Hippeli has a B.A. degree in
psychology from the University of Colorado.
Christopher P. Mahan has been a Director since our incorporation in January
1997. Mr. Mahan has been a Principal at AEA Investors Inc. since December 1997
and has been associated with AEA Investors Inc. since August 1991. AEA
Investors Inc. is the parent of AEA Tanning Investors Inc., which is a
beneficial owner of our common stock. From August 1989 to August 1991, Mr.
Mahan was a consultant with Bain & Company, a management consulting company.
Mr. Mahan is also a Director of Rand McNally & Company. Mr. Mahan has a B.A.
degree in economics and history from Amherst College.
Joseph P. Roebuck has been a Director since April 1999. Mr. Roebuck has been
Vice President--Strategic Sales of Sun Microsystems Inc., a computer hardware
company, since November 1998. He was Vice President of Worldwide Sales at Sun
Microsystems from June 1990 until November 1998. Mr. Roebuck joined Sun
Microsystems in 1983 as the Vice President of Sales. Mr. Roebuck has a B.A. in
business administration from Cornell University.
Michael E. Shanahan will be joining our board of directors upon the
completion of this offering, and currently serves as a consultant to us.
Mr. Shanahan has been the Vice President of Football Operations for the Denver
Broncos, a National Football League franchise, since April 1999. He has been
the coach and general manager of the Broncos since January 1995. Mr. Shanahan
has a B.A. degree and a M.A. degree from Eastern Illinois University.
Stephen Brobst, a co-founder of Tanning, is a Tanning Fellow. Mr. Brobst
works with our clients on the development of technology strategies and systems
architectures. Mr. Brobst has taught graduate courses at Boston University and
the Massachusetts Institute of Technology in database design and parallel
computer architecture. He performed his Masters and Ph.D research at the
Massachusetts Institute of Technology in the area of load-balancing and
resource allocation for parallel computing architectures. He also holds a
M.B.A. with joint course and thesis work at the Harvard Business School and the
M.I.T. Sloan School of Management. He received a B.S. in electrical engineering
and computer science from the University of California at Berkeley and was
bestowed the Bechtel Engineering Award for academic excellence upon graduation.
Mr. Brobst is not currently an employee or an officer of our company.
Board of directors
Our board of directors is currently composed of six directors. We intend to
expand the board of directors to seven directors upon completion of this
offering. The new director will be Michael E. Shanahan.
We intend to amend our certificate of incorporation to divide the board of
directors into three classes: Class I, whose terms will expire at the annual
meeting of stockholders to be held in 2000, Class II, whose terms will expire
at the annual meeting of stockholders to be held in 2001, and Class III, whose
terms will expire at the annual meeting of stockholders to be held in 2002. The
initial Class I directors will be Toni S. Hippeli and Michael E. Shanahan. The
initial Class II directors will be Christopher P. Mahan and Joseph P. Roebuck.
The initial Class III directors will be Larry G. Tanning, Bipin Agarwal and
Henry F. Skelsey. At each annual meeting of stockholders beginning in 2000, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election.
In addition, our certificate of incorporation will provide that the
authorized number of directors may be changed only by resolution of the board
of directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.
40
<PAGE>
Holders of approximately 64% of the outstanding shares of our common stock
immediately following this offering are parties to an agreement under which
they have agreed to vote in favor of their nominees to our board of directors.
As a result of their voting power, they will have the ability to cause their
nominees to be elected. See "Certain Relationships and Transactions with
Related Parties--Stock Purchase Agreement, Shareholder Agreement and
Registration Rights Agreement."
Committees of the board of directors
Our committees consist of an audit committee and a compensation committee.
The audit committee recommends the annual appointment of our auditors with whom
the audit committee reviews the scope of audit and non-audit assignments and
related fees, accounting principles we use in financial reporting, internal
auditing procedures and the adequacy of our internal control procedures. During
1998, the audit committee was composed of Bipin Agarwal, Toni S. Hippeli and
Christopher P. Mahan. The compensation committee reviews and approves the
compensation and benefits for our employees, directors and consultants,
administers our employee benefit plans, authorizes and ratifies stock option
grants and other incentive arrangements and authorizes employment and related
agreements. During 1998, our compensation committee was composed of Larry G.
Tanning, Bipin Agarwal and Henry F. Skelsey, all of whom are employees of
Tanning.
Compensation of directors
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will not
receive a fee for attendance in person at meetings of our board of directors or
committees of our board of directors, but they will be reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with the
attendance of meetings. Directors who are not our employees or employees of AEA
Investors Inc. will be eligible to receive options to purchase our common stock
in connection with their appointment to our board of directors.
In connection with his election to the board of directors, we granted Mr.
Roebuck options to purchase 49,108 shares of our common stock at an exercise
price of $5.35 per share. Options to purchase 16,369 shares were immediately
exercisable and were exercised; the remaining options will vest over the next
four years.
In connection with his engagement as a consultant and his agreement to
become a director upon completion of this offering, we granted Mr. Shanahan
options to purchase 49,108 shares of our common stock at an exercise price of
$5.35 per share. Options to purchase 16,369 shares were immediately exercisable
and were exercised; the remaining options will vest over the next four years.
Executive officers
Our board of directors appoints our executive officers. Our executive
officers serve at the discretion of our board of directors.
Employment and non-competition agreements
We have entered into an employment agreement with Larry G. Tanning,
effective upon completion of this offering, providing for his employment as our
President and Chief Executive Officer. Pursuant to the agreement, Mr. Tanning
is entitled to an annual salary of $295,000, and is eligible to receive an
annual performance-based bonus determined by the compensation committee of the
board of directors, which for fiscal 1999 is based upon attainment of
performance targets involving the following: (1) global revenue, (2) global
earnings (before deductions for interest and taxes), (3) common stock price
appreciation, and (4) management and organizational objectives. For fiscal
1999, if we attain our target performance goals, Mr. Tanning's bonus will equal
approximately 55% of his base salary.
41
<PAGE>
If we terminate Mr. Tanning's employment without cause (as defined in the
employment agreement) or we constructively terminate (as defined in the
employment agreement) Mr. Tanning's employment, we are required to pay
Mr. Tanning (1) any unpaid portion of his annual salary earned through the date
of termination, (2) the annual bonus for the fiscal year immediately preceding
the fiscal year of termination to the extent not already paid and a pro rata
portion of the annual bonus for the fiscal year of termination, and (3) during
a period of twelve months following termination, an amount equal to his annual
salary at the time of termination. In addition, Mr. Tanning (and each other
currently employed Named Executive Officer, as defined below in "--Executive
compensation," and certain other employees) is entitled to a gross-up payment
in the event he is subject to a federal excise tax resulting from payments or
benefits received in connection with a change in control of our company. Mr.
Tanning is also subject to customary non-competition, non-solicitation and non-
disclosure covenants.
We have entered into an employment agreement with Bipin Agarwal effective
upon completion of this offering. Pursuant to the agreement, Mr. Agarwal is
entitled to an annual salary of $275,000, and is eligible to receive an annual
performance-based bonus determined by the compensation committee of the board
of directors, which for fiscal 1999 is based upon attainment of performance
targets involving the following: (1) global revenue, (2) global earnings
(before deductions for interest and taxes), (3) common stock price
appreciation, and (4) management and organizational objectives. For fiscal
1999, if we attain our target performance goals, Mr. Agarwal's bonus will equal
approximately 55% of his base salary.
If we terminate Mr. Agarwal's employment without cause (as defined in the
employment agreement) or we constructively terminate (as defined in the
employment agreement) Mr. Agarwal's employment, we are required to pay to Mr.
Agarwal (1) any unpaid portion of his annual salary earned through the date of
termination, (2) the annual bonus for the fiscal year immediately preceding the
fiscal year of termination to the extent not already paid and a pro rata
portion of the annual bonus for the fiscal year of termination, and (3) during
a period of twelve months following termination, an amount equal to his annual
salary at the time of termination. Mr. Agarwal is also subject to customary
non-competition, non-solicitation and non-disclosure covenants.
We have entered into an employment agreement with P. Tracy Currie dated June
1, 1997. Pursuant to the agreement, Mr. Currie is entitled to an annual salary
of $250,000, and is eligible to receive an annual bonus of between 13% and 80%
of his annual salary upon attainment of performance goals, which is based upon
attainment of performance targets involving the following: (1) revenue, and (2)
earnings (before deductions for interest, taxes, depreciation and
amortization). If we attain 100% of our target performance goals for a fiscal
year, Mr. Currie's bonus for that fiscal year will equal approximately 55% of
his base salary. Pursuant to the agreement, Mr. Currie was granted an option to
acquire 70,389 shares of common stock at a purchase price of $2.90 per share.
One-fourth of the shares subject to the option vested on each of June 1, 1997,
February 1, 1998, and February 1, 1999. The remaining one-fourth is scheduled
to vest on February 1, 2000.
If we terminate Mr. Currie's employment without cause (as defined in the
employment agreement) or we constructively terminate (as defined in the
employment agreement) Mr. Currie's employment after he completes one year of
continuous service, we are required to provide to Mr. Currie nine months of
annual base salary and benefits coverage continuation and the post-termination
period during which Mr. Currie will be subject to non-competition and non-
disclosure provisions will be reduced from one year to nine months. If we
terminate Mr. Currie's employment without cause or we constructively terminate
Mr. Currie's employment after three years of continuous service or after a
change in control of our company, we are required to provide to Mr. Currie one
year of base salary and benefits coverage continuation. The employment
agreement also contains customary non-competition, non-solicitation and non-
disclosure covenants.
We have also entered into an employment and expatriate assignment agreement
with Mr. Currie dated November 15, 1998, specifying the terms and conditions of
his employment while on an expatriate assignment in London, England. Pursuant
to the expatriate agreement, Mr. Currie is entitled to the same base salary and
bonus schedule as under his employment agreement, and he is entitled to
additional compensation primarily to make up for cost of living differentials
while working in London.
42
<PAGE>
We have entered into an employment agreement with Louis A. D'Alessandro
dated February 1, 1999. Pursuant to the agreement, Mr. D'Alessandro is entitled
to an annual salary of $175,000, and for fiscal 1999 is eligible to receive an
annual bonus of between 16% and 87% of his annual salary upon attainment of
performance goals, which for fiscal 1999 is based upon attainment of
performance targets involving the following: (1) domestic revenue, (2) domestic
technical services cost as a percentage of revenue, (3) domestic earnings
(before deductions for interest and taxes), and (4) management and
organizational objectives. Mr. D'Alessandro is guaranteed a minimum bonus of
$48,125 for 1999.
Under the agreement, Mr. D'Alessandro was granted an option to acquire
16,369 shares of our common stock at a per share purchase price of $3.82, which
vest over four years based on continuous employment. Mr. D'Alessandro was also
granted an option to acquire 91,669 shares of common stock at a per share
purchase price of $3.82, which vest (up to a maximum of 19,643 shares in each
of 1999 and 2000 and 52,382 shares in 2001, subject to further vesting over
time) based upon Mr. D'Alessandro's attainment of the performance goals on
which his cash bonus is based. Whether or not vested based on the attainment of
performance goals, all of the performance-based options will become exercisable
based on continued employment on December 1, 2003. The employment agreement
also contains customary non-competition, non-solicitation, and non-disclosure
covenants.
We have entered into a separation agreement and release with Tom Stack dated
May 14, 1999, providing for his resignation from our company. Pursuant to the
agreement, Mr. Stack will continue to receive his 1999 base salary and
commission draw, and will receive benefits continuation, in each case, through
January 31, 2000, and a one-time lump-sum payment of $10,000. Mr. Stack will
continue through November 17, 2001 to vest in options to purchase shares of our
common stock that he presently holds (at which time he is scheduled to have
completed the vesting requirements for 57,293 shares), on the condition that he
complies with various non-competition, non-solicitation and related covenants.
If the options so vest, Mr. Stack will be eligible to exercise his vested stock
options through November 17, 2002.
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<PAGE>
Executive compensation
The table below summarizes information concerning the compensation paid by
Tanning during 1998 to Tanning's Chief Executive Officer and Tanning's four
other most highly paid executive officers, who are collectively defined as the
"Named Executive Officers":
Summary compensation table
<TABLE>
<CAPTION>
Annual compensation
-----------------------
Other Annual Securities LTIP All other
Name and principal position Salary Bonus Compensation underlying options payouts compensation(1)
- --------------------------- ---------- --------- ------------ ------------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning......... $ 480,000(2) $ 28,720 -- -- -- $2,467
Chairman of the Board,
President and Chief
Executive Officer
Bipin Agarwal ........... $ 450,000(2) -- -- -- -- $ 955
Director and Senior Vice
President of Consulting
Operations--North
America
P. Tracy Currie.......... $ 250,000 $ 24,000 $60,606(3) 384,682 $30,000(4) $2,130
Vice President--
International
Louis A. D'Alessandro.... $ 160,000 $ 69,452 $25,235(5) 157,147 -- $ 480
Vice President--
Technical Services
Thomas J. Stack(6)....... $ 268,239(7) $ 35,000 -- 91,669(8) -- $ 300
Vice President--Western
Regional Sales
</TABLE>
- --------
(1) Represents group term life insurance premiums paid by us.
(2) Mr. Tanning and Mr. Agarwal have agreed to reduce their annual salary to
$295,000 and $275,000, respectively, effective upon completion of this
offering. See "--Employment and non-competition agreements."
(3) Includes a $21,975 housing allowance for local housing while on expatriate
assignment in London, England. See "--Employment and non-competition
agreements."
(4) Represents an amount paid in connection with meeting time deadlines for a
project engagement covering performance over fiscal years 1997 and 1998.
(5) Includes $23,000 paid to Mr. D'Alessandro by us as reimbursement for
closing costs and other expenses incurred by Mr. D'Alessandro, in
connection with the sale of a home in Boston, Massachusetts and the
purchase of a home in Denver, Colorado.
(6) Mr. Stack is no longer employed by us. See "--Employment and non-
competition agreements."
(7) Includes $108,239 in sales commissions.
(8) In connection with Mr. Stack's resignation, 58,930 of these options were
canceled.
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<PAGE>
Option grants in fiscal 1998
The following table sets forth information regarding stock options granted
during 1998 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants
---------------------------------------------------
Potential realized value
at assumed annual
Number of Percent of rates of stock
securities total options price appreciation
underlying granted to Exercise or for option term
options employees base price Expiration -------------------------
Name granted in fiscal 1998 (per share)* date 5% 10%
- ---- ---------- -------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning........ -- -- -- -- -- --
Bipin Agarwal........... -- -- -- -- -- --
P. Tracy Currie......... 57,293(1) 1.5% $3.82 06/08/08 $ 137,639 $ 348,805
327,389(2) 8.5 3.82 07/23/08 786,512 1,993,176
Louis A. D'Alessandro... 49,108(3) 1.3 3.82 06/08/08 117,976 298,974
108,038(4) 2.8 3.82 12/01/08 259,548 657,746
Thomas J. Stack......... 32,739(5) 0.9 3.82 06/08/08 78,651 199,318
58,930(6) 1.5 3.82 N/A -- --
</TABLE>
- --------
* The stock option exercise price was established based on the fair market
value of the underlying common stock, as determined by our board of
directors, taking into account the price per share we received in sales of
our common stock to the TTC Investors Group made in proximity to the time of
these option grants.
(1) One-fourth of the shares subject to the option vested on the date of grant
and on June 9, 1999. One-fourth of the shares subject to the option are
scheduled to vest on June 9, 2000 and 2001, respectively.
(2) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
July 24, 1999, 2000 and 2001, respectively.
(3) One-fourth of the shares subject to the option vested on the date of grant
and on June 9, 1999. One-fourth of the shares subject to the option are
scheduled to vest on June 9, 2000 and 2001, respectively.
(4) Sixteen thousand three hundred sixty-nine of the shares subject to the
option vest solely on the basis of employment with our company (4,092 on
December 1, 1999, 2000, 2001 and 2002, respectively). Up to 19,643 of the
shares subject to the option vest based upon the attainment of performance
goals in 1999. Of those shares that become performance-vested, one-fourth
become time-vested on December 1, 1999, 2000, 2001 and 2002, respectively.
Up to 19,643 of the shares subject to the option vest based upon the
attainment of performance goals in 2000. Of those shares that become
performance vested, one-fourth become time-vested on December 1, 2000,
2001, 2002 and 2003, respectively. Up to 52,382 of the shares subject to
the option vest based upon the attainment of performance goals in 2001. Of
those shares that become performance-vested, one-fourth become time-vested
on December 1, 2001, 2002, 2003 and 2004, respectively. Whether or not
vested based on the attainment of performance goals, all of the
performance-based options will become exercisable based on continued
employment on December 1, 2003.
(5) In connection with Mr. Stack's resignation, Mr. Stack will continue to vest
in these options through November 17, 2001, on the condition that he
complies with various non-competition, non-solicitation and related
covenants during the vesting period.
(6) In connection with Mr. Stack's resignation, these options were canceled.
45
<PAGE>
Aggregate option exercises in fiscal 1998 and fiscal year-end option values
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
December 31, 1998.
There was no public trading market for our common stock at December 31,
1998. Accordingly, these values of exercisable and unexercisable in-the-money
options have been calculated on the basis of the fair market value of our
common stock at December 31, 1998 ($3.82 per share) as determined by our board
of directors, less the applicable exercise price per share multiplied by the
number of shares underlying the options.
<TABLE>
<CAPTION>
Value of unexercised
Number of securities in-the-money
underlying unexercised options at
Shares options at fiscal year-end fiscal year-end
acquired on Value --------------------------------- -------------------------
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning........ -- -- -- -- -- --
Bipin Agarwal........... -- -- -- -- -- --
P. Tracy Currie......... -- -- 131,365(1) 323,706(2) $32,378 $32,378
Louis A. D'Alessandro... -- -- 40,923(3) 165,331(4) 22,590 22,590
Thomas J. Stack......... -- -- 14,323(5) 101,900(6) 5,647 16,943
</TABLE>
- --------
(1) The per share exercise price of these options was $2.90 for options to
acquire 35,194 shares of common stock, and $3.82 for options to acquire
96,171 shares of common stock.
(2) The per share exercise price of these options was $2.90 for options to
acquire 35,194 shares of common stock, and $3.82 for options to acquire
288,512 shares of common stock.
(3) The per share exercise price of these options was $2.90 for options to
acquire 24,554 shares of common stock, and $3.82 for options to acquire
16,369 shares of common stock.
(4) The per share exercise price of these options was $2.90 for options to
acquire 24,554 shares of common stock, and $3.82 for options to acquire
140,777 shares of common stock.
(5) The per share exercise price of these options was $2.90 for options to
acquire 6,138 shares of common stock, and $3.82 for options to acquire
8,185 shares of common stock.
(6) The per share exercise price of these options was $2.90 for options to
acquire 18,416 shares of common stock, and $3.82 for options to acquire
83,484 shares of common stock. In connection with Mr. Stack's resignation,
58,930 of these options with an exercise price of $3.82 per share were
canceled.
Tanning Technology Corporation 1997 and 1998 Stock Option Plans
We have previously adopted the Tanning Technology Corporation 1997 Stock
Option Plan and the Tanning Technology Corporation 1998 Stock Option Plan. The
1997 and 1998 Stock Option Plans provide for the granting of nonqualified stock
options to our key employees, officers, independent contractors and directors.
As of the completion of this offering, 7,521,600 shares of common stock will be
subject to options outstanding under the 1997 and 1998 Stock Option Plans.
After this offering, we will not make any further grants under these plans.
The following is a summary description of these plans.
Overview
The 1997 and 1998 Stock Option plans provide our key employees, officers,
independent contractors and directors with an opportunity to purchase our
shares of common stock. The purpose of the 1997 and 1998 Stock Option Plans is
to retain the services of the optionees and to incentivize them to devote
maximum efforts to our success and to align their interests with those of our
stockholders.
46
<PAGE>
Administration
The 1997 and 1998 Stock Option Plans are administered by a committee of the
board of directors that consists of at least two directors. Generally, the
committee (1) selects those persons to whom options will be granted, and (2)
determines the terms and conditions of options, including the purchase price
per share, the vesting provisions, and the term of the option. The committee
interprets the plan and its determinations are final.
Eligible individuals
Our current and future key employees, officers, independent contractors and
directors are eligible to participate in the 1997 and 1998 Stock Option Plans.
There are 254 individuals who hold options granted under the 1997 and 1998
Stock Option Plans.
Option terms generally
Each option is evidenced by an agreement between us and an optionee. Unless
the applicable agreement permits otherwise, 25% of the shares subject to the
option vest on each of the first four anniversaries of the grant date. The
purchase price for shares acquired pursuant to the exercise of an option must
be paid in full concurrently with the exercise of the option. The purchase
price may be paid in cash, or the equivalent thereof as determined by the
committee.
Except as otherwise permitted by the committee in respect of transfers to
certain family members, options are not transferable except by will or the laws
of descent and distribution.
In the event of certain change in control transactions, each outstanding
option vests and becomes fully exercisable immediately prior thereto. In
connection with any such transaction, we have the right to cancel options which
have not been exercised or convert options into the right to receive the
consideration paid per share in such transaction less the per share exercise
price of the option.
Termination of employment
Unless the committee determines otherwise, unvested options are forfeited on
the date of termination of employment, of service on the board of directors, or
of service as an independent contractor, and, generally, vested options expire
90 days from the date of such termination. If the optionee is terminated with
cause, the committee may determine, within a period of 60 days from the date of
such termination, to terminate any or all options granted to the optionee.
No additional rights
An optionee does not have any rights to the underlying shares until the
option is properly exercised. The 1997 and 1998 Stock Option Plans do not limit
in any way our right to terminate anyone's employment. It is also not evidence
of any agreement or understanding that we will employ any person at any
particular rate of compensation or for any particular period of time.
Income tax withholding
When an optionee recognizes taxable income in connection with the receipt of
shares under the 1997 and 1998 Stock Option Plans, the optionee must pay us an
amount equal to the federal, state and local income taxes and other amounts as
may be required by law to be withheld by us prior to the issuance. We may
deduct from any payment an amount equal to the withholding taxes in
satisfaction of an optionee's obligation to pay withholding taxes.
47
<PAGE>
Adjustments upon change in capitalization
In the event of certain changes in capitalization, the committee, in its
sole discretion, may adjust the maximum number of shares with respect to which
options may be granted under the 1997 and 1998 Stock Option Plans, the number
of shares which are subject to outstanding options and the purchase price
therefor.
Amendment and termination
Each plan terminates on the tenth anniversary of the date of its adoption.
The board of directors or the committee may at any time and from time to time
suspend, discontinue, revise or modify the 1997 or 1998 Stock Option Plan.
However, no such action may adversely alter any outstanding options without the
consent of the optionee.
Tanning Technology Corporation 1999 Employee Stock Purchase Plan
Prior to the completion of this offering, we will adopt the Tanning
Technology Corporation 1999 Employee Stock Purchase Plan. We intend to
administer the plan so that it qualifies as an employee stock purchase plan
under Section 423 of the Internal Revenue Code. The maximum number of shares of
common stock available for awards under the 1999 Employee Stock Purchase Plan
is 1 million.
The purpose of the plan is to strengthen our company by providing our
employees and our subsidiaries' employees the opportunity to acquire a
proprietary interest in our company through the purchase of shares of our
common stock at a discount. These purchases will be funded primarily through
regular payroll deductions of up to 15% of a participant's gross cash wages for
each pay period during an offering period. Each full-time employee may
participate in the plan. An offering period to purchase shares of our common
stock will begin on the date on which Tanning and the underwriters agree on the
price per share in this offering and end on December 31, 1999. The maximum
number of shares of common stock that a participant may purchase during this
offering period is 1,000. Thereafter, offering periods generally will commence
on each January 1 and July 1.
On the first day of each offering period, each participant is deemed to have
been granted an option to purchase a number of shares of common stock. The
funds used to purchase the shares will equal a percentage designated by the
participant (between 1 and 15 percent) of his gross cash wages during such
offering period plus additional employee contributions as may be permitted by
Tanning. The purchase price for such shares will be the lower of 85% of the
fair market value of the shares on the first day and the last day of the
offering period. Each participant will automatically purchase shares on the
last day of the offering period.
A participant may reduce the percentage of payroll deductions once during an
offering period. A participant may discontinue payroll deductions at any time
during an offering period. If a participant discontinues payroll deductions, he
may request that amounts previously withheld be returned without interest.
The plan will be administered by the compensation committee of the board of
directors. Its determinations will be conclusive and binding. The board of
directors may amend or terminate the plan at any time; however, no such
amendment or termination may adversely effect outstanding options. Termination
of the plan will cause the termination of the then current offering period.
Tanning Technology Corporation 1999 Stock Option Plan
Prior to completion of this offering, we will adopt the Tanning Technology
Corporation 1999 Stock Option Plan.
The 1999 Stock Option Plan provides for the granting of incentive stock
options to our employees and nonqualified stock options to our employees,
consultants and directors. The maximum number of shares of common stock
available for awards under the 1999 Stock Option Plan is 5 million. As of the
completion of this offering, 878,221 shares of common stock will be subject to
options outstanding under the 1999 Stock Option Plan.
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The following is a summary description of the 1999 Stock Option Plan.
Overview
The 1999 Stock Option Plan provides our employees, consultants and directors
with an opportunity to purchase our shares. The purpose of the plan is to
retain the services of the optionees and to incentivize them to devote maximum
efforts to our success and to align their interests with those of our
stockholders.
Administration
The 1999 Stock Option Plan will be administered by a committee of the board
of directors that consists of at least two non-employee members. The
compensation committee of the board of directors is expected to serve as the
committee.
Generally, the committee (1) will select those persons to whom options will
be granted, and (2) will determine the terms and conditions of options,
including the purchase price per share and the vesting provisions. The
committee will interpret the plan and its determinations will be final. The
committee will have the authority to make amendments or modifications to
outstanding options consistent with the plan's terms.
Eligible individuals
Any of our current or future employees, consultants or directors will be
eligible to participate in the 1999 Stock Option Plan. Substantially all of our
employees are currently eligible to participate in the plan.
Shares subject to the 1999 Stock Option Plan
The maximum number of shares available for the granting of options under the
1999 Stock Option Plan is 5 million. The maximum number of shares that an
eligible individual may receive in respect of options granted in any calendar
year is 1 million. If any option is exercised by tendering shares, either
actually or by attestation as full or partial payment of the exercise price,
the maximum number of shares available under the plan will be increased by the
number of shares so tendered. Whenever any outstanding option expires, is
canceled, is settled in cash or is otherwise terminated without having been
exercised, the shares allocable to the expired, canceled, settled or otherwise
terminated portion of the option may again be the subject of an option grant.
Options will be designated as either incentive stock options, or ISOs, which
are intended to qualify for special tax treatment, or nonqualified stock
options. No employee may receive ISOs in respect of more than 1 million shares
of common stock. The per share exercise price of any option will be fixed by
the committee at the time the option is granted. The per share exercise price
of any ISO may not be less than 100% of the fair market value on the date the
option is granted or 110% in the case of an ISO granted to a 10% stockholder.
Each option is exercisable at such dates and in such installments as determined
by the committee. Each option will be for a term will be determined by the
committee.
Except as otherwise determined by the committee, options will not be
transferable except by will or the laws of descent and distribution.
The purchase price for shares acquired pursuant to the exercise of an option
must be paid in full concurrently with the exercise of the option. The purchase
price may be paid in cash, or as otherwise determined by the committee.
In the event of a merger of Tanning with or into another corporation, or the
sale of substantially all of our assets, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
parent or subsidiary of the successor corporation; provided, however, that,
unless otherwise determined by the committee, the options shall remain subject
to all of the conditions, restrictions and performance criteria which were
applicable to such options prior to such assumption or substitution. In the
event that the successor corporation refuses to or otherwise does not assume
the option or substitute an
49
<PAGE>
equivalent option, the optionee shall have the right to exercise the option as
to all of the shares subject to the option, including shares as to which it
would not otherwise be exercisable. In the event the option becomes so
exercisable or the committee otherwise determines to accelerate the
exercisability of an option in connection with any transaction involving our
company, the committee may, in its sole discretion, authorize the redemption of
the option for consideration payable per share subject to the option equal to
the excess of the consideration payable per share in connection with the
transaction over the exercise price per share of the option. If an option is
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, our company's secretary shall notify the optionee that the
option shall be fully exercisable for a period of fifteen (15) days (or such
other period as shall be determined by the committee) from the date of such
notice, and the option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the option shall be considered assumed if,
following the merger or sale of assets, the option confers the right to
purchase or receive, for each share subject to the option immediately prior to
the merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets for each share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares).
Termination of employment
Each option agreement will set forth the terms and conditions applicable to
the option upon a termination of employment of the optionee.
No additional rights
An optionee will not have any rights to the underlying shares until the
option is properly exercised. The 1999 Stock Option Plan does not give any
person any rights with respect to shares except as provided in the plan. The
plan does not limit in any way our right to terminate anyone's employment. It
is also not evidence of any agreement or understanding that we will employ any
person at any particular rate of compensation or for any particular period of
time.
Income tax withholding
When an optionee recognizes taxable income in connection with the receipt of
shares under the 1999 Stock Option Plan, the optionee must pay us an amount
equal to the federal, state and local income taxes and other amounts as may be
required by law to be withheld by us prior to the issuance of such shares. We
may deduct from any payment an amount equal to the withholding taxes in
satisfaction of an optionee's obligation to pay withholding taxes. If permitted
by the committee, in satisfaction of the obligation to pay withholding taxes,
the optionee may elect to have withheld a portion of the shares then issuable
to him or her having an aggregate fair market value equal to the withholding
taxes.
Adjustments upon change in capitalization
In the event of a change in capitalization, the committee will adjust the
maximum number and class of shares or other stock or securities with respect to
which options may be granted under the 1999 Stock Option Plan or to any
eligible individual in any calendar year and the number and class of shares or
other stock or securities which are subject to outstanding options and the
purchase price therefor.
Effect of liquidation
In the event of our liquidation, the 1999 Stock Option Plan and the related
options issued will continue in effect in accordance with their respective
terms. Following such a liquidation, each optionee will be entitled to receive
in respect of each share subject to any outstanding option, upon the exercise
of the option, the same number and kind of stock, securities or other
consideration that each holder of a share was entitled to receive in the
liquidation in respect of a share; provided that such stock, securities or
other consideration will remain subject to all of the provisions which were
applicable to the option prior to such liquidation.
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Pooling transactions
In the event of a transaction which is intended to constitute a pooling
transaction, we may take such actions as are specifically recommended by an
independent accounting firm to the extent reasonably necessary to assure that
the transaction will qualify as a pooling transaction. These actions may affect
the terms and conditions of awards under the 1999 Stock Option Plan.
Multiple agreements
The terms of any option under the 1999 Stock Option Plan will be set forth
in an agreement between us and the optionee.
Amendment and termination
The 1999 Stock Option Plan terminates on the day preceding the tenth
anniversary of its adoption. The board of directors or the committee may at any
time and from time to time amend, modify, suspend or terminate the 1999 Stock
Option Plan. However, no such amendment, modification, suspension or
termination may adversely alter any outstanding options without the consent of
the optionee. In addition, amendments may require stockholder approval.
Federal income tax consequences applicable to 1997, 1998 and 1999 Stock Option
Plans
In general, an optionee will not recognize taxable income upon the grant or
exercise of an ISO and we will not be entitled to any business expense
deduction. However, upon the exercise of an ISO, the excess of the fair market
value on the date of exercise of the shares received over the exercise price of
the option will be treated as an adjustment to alternative minimum taxable
income (unless the shares are sold in the same taxable year as exercise). In
order for the exercise of an ISO to qualify as an ISO, an optionee generally
must be an employee of Tanning or a subsidiary from the date the ISO is granted
through the date three months before the date of exercise or one year preceding
the date of exercise in the case of an optionee whose employment is terminated
due to disability. The employment requirement does not apply where an
optionee's employment is terminated upon death.
If an optionee held the shares acquired upon exercise of an ISO for more
than two years after the date of grant and for more than one year after the
date of exercise, when the optionee disposes of the shares, the difference, if
any, between the sales price of the shares and the exercise price of the option
will be treated as long-term capital gain. If an optionee disposes of the
shares prior to satisfying these holding period requirements, the optionee will
recognize ordinary income at the time of the sale, generally in an amount equal
to the excess of the fair market value of the shares at the time of exercise
over the exercise price of the option. The balance of any gain realized will be
short-term or long-term capital gain. If the optionee sells the shares prior to
satisfying the holding period requirements at a price below fair market value
at the time the option was exercised, the amount of ordinary income will be
limited to the amount realized on the sale over the exercise price of the
option. In general, if we comply with applicable income reporting requirements,
we will be allowed a business expense deduction to the extent an optionee
recognizes ordinary income.
In general, an optionee who receives a nonqualified stock option will not
recognize income at the time of the grant of the option. Upon exercise of a
nonqualified stock option, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. The basis in the shares
acquired upon exercise of a nonqualified stock option will equal fair market
value of such shares at the time of exercise. The holding period of the shares
for capital gain purposes will begin on the date of exercise. In general, if we
comply with applicable income reporting requirements, we will be entitled to a
business expense deduction in the same amount as the optionee recognizes
ordinary income. In the event of a sale of the shares received upon the
exercise of a nonqualified stock option, any appreciation or depreciation after
the exercise date generally is taxed as capital gain or loss. However, any gain
will be subject to reduced tax rates if the shares were held for more than
twelve months.
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This discussion assumes that at the time of exercise, the sale of the shares
would not subject an optionee to liability under Section 16(b) of the Exchange
Act. Special rules may apply with respect to persons who may be subject to
Section 16(b). Optionees who are or may become subject to Section 16(b) should
consult with their own advisors.
Excise taxes
Under certain circumstances, the accelerated vesting or exercise of options
in connection with a change in control of Tanning may be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Internal Revenue Code. To the extent it is so considered,
an optionee may be subject to a 20% excise tax and we may be denied a tax
deduction. The currently employed Named Executive Officers and certain other
employees are entitled to a gross-up payment in the event that they are subject
to a federal excise tax resulting from payments or benefits received in
connection with a change in control of our company.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES
Stock Purchase Agreement, Shareholder Agreement and Registration Rights
Agreement
Tanning, Tanning's founders, and the TTC Investors Group are parties to a
stock purchase agreement dated as of December 24, 1996, as amended. Under this
agreement, the TTC Investors Group purchased an aggregate of 5,696,770 shares
of our common stock for an aggregate consideration of $14.6 million.
Larry G. Tanning, Bipin Agarwal, Toni Hippeli and entities controlled by
them, together with the TTC Investors Group, have entered into an amended and
restated shareholder agreement dated as of July 20, 1999, which provides, among
other things:
. the TTC Investors Group may nominate one director to Class II of our
board of directors;
. Tanning Family Partnership, L.L.L.P., which is indirectly controlled by
Larry G. Tanning, and WinSoft Corporation, which is controlled by Bipin
Agarwal, each may nominate one director to any class of our board of
directors;
. the TTC Investors Group may appoint one member to each of the audit and
compensation committees; and
. all of the parties to the shareholder agreement have agreed to vote the
shares of common stock owned by them in favor of each other's nominees.
If there are insufficient vacancies in a particular class of directors, the
available positions shall be allocated first to the nominee of the TTC
Investors Group (as to Class II only), second to the nominee of Tanning Family
Partnership, L.L.L.P., and third to the nominee of WinSoft Corporation. The
rights of each person mentioned above will terminate when such person no longer
owns at least ten percent of our common stock.
The parties to the stock purchase agreement and affiliated entities,
together with Mr. Skelsey, have entered into an amended and restated
registration rights agreement dated as of July 20, 1999, which provides, among
other things:
. the TTC Investors Group has the right to require the filing of a total
of two registration statements with the SEC to register for sale shares
of our common stock owned by it;
. holders of a majority of the shares of our common stock held by
Tanning's founders and Mr. Skelsey have the right to require the filing
of one registration statement with the SEC during any twelve month
period to register for sale shares of our common stock owned by them;
. Tanning has the right to participate in any of the registrations
described above and sell shares of its common stock under such
registration to the extent of 25% of the shares to be sold in the
offering; and
. all parties to the registration rights agreement have rights to
participate in registration statements filed by Tanning for the sale of
common stock in an underwritten offering for its own account, subject to
the ability of the underwriters to limit the number of shares included
in the registration and giving priority to issuances by Tanning.
The existence and exercise of these registration rights may make it more
difficult for us to arrange future financing and may have an adverse effect on
the market price of our common stock.
Loans to our directors and officers
Upon completion of this offering, we will lend on a recourse basis to each
of Larry G. Tanning and Bipin Agarwal $250,000. These loans were entered into
in connection with a significant reduction in the compensation of Messrs.
Tanning and Agarwal pursuant to their revised employment agreements. The loans
will bear interest at the lowest rate permitted by the IRS to avoid the
imputation of interest income. The principal and all accrued interest on the
loans will be repayable after two years.
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Financing arrangements with one of our directors
In 1996 and 1997, we repaid approximately $490,000 of remaining principal on
notes evidencing financing arrangements entered into in 1995 with Hippeli
Enterprises, Inc., Toni S. Hippeli Unitrust and V. Jerome Nickerson Unitrust.
Toni S. Hippeli, one of our directors and the managing member of our
predecessor, owns 50% of the capital stock of Hippeli Enterprises, Inc., and V.
Jerome Nickerson, Ms. Hippeli's husband, owns the remaining 50%. Hippeli
Enterprises, Inc., is a significant stockholder of Tanning. Ms. Hippeli and Mr.
Nickerson are co-trustees of both Toni S. Hippeli Unitrust and V. Jerome
Nickerson Unitrust.
Agreements with family members of our directors and officers
In connection with an agreement entered into between our company and Mr.
Nickerson as of January 1997, Mr. Nickerson received a commission on the sale
of a software product by one of our subsidiaries in the amount of approximately
$100,000, of which approximately $85,000 has been paid, and $15,000 of which
will be paid between now and September 1, 2000. In addition, Mr. Nickerson also
received approximately $18,000 in wage compensation in 1998.
We have employed Adesh Gupta, a brother-in-law of Bipin Agarwal, as a
Practice Leader since January, 1997 and as a Consultant from October 1994 until
January 1997. Mr. Agarwal is one of our directors and our Senior Vice President
of Consulting Operations--North America, and also controls WinSoft Corporation,
which is a significant stockholder of Tanning. In 1998, Mr. Gupta received
approximately $245,000 in compensation.
On April 7, 1997, we granted Mr. Gupta an option to acquire 327,389 shares
of our common stock at a per share purchase price of $2.90 per share. Of these
options, 245,542 vested upon the grant, 16,369 vested on April 7, 1998, 32,739
vested on April 7, 1999 and the remaining 32,739 will vest on April 7, 2000. On
June 9, 1998, we granted Mr. Gupta an additional option to acquire 65,478
shares of our common stock at a per share purchase price of $3.82 per share.
One-fourth of the shares subject to this option vested on June 9, 1999, and the
remaining three-fourths will vest in equal installments on each of June 9,
2000, 2001 and 2002.
Mark W. Tanning, brother of Larry G. Tanning, has served as our Vice
President--Human Resources and Administration since January 1997. Larry Tanning
is our Chairman of the Board, President and Chief Executive Officer, and also
indirectly controls Tanning Family Partnership, L.L.L.P., which is a
significant holder of our stock. In 1998, Mark Tanning received $212,280 in
compensation. In addition, we have entered into an employment agreement with
Mark Tanning dated February 1, 1999. Pursuant to the agreement, Mr. Tanning
receives an annual salary of $180,000, and for fiscal 1999 is eligible to
receive a bonus of between 16% to 87% of his annual salary upon attainment of
performance goals, which is based upon the attainment of performance targets
involving the following: (1) global revenue, (2) global earnings (before
deductions for interest and taxes), and (3) management and organizational
objectives.
Under the employment agreement, Mr. Tanning was granted an option to acquire
91,667 shares of our common stock at a per share purchase price of $3.82, which
vests (up to a maximum of 19,643 shares in 1999, 32,738 shares in 2000, and
39,286 shares in 2001, subject to further vesting over time) based upon Mr.
Tanning's attainment of the performance goals on which his cash bonus is based.
Whether or not vested based on the attainment of performance goals, all of the
performance-based options will become exercisable based on continued employment
on December 1, 2003. The employment agreement also contains customary non-
competition, non-solicitation, and non-disclosure covenants. Mr. Tanning was
also granted two options to purchase an aggregate of 65,478 shares of our
common stock at a purchase price of $3.82 per share. One-fourth of the shares
subject to the options vested in 1998 and the remainder vest equally over 1999,
2000 and 2001. Mr. Tanning has also been granted an option to purchase 49,107
shares of our common stock at a purchase price of $2.90 per share. Three-
fourths of this option vested in equal installments in 1997, 1998 and 1999 and
the remaining one-fourth will vest in 2000.
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Fees paid to related parties
Stephen Brobst, a significant stockholder, has served, and will continue to
serve, as a consultant on project engagements. We paid Mr. Brobst $240,000 for
consulting services in 1996, $790,535 for consulting services in 1997 and
$293,502 for consulting services in 1998. In addition, in connection with the
stock purchase agreement, we paid Mr. Brobst a sign-on bonus of $413,422 in
1997.
We will pay a fee of $250,000 to AEA Investors Inc., the parent of AEA
Tanning Investors Inc., which is a beneficial owner of our common stock, for
strategic advisory services in connection with this offering.
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PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of July 20, 1999 and as adjusted to reflect the sale of
our common stock offered hereby by (1) each person (or group within the meaning
of Section 13(d)(3) of the Exchange Act) known by us to own beneficially 5% or
more of our common stock, (2) our directors and Named Executive Officers and
(3) all of our directors and executive officers as a group.
As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date of this prospectus through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights that are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options, warrants or rights, but are not deemed
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 15,863,166 shares of common stock
outstanding as of July 20, 1999, and 19,863,166 shares of common stock
outstanding as of the completion of this offering, respectively.
In the table below, unless otherwise noted, the address of our significant
stockholders is c/o our company.
<TABLE>
<CAPTION>
Number of shares
of common stock
beneficially owned Percentage owned Number of Number of
prior to and -------------------------------- exercisable excluded
Name after offering Prior to offering After offering options(1) options(2)
- ---- ------------------ ----------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
TTC Investors I LLC(3).. 984,237 6.2% 5.0% -- --
TTC Investors II
LLC(3)................. 4,143,022 26.1 20.8 -- --
AEA Tanning Investors
Inc.(3)................ 5,696,770 35.9 28.7 -- --
Tanning Family
Partnership,
L.L.L.P. .............. 3,261,351 20.6 16.5 -- --
Larry G. Tanning(4)..... 3,461,173 21.8 17.5 -- --
WinSoft Corporation..... 2,313,291 14.6 11.6 -- --
Bipin Agarwal(5)........ 2,313,291 14.6 11.6 -- --
Stephen Brobst.......... 2,322,021 14.6 11.7 -- --
Hippeli Enterprises,
Inc.................... 1,161,010 7.3 5.8 -- --
Toni S. Hippeli(6)...... 1,161,010 7.3 5.8 -- --
Henry F. Skelsey(7)(8).. 814,380 5.0 4.0 407,190 814,380
P. Tracy Currie(9)...... 236,533 1.5 1.2 236,533 234,492
Louis A. D'Alessandro... 54,183 * * 53,201 153,054
Thomas J. Stack(10)..... 22,508 * * 22,508 34,785
Christopher P.
Mahan(7)(11)........... -- * * -- --
Joseph P. Roebuck....... 16,369 * * -- 32,739
Michael E.
Shanahan(12)........... 16,369 * * -- 32,739
All directors and
executive officers as a
group (16
persons)(13)........... 8,208,904 49.2 39.7 823,787 2,179,183
</TABLE>
- --------
*Represents beneficial ownership of less than one percent.
(1) Shows shares of our common stock issuable upon exercise of options that
are currently exercisable or are exercisable within 60 days of July 20,
1999 and that are included in the total number of shares beneficially
owned.
(2) Shows shares of our common stock issuable upon exercise of options that
will not be exercisable within 60 days of July 20, 1999 and that are not
included in the total number of shares beneficially owned.
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(3) AEA Tanning Investors Inc. is the managing member of TTC Investors I LLC,
TTC Investors II LLC, TTC Investors IA LLC, which holds 108,986 shares of
our common stock, and TTC Investors IIA LLC, which holds 460,525 shares of
our common stock, and accordingly may be deemed to beneficially own the
shares held by these entities. AEA Tanning Investors Inc. is a wholly
owned subsidiary of AEA Investors Inc. The address for each member of the
TTC Investors Group is c/o AEA Investors Inc., Park Avenue Tower, 65 East
55th Street, New York, New York 10022.
(4) Includes 3,261,351 shares of our common stock that Mr. Tanning is deemed
to beneficially own because he indirectly controls Tanning Family
Partnership, L.L.L.P., as to which Mr. Tanning disclaims beneficial
ownership. Excludes 94,288 shares of our common stock held by immediate
family members, and 32,738 shares of our common stock held by trusts for
the benefit of immediate family members, as to which Mr. Tanning disclaims
beneficial ownership.
(5) Includes 2,322,021 shares that Mr. Agarwal is deemed to beneficially own
as the controlling investor of WinSoft Corporation. Excludes 2,182 shares
of our common stock held by Mr. Agarwal's wife, Shashi Agarwal, as to
which Mr. Agarwal disclaims beneficial ownership.
(6) Includes 1,161,010 shares that Ms. Hippeli is deemed to beneficially own
as a controlling investor of Hippeli Enterprises, Inc. Ms. Hippeli and her
husband, Jerome Nickerson, each own 50% of the outstanding shares of
common stock of Hippeli Enterprises, Inc. Mr. Nickerson disclaims
beneficial ownership of the shares of our common stock owned by Hippeli
Enterprises, Inc.
(7) Mr. Skelsey and Mr. Mahan are each members of two of the limited liability
companies constituting the TTC Investors Group. Neither Mr. Skelsey nor
Mr. Mahan has voting or investment power over the shares of common stock
owned by the TTC Investors Group as a result of the memberships and
therefore neither is deemed to have beneficial ownership of the shares as
a result of the memberships. Each of Mr. Skelsey's and Mr. Mahan's
indirect ownership interest in our company through his memberships in the
limited liability companies constituting the TTC Investors Group is less
than one percent.
(8) Includes 100,000 shares of our common stock held by trusts for the benefit
of immediate family members, as to which Mr. Skelsey is the trustee and
disclaims beneficial ownership.
(9) Includes options to purchase 154,686 shares of our common stock held by
Connor Patrick, Ltd., a partnership controlled by Mr. Currie. Excludes
options to purchase 8,600 shares of our common stock which are held by a
trust for Mr. Currie's children, as to which Mr. Currie disclaims
beneficial ownership.
(10) Mr. Stack is no longer employed by us. See "Management--Employment and
non-competition agreements."
(11) Mr. Mahan's total excludes 5,696,770 shares of our common stock owned by
the TTC Investors Group. Mr. Mahan is a director of AEA Tanning Investors
Inc. Mr. Mahan disclaims beneficial ownership of the shares beneficially
owned by the TTC Investors Group.
(12) Mr. Shanahan has agreed to serve on our board of directors upon completion
of this offering.
(13) See footnotes 4 through 6 above.
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DESCRIPTION OF CAPITAL STOCK
We intend to amend our certificate of incorporation and bylaws prior to the
completion of this offering. The forms of our certificate of incorporation and
bylaws will be filed as exhibits to the registration statement of which this
prospectus is a part. The following summarizes the terms and provisions of our
capital stock upon the closing of this offering. The summary is not complete,
and you should read the forms of our certificate of incorporation and bylaws.
Upon the closing of this offering, our authorized capital stock will consist
of 70 million shares, $0.01 par value per share, of common stock and 5 million
shares, par value $0.01 per share, of preferred stock.
Common stock
Each share of our common stock will be identical in all respects and will
entitle its holder to the same rights and privileges enjoyed by all other
holders of shares of common stock and will subject them to the same
qualifications, limitations and restrictions to which all other holders of
common stock will be subject.
Voting rights
Holders of our common stock will be entitled to one vote per share on all
matters to be voted on by our stockholders. Holders of common stock will not
have cumulative rights, so that holders of a plurality of the shares of common
stock present at a meeting at which a quorum is present will be able to elect
all of our directors eligible for election in a given year. The holders of a
majority of the voting power of the issued and outstanding common stock will
constitute a quorum.
Dividends
Holders of our common stock will be entitled to receive ratably such
dividends, if any, as are declared by our board of directors out of funds
legally available for the declaration of dividends, subject to the preferential
rights of any holder of preferred stock that may from time to time be
outstanding.
Liquidation
Upon our liquidation, dissolution or winding up, the holders of our common
stock will be entitled to share pro rata in the distribution of all of our
assets available for distribution after satisfaction of all of our liabilities
and the payment of the liquidation preference of any preferred stock that may
be outstanding.
Other provisions
The holders of our common stock will have no preemptive or other
subscription rights to purchase common stock, and there will be no redemptive
rights or sinking fund provisions.
Preferred stock
Our board of directors will be authorized to issue preferred stock in one or
more series and to establish the number of shares to be included in each series
and to fix the designations, powers, preferences and rights of the shares of
each series and any qualifications, limitations or restrictions of each series.
Because the board of directors will have the power to establish the preferences
and rights of the shares of any series of preferred stock, it may afford the
holders of any series of preferred stock preferences, powers and rights,
including voting rights, senior to the rights of the holders of common stock.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Tanning.
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<PAGE>
Limitation on directors' liabilities
Our certificate of incorporation will limit the liability of our directors
to us and our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable for money damages for
breach of fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which
concerns unlawful payments of dividends, stock purchases or redemptions;
and
. for any transaction from which the director derived an improper personal
benefit.
Anti-takeover effects of our certificate of incorporation and bylaws and
provisions of Delaware law
Our certificate of incorporation, bylaws and Section 203 of the Delaware
General Corporation Law contain provisions that may make the acquisition of
control of Tanning by means of a tender offer, open market purchase, proxy
fight or otherwise, more difficult.
Section 203 of the Delaware General Corporation Law
We must comply with the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns,
or, in some cases, within three years prior, did own, 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
Tanning and an interested stockholder is prohibited unless it satisfies one of
the following three conditions:
. our board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by (1) persons who are directors and also
officers and (2) employee stock plans, in some instances; and
. the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Staggered board
Our certificate of incorporation will provide that the number of directors
shall be fixed from time to time by a resolution of our board of directors. Our
certificate of incorporation will also provide that the board of directors
shall be divided into three classes. The members of each class of directors
will serve for staggered three-year terms. As permitted by the Delaware General
Corporation Law, the members of our classified board of directors will only be
removable from office by our stockholders for cause, subject to the terms of
our shareholder agreement. Vacancies on the board of directors shall be filled
by a majority of the remaining directors, or by a sole remaining director, or
by our stockholders if the vacancy was caused by the action of our
stockholders.
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Advance notice provision
Our certificate of incorporation and bylaws will provide that stockholders
must follow an advance notification procedure to nominate candidates for the
board of directors and to propose business to be conducted at an annual
meeting.
Special meetings of stockholders; written consent provision
Our certificate of incorporation will provide that special meetings of our
stockholders may be called only by the board of directors, the chairman of the
board or the president. Our certificate of incorporation will also remove our
stockholders' ability to act by written consent. These provisions may render it
more difficult for stockholders to take action opposed by the board of
directors.
Adoption, amendment or repeal of bylaws
Our certificate of incorporation will limit the ability of our stockholders
to adopt, amend or repeal our bylaws. Specifically, any adoption, amendment or
repeal of a bylaw by our stockholders will require passage by a supermajority
vote.
Supermajority approvals
The provisions of our certificate of incorporation referred to above will
not be able to be altered without supermajority approval by our stockholders.
Transfer agent and registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 19,863,166 shares of common stock will be
outstanding, or 20,463,166 shares if the underwriters exercise their over-
allotment option in full. Of these shares, the 4,600,000 shares of common
stock, assuming the underwriters exercise their over-allotment option in full,
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by an "affiliate" of Tanning
as that term is defined in Rule 144 under the Securities Act. All of the shares
of common stock outstanding prior to this offering are "restricted securities,"
as such term is defined under Rule 144. These shares are restricted securities
because they were issued in private transactions not involving a public
offering and may not be sold in the absence of registration other than in
accordance with Rule 144 or Rule 701 under the Securities Act or another
exemption from registration. This prospectus may not be used in connection with
any resale of shares of common stock acquired in this offering by Tanning
affiliates.
We, our executive officers and directors and a number of our existing
stockholders have agreed not to offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the SEC a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in our case for grants of
employee stock options pursuant to the terms of any stock option plans in
effect on the date of this prospectus, issuances of securities pursuant to the
exercise of employee stock options outstanding on the date of this prospectus,
employee stock purchases pursuant to the terms of a plan in effect on the date
of this prospectus or the issuance of shares pursuant to the exercise of any
other stock options outstanding on the date of this prospectus.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of common stock are aggregated), including persons who may
be deemed Tanning affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of
(1) one percent of the then-outstanding shares of common stock, which
equals approximately 198,632 shares immediately after this offering,
and
(2) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current public
information about us. In addition, under Rule 144(k), if a period of at least
two years has elapsed since the later of the date restricted securities were
acquired from us or the date they were acquired from a Tanning affiliate, a
stockholder who is not a Tanning affiliate at the time of sale and who has not
been a Tanning affiliate for at least three months prior to the sale would be
entitled to sell shares of common stock in the public market immediately
without compliance with the foregoing requirements under Rule 144. Rule 144
does not require the same person to have held the securities for the applicable
periods. The foregoing summary of Rule 144 is not intended to be a complete
description.
In addition, any employee, director or officer of, or consultant to Tanning
who acquired shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits Tanning affiliates to sell their Rule 701 shares without
having to comply with the holding period restrictions of Rule 144, in each
case, commencing 90 days after the date of this prospectus.
Immediately following this offering, none of the 15,863,166 "restricted
securities" will be available for immediate sale in the public market pursuant
to Rule 144(k). Beginning 90 days after the date of this prospectus, and
without consideration of the contractual restrictions described above, 646,103
shares acquired
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upon exercise of options issued under our stock option plans and purchases
under our employee stock purchase plans will be outstanding and eligible for
sale in reliance upon Rule 701. Additional shares may be available if options
are exercised in the 180-day period following the date of this prospectus.
Shares of our common stock issued in reliance on Rule 701 may be resold by
holders who are not Tanning affiliates under Rule 144 without compliance with
the holding period, amount and notice limitations and by holders who are
Tanning affiliates under Rule 144 without compliance with the holding period
limitation. Simultaneously with the effectiveness of this offering, we intend
to file a registration statement on Form S-8 under the Securities Act to
register 1 million shares of common stock reserved for issuance under our
employee stock purchase plan and to register 5 million shares of common stock
reserved or to be available for issuance pursuant to our stock option plans.
Shares of our common stock issued under our employee stock purchase plan
generally will be available for sale in the open market by holders who are not
Tanning affiliates and, subject to the volume and other applicable limitations
of Rule 144, by holders who are Tanning affiliates, unless such shares are
subject to the contractual restrictions described above. Shares of common stock
acquired upon exercise of options issued under our stock option plans generally
will be available for sale in the open market by holders who are not Tanning
affiliates and, subject to the volume and other applicable limitations of Rule
144, by holders who are Tanning affiliates, unless such shares are subject to
the contractual restrictions described above.
A number of our stockholders are parties to an agreement with us that
provides these stockholders with the right to require us to register the sale
of shares owned by them. These rights cover approximately 80% of our issued and
outstanding common stock and will also cover any shares obtained by these
stockholders from time to time. Registration of these shares of our common
stock would permit the sale of these shares without regard to the restrictions
of Rule 144. For a further discussion of these registration rights, see
"Certain Relationships and Transactions with Related Parties--Stock Purchase
Agreement, Shareholder Agreement and Registration Rights Agreement."
Prior to this offering, there has been no public market for our common
stock. No information is currently available and we cannot predict the timing
or amount of future sales of shares, or the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock (including shares issuable upon the
exercise of stock options) in the public market after the lapse of the
restrictions described above, or the perception that such sales may occur,
could materially adversely affect the prevailing market prices for our common
stock and our ability to raise equity capital in the future. See "Risk
Factors--Risks Related to this Offering--The sale or availability for sale of
substantial amounts of our common stock could adversely affect its market
price."
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UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S.
Holder" is a person other than:
. a citizen or individual resident of the United States,
. a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision of the United
States, other than a partnership treated as foreign under U.S. Treasury
regulations,
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source, or
. a trust, in general, if it is subject to the primary supervision of a
court within the United States and the control of one or more U.S.
persons.
An individual may, subject to certain exceptions, be treated as a resident
of the United States for U.S. federal income tax purposes, instead of a
nonresident, by, among other things, being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year--counting for
these purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days
present in the second preceding year. Residents are subject to U.S. federal tax
as if they were U.S. citizens.
This discussion does not consider:
. U.S. state and local or non-U.S. tax consequences,
. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level,
. the tax consequences for the shareholders, partners or beneficiaries of
a Non-U.S. Holder,
. special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities
and traders in securities, or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, applicable Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which may
change, retroactively or prospectively. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
Dividends
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of common stock, dividends paid to a Non-U.S.
Holder of common stock generally will be subject to withholding of U.S. federal
income tax at a 30% rate, or such lower rate as may be provided by an
applicable income tax treaty. Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefits under a relevant income tax
treaty.
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Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base," in the United States, as provided in that treaty ("U.S. trade or
business income"), are generally subject to U.S. federal income tax on a net
income basis at regular graduated rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
2000:
. a Non-U.S. Holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and
. look-through rules will apply for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
Gain on disposition of common stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;
. the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets certain other requirements;
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain U.S. expatriates; or
. we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the five-
year period ending on the date of disposition or the period that the
Non-U.S. Holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business.
Tanning believes that it has not been, is not currently, and does not
anticipate becoming, a "U.S. real property holding corporation" for U.S.
federal income tax purposes. The tax relating to stock in a "U.S. real property
holding corporation" will not apply to a Non-U.S. Holder whose holdings, direct
and indirect, at all times during the applicable period, constituted 5% or less
of the common stock, provided that the common stock was regularly traded on an
established securities market.
Federal estate tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
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Information reporting and backup withholding tax
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
United States. For dividends paid after 2000, however, a Non-U.S. Holder of
common stock that fails to certify its Non-U.S. Holder status in accordance
with applicable U.S. Treasury Regulations may be subject to backup withholding
at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a
U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not
be subject to backup withholding or information reporting unless the non-U.S.
broker is a "U.S. related person." In the case of the payment of proceeds from
the disposition of common stock by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person," information reporting, but
currently not backup withholding, on the payment applies unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:
. a "controlled foreign corporation" for U.S. federal income tax purposes;
. a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business; or
. effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged
in a U.S. trade or business.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge that the holder is a U.S. person. Non-U.S. Holders should consult
their own tax advisors regarding the application of the information reporting
and backup withholding rules to them, including changes to these rules that
will become effective after 2000.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
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UNDERWRITING
Under an underwriting agreement, dated July , 1999, we have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Salomon Smith Barney Inc., CIBC World Markets Corp., ING Barings
LLC and Adams, Harkness & Hill, Inc., are acting as representatives, the
following respective numbers of shares of our common stock:
<TABLE>
<CAPTION>
Number
of
Underwriters shares
------------ ------
<S> <C>
Credit Suisse First Boston Corporation................................
Salomon Smith Barney Inc. ............................................
CIBC World Markets Corp. .............................................
ING Barings LLC.......................................................
Adams, Harkness & Hill, Inc. .........................................
Total...............................................................
---------
4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of our common stock offered in this offering if any
are purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or this offering of our common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 600,000 additional shares of our common stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover over-allotments of our common stock.
The underwriters propose to offer the shares of our common stock initially
at the public offering price on the cover page of this prospectus and to the
selling group members at that price less a selling concession of $ per
share. The underwriters and the selling group members may allow a discount of
$ per share on sales to other broker/dealers. After the initial public
offering, the public offering price and selling concession and discount to
dealers may be changed by the representatives.
The following table summarizes the discounts and commissions and estimated
expenses that we will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
In addition, we will pay a fee of $250,000 to AEA Investors Inc., the
parent of AEA Tanning Investors Inc., which is a beneficial owner of our
common stock, for strategic advisory services in connection with this
offering. Although no affiliate of AEA Investors Inc. is participating in the
offering of the shares as underwriter or selling group member, such fee is
considered under the rules of the National Association of Securities Dealers
Inc. to be underwriting compensation received in connection with this
offering.
The underwriters have informed us that they do not expect sales to accounts
over which they exercise discretionary authority to exceed 5% of our common
stock being offered.
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We, our executive officers and directors and a number of our existing
stockholders have agreed not to offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the SEC a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into to
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in our case for grants of
employee stock options pursuant to the terms of any plan in effect on the date
of this prospectus, issuances of securities pursuant to the exercise of
employee stock options outstanding on the date of this prospectus, employee
stock purchases pursuant to the terms of a plan in effect on the date of this
prospectus or the issuance of shares pursuant to the exercise of any other
stock options outstanding on the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of common stock for our employees and certain other
persons associated with Tanning who have expressed an interest in purchasing
our common stock in this offering. The number of shares of common stock
available for sale to the general public in this offering will be reduced to
the extent these persons in fact purchase these shares. Any reserved shares not
so purchased will be offered by the underwriters to the general public on the
same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
Our common stock has been approved for listing on The Nasdaq National Market
under the symbol "TANN."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the representatives, and does not reflect the market price for
our common stock following this offering. Among the principal factors
considered in determining the initial public offering price will be:
. the information in this prospectus and otherwise available to the
representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we will compete;
. our past and present operations;
. our past and present earnings and current financial position;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial
condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
. the general condition of the securities markets at the time of this
offering; and
. other relevant factors.
We can offer no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active trading market for the
common stock will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum.
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. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
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NOTICE TO CANADIAN RESIDENTS
Resale restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Tanning and the dealer from whom
such purchase confirmation is received that: (1) such purchaser is entitled
under applicable provincial securities laws to purchase such common stock
without the benefit of a prospectus qualified under such securities laws, (2)
where required by law, that such purchaser is purchasing as principal and not
as agent, and (3) such purchaser has reviewed the text above under "Resale
restrictions."
Rights of action (Ontario purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of legal rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and eligibility for investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
69
<PAGE>
LEGAL MATTERS
Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York will pass upon the validity of
the issuance of the shares of common stock offered hereby. Frederick H. Fogel
will be joining us as Vice President--Business Affairs and General Counsel upon
completion of this offering. Mr. Fogel is and will continue as a partner at
Fried, Frank, Harris, Shriver & Jacobson. Mr. Fogel has been granted options to
purchase 278,281 shares of our common stock, 61,386 of which will vest upon
this commencement of his employment with us. The underwriters have been
represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of Tanning Technology Corporation at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to Tanning and the shares of common stock offered by this
prospectus, reference is made to the registration statement, including its
exhibits and schedules. Statements made in this prospectus to any contract or
other document are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may review a copy of the registration statement,
including its exhibits and schedules, at the SEC's public reference room,
located at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048 or on the Internet at http://www.sec.gov. You may obtain a copy of this
registration statement from the SEC's public reference room upon payment of
prescribed fees. Please call the SEC at (800) SEC-0330 for further information
on the operation of the public reference room.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, we will file periodic reports, proxy statements and other information with
the SEC.
70
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and at March 31,
1999 (unaudited)......................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996 and for the periods ended March 31, 1999 and 1998
(unaudited).............................................................. F-5
Consolidated Statements of Stockholders'/Members' Equity for the years
ended December 31, 1998, 1997 and 1996 and for the period ended March 31,
1999 (unaudited)......................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 and for the periods ended March 31, 1999 and 1998
(unaudited).............................................................. F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Tanning Technology Corporation
We have audited the accompanying consolidated balance sheets of Tanning
Technology Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders'/members' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tanning
Technology Corporation at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Denver, Colorado
February 26,
1999, except
for Note 4, as
to which the
date is May
17, 1999
F-2
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $ 7,768,636 $10,446,111 $ 7,183,218
Accounts receivable--trade, net of
allowance for doubtful accounts of
$300,464, $956,656 and $685,714 at
December 31, 1997, December 31, 1998
and March 31, 1999, respectively..... 5,357,057 9,225,153 13,181,568
Accounts receivable--other............ 106,306 152,743 253,228
Income taxes receivable............... 603,500 -- --
Deferred income taxes................. 314,152 417,315 558,209
Prepaid expenses and other assets..... 77,206 344,867 362,956
----------- ----------- -----------
Total current assets.................... 14,226,857 20,586,189 21,539,179
Property and equipment, at cost:
Computer equipment.................... 1,733,839 2,081,553 2,276,574
Office furniture and equipment........ 1,117,970 1,342,097 1,452,385
Computer software..................... 211,477 917,757 1,045,597
Leasehold improvements................ 179,215 258,484 379,074
----------- ----------- -----------
3,242,501 4,599,891 5,153,630
Less accumulated depreciation and
amortization......................... (636,184) (1,384,859) (1,668,807)
----------- ----------- -----------
2,606,317 3,215,032 3,484,823
Deposits and other long-term assets..... 12,948 121,854 93,437
----------- ----------- -----------
Total assets............................ $16,846,122 $23,923,075 $25,117,439
=========== =========== ===========
</TABLE>
F-3
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Liabilities and stockholders'/members'
equity
Current liabilities:
Accounts payable...................... $ 1,094,373 $ 1,554,871 $ 1,861,699
Accrued compensation.................. 1,410,116 2,280,842 1,599,651
Accrued distribution to former
members.............................. -- 165,257 165,257
Other accrued liabilities............. 457,863 629,190 317,856
Deferred revenue...................... 45,000 400,146 375,000
Income taxes payable.................. 15,223 1,432,518 1,511,205
Current portion of long-term debt..... 1,000,000 118,670 121,014
----------- ----------- -----------
Total current liabilities............... 4,022,575 6,581,494 5,951,682
Deferred income taxes................... 86,867 87,291 98,205
Long-term debt, net of current portion.. -- 460,183 428,766
Minority interest....................... -- 22,062 43,235
Commitments and contingencies...........
Stockholders'/members' equity:
Common stock:
Class A shares, $0.01 par value:
Authorized shares--9,520,293
Issued and outstanding shares--
9,520,293 at December 31, 1997,
December 31, 1998 and March 31,
1999............................... 58,159 290,795 290,795
Class B shares, $0.01 par value:
Authorized shares--5,696,770
Issued and outstanding shares--
5,127,259 at December 31, 1997;
5,696,770 at December 31, 1998 and
March 31, 1999..................... 26,700 151,376 151,376
Class C shares, $0.01 par value:
Authorized shares--8,536,568
Issued and outstanding shares--none
at December 31, 1997 and 1998;
281,555 at March 31, 1999.......... -- -- 8,600
Additional paid-in capital............ 12,800,772 14,178,203 15,226,603
Retained earnings (deficit)........... (143,543) 2,159,428 2,978,635
Accumulated comprehensive income
(loss)............................... (5,408) (7,757) (60,458)
----------- ----------- -----------
Total stockholders'/members' equity..... 12,736,680 16,772,045 18,595,551
----------- ----------- -----------
Total liabilities and
stockholders'/members' equity.......... $16,846,122 $23,923,075 $25,117,439
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Services revenue........ $12,762,915 $25,235,268 $30,313,139 $4,613,213 $11,305,049
Product sales........... 46,150 872,038 2,975,417 569,800 --
----------- ----------- ----------- ---------- -----------
Net revenues............ 12,809,065 26,107,306 33,288,556 5,183,013 11,305,049
Operating expenses:
Project personnel
costs................ 6,569,108 14,722,065 14,941,164 2,888,509 5,492,295
Selling, marketing and
administrative
expenses............. 2,054,581 7,855,759 12,177,973 2,320,677 4,678,763
Product development
costs................ 431,000 1,608,178 2,785,723 819,858 --
Management fees--
related parties...... 901,932 73,000 -- -- --
Sign-on bonus related
to stock purchase
agreement............ -- 2,117,664 -- -- --
----------- ----------- ----------- ---------- -----------
Total operating
expenses........... 9,956,621 26,376,666 29,904,860 6,029,044 10,171,058
----------- ----------- ----------- ---------- -----------
Income (loss) from
operations............. 2,852,444 (269,360) 3,383,696 (846,031) 1,133,991
Other income (expense):
Interest income....... 10,648 291,292 333,195 89,894 120,003
Interest expense...... (89,397) (69,765) (81,576) (16,387) (12,039)
Other................. 49,260 (90,589) 33,979 23,008 54,850
----------- ----------- ----------- ---------- -----------
Income (loss) before
provision for (benefit
from) income taxes..... 2,822,955 (138,422) 3,669,294 (749,516) 1,296,805
Provision for (benefit
from) income taxes..... -- (211,829) 1,366,323 (278,820) 477,598
----------- ----------- ----------- ---------- -----------
Net income (loss)....... $ 2,822,955 $ 73,407 $ 2,302,971 $ (470,696) $ 819,207
=========== =========== =========== ========== ===========
Basic earnings (loss)
per share.............. $ 0.01 $ 0.15 $ (0.03) $ 0.05
=========== =========== ========== ===========
Basic weighted average
shares outstanding..... 13,718,710 14,968,974 14,647,552 15,345,327
=========== =========== ========== ===========
Diluted earnings (loss)
per share.............. $ 0.01 $ 0.15 $ (0.03) $ 0.05
=========== =========== ========== ===========
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B Class C
Member common stock common stock common stock Additional Retained
contributions Accumulated ------------------ ------------------ -------------- paid-in earnings
(distributions) earnings Shares Amount Shares Amount Shares Amount capital (deficit)
--------------- ----------- --------- -------- --------- -------- ------- ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1995............ $ 145,424 $ 954,176 -- $ -- -- $ -- -- $ -- $ -- $ --
Member
distributions... (3,852,063) -- -- -- -- -- -- -- -- --
Net income...... -- 2,822,955 -- -- -- -- -- -- -- --
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1996............ (3,706,639) 3,777,131 -- -- -- -- -- -- -- --
Member
distributions... (977,455) -- -- -- -- -- -- -- -- --
Member
contributions,
net............. 838,565 -- -- -- -- -- -- -- -- --
Net income and
comprehensive
income for month
ended January
31, 1997........ -- 216,950 -- -- -- -- -- -- -- --
Conversion to C
corporation and
sale of common
stock........... 3,845,529 (3,994,081) 9,520,293 2,763 3,657,342 927 -- -- 9,233,851 --
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance, January
31, 1997........ -- -- 9,520,293 2,763 3,657,342 927 -- -- 9,233,851 --
Stock split,
March 17, 1997.. -- -- -- 55,396 -- 17,927 -- -- (73,323) --
Sale of common
stock........... -- -- -- -- 1,469,917 7,846 -- -- 3,640,244 --
Net loss for the
11 months ended
December 31,
1997............ -- -- -- -- -- -- -- -- -- (143,543)
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income (loss)...
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1997............ -- -- 9,520,293 58,159 5,127,259 26,700 -- -- 12,800,772 (143,543)
Stock split,
April 30, 1998.. -- -- -- 232,636 -- 109,476 -- -- (342,112) --
Sale of common
stock........... -- -- -- -- 569,511 15,200 -- -- 1,884,800 --
Distribution to
former members
of Tanning
Technology
Group, LLC...... -- -- -- -- -- -- -- -- (165,257) --
Net income...... -- -- -- -- -- -- -- -- -- 2,302,971
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1998............ -- -- 9,520,293 290,795 5,696,770 151,376 -- -- 14,178,203 2,159,428
Exercised stock
options
(unaudited)..... -- -- -- -- -- -- 281,555 8,600 1,048,400 --
Net income for
three months
ended March 31,
1999
(unaudited)..... -- -- -- -- -- -- -- -- -- 819,207
Foreign currency
translation
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income
(unaudited).....
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance, March
31, 1999
(unaudited)..... $ -- $ -- 9,520,293 $290,795 5,696,770 $151,376 281,555 $8,600 $15,226,603 $2,978,635
=========== ========== ========= ======== ========= ======== ======= ====== =========== ==========
<CAPTION>
Total
Accumulated stockholders'/
comprehensive members'
income (loss) equity
------------- --------------
<S> <C> <C>
Balance,
December 31,
1995............ $ -- $ 1,099,600
Member
distributions... -- (3,852,063)
Net income...... -- 2,822,955
Foreign currency
translation..... 12,079 12,079
--------------
Comprehensive
income.......... 2,835,034
------------- --------------
Balance,
December 31,
1996............ 12,079 82,571
Member
distributions... -- (977,455)
Member
contributions,
net............. -- 838,565
Net income and
comprehensive
income for month
ended January
31, 1997........ -- 216,950
Conversion to C
corporation and
sale of common
stock........... (12,079) 9,076,910
------------- --------------
Balance, January
31, 1997........ -- 9,237,541
Stock split,
March 17, 1997.. -- --
Sale of common
stock........... -- 3,648,090
Net loss for the
11 months ended
December 31,
1997............ -- (143,543)
Foreign currency
translation..... (5,408) (5,408)
--------------
Comprehensive
income (loss)... (148,951)
------------- --------------
Balance,
December 31,
1997............ (5,408) 12,736,680
Stock split,
April 30, 1998.. -- --
Sale of common
stock........... -- 1,900,000
Distribution to
former members
of Tanning
Technology
Group, LLC...... -- (165,257)
Net income...... -- 2,302,971
Foreign currency
translation..... (2,349) (2,349)
--------------
Comprehensive
income.......... 2,300,622
------------- --------------
Balance,
December 31,
1998............ (7,757) 16,772,045
Exercised stock
options
(unaudited)..... -- 1,057,000
Net income for
three months
ended March 31,
1999
(unaudited)..... -- 819,207
Foreign currency
translation
(unaudited)..... (52,701) (52,701)
--------------
Comprehensive
income
(unaudited)..... 766,506
------------- --------------
Balance, March
31, 1999
(unaudited)..... $(60,458) $18,595,551
============= ==============
</TABLE>
See accompanying notes.
F-6
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)....... $ 2,822,955 $ 73,407 $ 2,302,971 $ (470,696) $ 819,207
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Loss on disposal of
equipment............. -- -- 128,609 -- --
Depreciation and
amortization.......... 150,055 443,977 916,699 179,286 283,948
Deferred income
taxes................. -- (227,285) (102,739) (43,656) --
Minority interest...... -- -- 22,062 -- 21,173
Changes in operating
assets and
liabilities:
Accounts receivable--
trade............... (2,575,031) (5,036,989) (3,868,096) (321,469) (3,956,415)
Accounts receivable--
other............... -- (54,442) (46,437) 44,148 (100,485)
Income taxes
receivable.......... -- (603,500) 603,500 (433,770) --
Prepaid expenses and
other assets........ (124,649) 6,634 (267,661) (19,287) (18,089)
Deposits and other
long-term assets.... 6,901 744 (108,906) (516) 28,417
Accounts payable..... 265,540 746,104 460,498 (266,362) 306,828
Accrued
compensation........ 257,783 1,072,000 870,726 (539,592) (681,191)
Deferred revenue..... -- 45,000 355,146 63,750 (25,146)
Other accrued
liabilities......... 461,331 (265,892) 171,327 (8,578) (311,334)
Income taxes
payable............. -- 15,223 1,417,295 199,560 (51,293)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 1,264,885 (3,785,019) 2,854,994 (1,617,182) (3,684,380)
Investing activities
Purchase of property and
equipment, net......... (858,702) (1,899,060) (1,654,023) (441,292) (553,739)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (858,702) (1,899,060) (1,654,023) (441,292) (553,739)
Financing activities
Principal payments under
capital lease
obligations............ (189,364) (40,471) -- -- --
Principal payments on
long-term debt......... -- (700,000) (1,073,478) -- (29,073)
Principal payments on
notes payable--related
parties................ (363,455) -- -- -- --
Borrowings on long-term
debt................... 1,700,000 -- 652,331 652,331 --
Exercise of stock
options................ -- -- -- -- 1,057,000
Proceeds from issuance
of common stock........ -- 12,725,000 1,900,000 -- --
Distributions to
members, net........... -- (138,890) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 1,147,181 11,845,639 1,478,853 652,331 1,027,927
Effect of exchange rate
on cash................ 12,079 (5,408) (2,349) (1,110) (52,701)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,565,443 6,156,152 2,677,475 (1,407,253) (3,262,893)
Cash and cash
equivalents at
beginning of period.... 47,041 1,612,484 7,768,636 7,768,636 10,446,111
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 1,612,484 $ 7,768,636 $10,446,111 $ 6,361,383 $ 7,183,218
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow
information
Cash paid for interest.. $ 35,866 $ 40,026 $ 163,897 $ 16,387 $ 12,039
Cash paid for income
taxes.................. -- 603,723 30,686 -- 478,324
</TABLE>
Supplemental disclosures of noncash investing and financing transactions
During 1997 and 1996, the Company distributed $977,455 and $3,852,063,
respectively, of its accounts receivable to its members.
See accompanying notes.
F-7
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1998 and 1999 is unaudited)
1.BUSINESS AND ORGANIZATION
Tanning Technology Corporation (the "Company") is an information technology
services provider that architects, builds and deploys enterprise solutions for
corporations throughout the world. The Company specializes in large, complex,
integrated solutions that incorporate online transaction processing and very
large databases. Internet technologies are a central part of the Company's
solutions, enabling direct interaction among customers and business partners on
the World Wide Web and among employees within organizations on their private
intranets.
Tanning Technology Group, LLC ("TTG") was formed under the laws of the state
of Colorado on February 8, 1995, as a result of the combination of Courtney
Rose Corporation, WinSoft Corporation, Strategic Technologies and Systems, and
Hippeli Enterprises. The assets and liabilities contributed by the members were
recorded at historical cost as reflected on the accounts of the respective
entities prior to the formation of TTG.
On December 24, 1996, TTG entered into a Stock Purchase Agreement with AEA
Tanning Investors Inc. (AEA Tanning Investors Inc., together with certain
limited liability companies of which it is the managing member, the "TTC
Investors Group"). As a result of this agreement, on January 31, 1997 TTG
effected a series of transactions whereby TTG was merged into Tanning
Technology Corporation, a Delaware corporation newly formed in conjunction with
this transaction. The membership interests of the members of TTG were converted
into shares of Class A common stock of the Company. On the same date, the TTC
Investors Group purchased 3,657,342 shares of Class B common stock from the
Company for $9,076,910 and purchased directly from the former members of TTG
$3,648,090 of accounts receivable that had been distributed to the members of
TTG (see Note 7). On June 6, 1997, the TTC Investors Group purchased an
additional 1,469,917 shares of Class B common stock from the Company for
$3,648,090, which was comprised of $3,126,636 cash and accounts receivable with
a value of $521,454. On June 9, 1998, the TTC Investors Group purchased an
additional 569,511 shares of Class B common stock from the Company for
$1,900,000.
The Company's wholly-owned direct subsidiaries include Nextek Software Corp.
and a United Kingdom subsidiary, Tanning Technology Europe Limited ("TTEL").
During 1998, the Company established a 51% owned Indian subsidiary, Tanning
Technology India Pvt Ltd ("TTI"). The operating results of TTI are not material
to the consolidated results of operations. Nextek Software Corporation sold the
rights to certain developed software during 1998 and has no current plans for
future product sales.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany transactions
have been eliminated.
Limited Liability Company ("LLC")
An LLC is an unincorporated association of two or more persons, whose
members have limited personal liability for the obligations or debts of the
entity. For federal income tax purposes, the Company was classified as an LLC
through January 31, 1997, at which time the Company converted from an LLC to a
C Corporation.
F-8
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Substantially all of the Company's contracts are billed on a time and
materials basis. Under time and materials contracts, the Company recognizes
revenue as services are provided. In addition, the Company is generally
reimbursed for reasonable expenses incurred under its contracts. The Company
recognizes revenue for fixed price contracts on a percentage of completion
basis. The Company recognizes revenue from its software sales in accordance
with the provisions of the American Institute of Certified Public Accountants'
Statement of Financial Position 97-2, Software Revenue Recognition, which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions.
Cash and Cash Equivalents
The Company considers all highly liquid investments (including money market
accounts) with a maturity of three months or less when purchased to be cash
equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization,
which includes amortization of assets under capital leases, is based on the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment.................................... 5 years
Office furniture and equipment........................ 7 years
Computer software..................................... 3 years
Leasehold improvements................................ Lesser of the life
of the improvement
or the related asset
</TABLE>
Long-lived assets
The Company recognizes impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. In such circumstances, those assets are written down to
estimated fair value. Long-lived assets consist principally of computer
equipment and office furniture and equipment. During the year ended December
31, 1998, the Company determined that computer and other equipment having an
original cost of approximately $296,633 was no longer being used. Accordingly,
the Company disposed of those assets and wrote off the remaining net book value
of $128,609.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes,
which requires that the Company account for income taxes using the liability
method. Under SFAS No. 109, deferred income taxes are provided for temporary
differences in recognizing certain income and expense items for financial
reporting and tax reporting purposes. Upon completion of the merger of TTG with
the Company (see Note 1), the LLC status was terminated and the Company began
providing for current and deferred income taxes as a C corporation.
Accordingly, the consolidated statement of income for the year ended December
31, 1997 includes a one-time credit (included in benefit from income taxes) of
approximately $70,000 to record the related deferred tax asset. Prior to the
conversion to a C corporation, no provision for income taxes was provided since
members included their distributive shares of revenue and deductions of the
limited liability company in their personal capacities, pursuant to election
under Subchapter K of the Internal Revenue Code.
F-9
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
The financial statements of TTEL are prepared in pound sterling and
translated into U.S. dollars based on the current exchange rate at the end of
the period for the balance sheet and a weighted-average rate for the period on
the statement of income. Translation adjustments are reflected as foreign
currency translation adjustments within comprehensive income in
stockholders'/members' equity and accordingly have no effect on net income.
Transaction adjustments for TTEL are included in income. Foreign currency
transaction adjustments are not material to income.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents,
receivables, payables and accrued expenses approximate fair value due to the
short maturity of these instruments. The fair value of the Company's long-term
debt approximates carrying value and was estimated by discounting future cash
flows using rates currently available for debt with similar terms and remaining
maturities.
Sales to Significant Customers
The Company provides services to a small number of customers. Two customers
accounted for 31% each of total revenues in 1996. Two customers accounted for
40% and 22%, respectively, of total revenues in 1997. Two customers accounted
for 28% and 11%, respectively, of total revenues in 1998. Four customers
accounted for 31%, 12%, 12% and 12%, respectively, of total revenues for the
first three months of 1999. The Company performs periodic credit evaluations of
its customers' financial condition and collateral generally is not required.
Overall credit losses are within management's expectations.
Accounting Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
SFAS No. 123.
Earnings Per Share
The Company has adopted the provisions of SFAS No. 128, Earnings Per Share.
SFAS 128 requires entities to present both basic earnings per share ("EPS") and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Potential
dilution of securities exercisable into common stock was computed using the
treasury stock method based on the average fair market
F-10
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value of the stock. EPS for 1996 is not presented since there were no shares
outstanding due to the Company's status as an LLC. The following table reflects
the basic and diluted weighted average shares.
<TABLE>
<CAPTION>
Years ended December 31 Three months ended March 31
----------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted-average shares
outstanding.............. 13,718,710 14,968,974 14,647,552 15,345,327
Dilutive impact of options
outstanding.............. -- 263,262 -- 978,015
----------- ----------- ------------- -------------
Weighted-average shares
and potential dilutive
shares outstanding....... 13,718,710 15,232,236 14,647,552 16,323,342
=========== =========== ============= =============
</TABLE>
Reclassifications
Certain of the prior year amounts have been reclassified to conform with the
1998 presentation.
Interim Financial Information
The financial statements as of and for the three months ended March 31, 1998
and 1999, are unaudited; however, they include all adjustments (consisting of
normal recurring adjustments) considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
3.LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
---------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Note and security agreements with bank,
interest at 8.71%, principal and
interest payable over sixty equal
monthly installments.................... $ -- $578,853 $549,780
Unsecured loan, interest at 6%, principal
and accrued interest paid in full in
1998.................................... 1,000,000 -- --
Less current portion..................... (1,000,000) (118,670) (121,014)
---------- -------- --------
Long-term debt........................... $ -- $460,183 $428,766
========== ======== ========
</TABLE>
The proceeds from the note and security agreements (the "Notes") totaling
$652,331 were used by the Company to purchase office furniture and fixtures.
The Notes are collateralized by the purchased assets.
4.STOCKHOLDERS'/MEMBERS' EQUITY
On May 17, 1999, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of shares of
its common stock. In connection with the planned initial public offering, the
Company intends to effect a 1 for 3.05 reverse stock split of its Class A and
Class C common shares; and a 1 for 2.67 reverse stock split of its Class B
common shares, and each share of Class A, Class B and Class C common stock will
be converted into one class of voting common stock. All references to common
shares in the accompanying financial statements reflect the Company's
anticipated reverse stock splits, but not the conversion to one class of common
stock, retroactively applied to all periods presented.
F-11
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 17, 1997, the Board of Directors declared a 21.053:1 stock split of
the Company's Class A and B common stock, effected in the form of a stock
dividend of 20.053 shares of Class A and B common stock for each one share
issued and outstanding. Class A and B common stock issued and additional paid-
in capital as of December 31, 1997 have been restated to reflect this split.
The number of shares issued at December 31, 1997, after giving effect to both
the purchases by the TTC Investors Group and the stock splits, was 9,520,293,
5,127,259 and 0 of Class A, B and C common stock, respectively.
Effective April 30, 1998, the Board of Directors declared a 5:1 stock split
of the Company's Class A and B common stock, effected in the form of a stock
dividend of 4 shares of Class A and B common stock for each one share issued
and outstanding. The split was effected so that no change was made to the par
value of all outstanding shares. In conjunction with the stock split, each
outstanding stock option granted under the Stock Option Plan was also increased
while the exercise price of each stock option was decreased by the
corresponding 5:1 ratio.
In July 1998, the number of authorized shares of Class C nonvoting common
stock was increased to 8,536,568. The number of shares issued at December 31,
1998, after giving effect to both the stock splits and the purchases by the TTC
Investors Group, was 9,520,293, 5,696,770 and 0 of Class A, B and C common
stock, respectively. As of March 31, 1999 there were 9,520,293, 5,696,770 and
281,555 shares issued and outstanding of Class A, B and C common stock,
respectively.
5.INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Provision for (benefit from) income taxes:
Current:
Federal........................................... $ -- $ 268,823
State............................................. 2,903 68,352
Foreign........................................... 12,553 1,131,887
--------- ----------
Total current....................................... 15,456 1,469,062
Deferred:
Federal........................................... (194,058) (86,379)
State............................................. (33,227) (16,360)
--------- ----------
Total deferred...................................... (227,285) (102,739)
--------- ----------
Provision (benefit) from income taxes................. $(211,829) $1,366,323
========= ==========
</TABLE>
F-12
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the deferred tax benefit, which arise from timing
differences between financial and tax reporting, are presented below:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Allowance for uncollectible accounts............... $ (121,328) $ (237,109)
Accrued bonuses.................................... (141,330) 141,330
Accrued vacation................................... (20,770) (10,462)
Deferred revenue................................... (18,171) 8,364
Foreign tax credit................................. (12,553) --
Net operating loss carryforward.................... (41,215) 41,215
Accelerated depreciation........................... 130,752 (43,461)
Deferred state income taxes........................ (2,670) 17,139
Organization costs................................. -- (19,755)
---------- ----------
$(227,285) $ (102,739)
========== ==========
Variation from the federal statutory rate is as follows:
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Expected provision for (benefit from) federal
income taxes at statutory rate of 34%............. $ (47,063) $1,247,561
Election of C corporation status................... (69,681) --
Tanning Technology Group, LLC income nontaxable due
to LLC status..................................... (86,780) --
Permanent differences.............................. -- 25,892
State tax benefit, net of federal benefit.......... (8,305) 34,315
Other.............................................. -- 58,555
---------- ----------
$(211,829) $1,366,323
========== ==========
</TABLE>
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts.................... $121,328 $358,436
Accrued bonuses......................................... 141,330 --
Accrued vacation........................................ 20,770 31,232
Deferred revenue........................................ 18,171 9,807
Foreign tax credit...................................... 12,553 12,553
Net operating loss carryforward......................... 41,215 --
Other................................................... 2,670 19,756
-------- --------
358,037 431,784
Deferred tax liabilities:
Deferred state income taxes............................. -- 14,469
Accelerated depreciation................................ 130,752 87,291
-------- --------
Deferred tax asset, net................................... $227,285 $330,024
======== ========
</TABLE>
For the year ended December 31, 1998, income before income taxes for
domestic and foreign operations was $521,137 and $3,148,157, respectively. For
the year ended December 31, 1997, income (loss) before income taxes for
domestic and foreign operations was $164,074 and $(302,496), respectively.
F-13
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6.LEASES
The Company leases equipment and office space. Rental expense under
operating leases included in selling, marketing and administrative expenses was
$1,153,562, $601,341 and $250,593 for the years ended December 31, 1998, 1997,
and 1996, respectively.
The following represents the future minimum lease payments for all
noncancelable operating leases at December 31, 1998:
<TABLE>
<S> <C>
1999........................................................... $1,654,502
2000........................................................... 1,731,424
2001........................................................... 1,390,055
2002........................................................... 1,407,827
2003........................................................... 1,437,480
----------
Total minimum lease payments................................... $7,621,288
==========
</TABLE>
During 1997, all capital leases, which were substantially with members of
the Company, were paid in full.
7.RELATED PARTY TRANSACTIONS
In conjunction with the Stock Purchase Agreement with the TTC Investors
Group (see Note 1), the Company entered into employment agreements with certain
stockholders of the Company on January 31, 1997. These employment agreements
are for three years and consist of annual minimum salary payments of $950,000
(in the aggregate for the employees who are party to these agreements) plus
annual bonuses, as defined. In connection with the initial public offering, the
Company intends to amend these agreements to change the annual salary payments
to $570,000 (in the aggregate for the employees who are party to these
agreements) plus annual bonuses. In addition, in February 1997 the Company paid
sign-on bonuses totaling $1,573,212 to certain stockholders of the Company and
$544,452 to certain employees of the Company.
On January 24, 1997, TTG distributed $977,455 of accounts receivable
balances which were generated from January 1997 sales in the United States, to
its members. The amount distributed of $977,455 is included in member
distributions in the accompanying consolidated statement of
stockholders'/members' equity.
Effective December 31, 1998, the Company agreed to distribute $165,257 to
the former members of TTG. This distribution was for reimbursement of taxes
paid by the members resulting from the conversion of an LLC to a C Corporation
on January 31, 1997.
The Company incurred management fees of $0, $73,000, and $901,932 to certain
of its members for the years ended December 31, 1998, 1997, and 1996,
respectively.
Receivable balances, owed to the Company by employees, totaled $66,024,
$60,753 and $68,566 at December 31, 1998 and 1997, and March 31, 1999,
respectively.
8.COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into an agreement with two individuals
whereby these individuals would receive commissions and royalties earned on
sales made by Nextek Software Corporation as defined in the agreement. The
Company incurred royalty and commission expenses of $104,569 and $28,210
related to this agreement for the years ended December 31, 1998 and 1997,
respectively.
F-14
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9.EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code. Employees age twenty-one or older are eligible to
participate in the plan upon employment with the Company and may elect to defer
up to 15 percent of their annual compensation up to the maximum amount as
determined by the Internal Revenue Service. Under the retirement plan
agreement, the Company, at its discretion, may make voluntary contributions to
the plan. Each employee must complete one year of service, as defined, in order
to receive any voluntary contributions made by the Company. Total employer
contributions to the plan for the two-month period ended March 31, 1999 were
$38,626. No employer contributions were made to the plan in either 1998 or
1997.
10.STOCK OPTIONS
Effective February 1, 1997, the Company adopted the Tanning Technology
Corporation Stock Option Plan (the "1997 Plan"). Under the provisions of the
1997 Plan, nonqualified stock options may be granted by a committee of the
Board of Directors at its discretion to key employees, officers or independent
contractors of the Company. The Company's 1997 Plan authorized the grant of
options for up to 3,289,094 shares of Class C nonvoting common stock. All
awards are for the right to purchase one share of Class C nonvoting common
stock at a price to be determined by the committee. Generally, all options vest
over a period of 3-4 years. All options, once vested, are exercisable until
February 1, 2007, at which time the 1997 Plan shall terminate.
Effective July 24, 1998, the Company adopted the Tanning Technology
Corporation 1998 Stock Option Plan (the "1998 Plan"). The 1998 plan, which
carries similar terms and conditions as the 1997 plan, authorizes the grant of
options for up to 5,247,474 shares of Class C nonvoting common stock. All
options granted under the 1998 Plan, once vested, are exercisable until July
24, 2008, at which time the 1998 Plan shall terminate.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted average assumptions for 1998 and 1997,
respectively: risk-free interest rates of 4.64%-5.36% and 5.77%; dividend
yields of 0; volatility factors of 0 and a weighted-average expected life of
the option of 5 years.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma net income (loss) and earnings per share was as follows:
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Net income (loss)................................... $(149,000) $2,047,000
========= ==========
Basic earnings (loss) per share..................... $ (0.01) $ 0.14
========= ==========
Diluted earnings (loss) per share................... $ (0.01) $ 0.13
========= ==========
</TABLE>
F-15
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information,
for the year ended December 31, 1998, follows:
<TABLE>
<CAPTION>
Weighted-average
Options exercise price
--------- ----------------
<S> <C> <C>
Outstanding January 1, 1997...................... -- $ --
Granted.......................................... 1,934,869 2.90
Exercised........................................ -- --
Forfeited........................................ (130,956) 2.90
---------
Outstanding December 31, 1997.................... 1,803,913 2.90
Granted.......................................... 3,846,330 3.79
Exercised........................................ -- --
Forfeited........................................ (318,386) 2.90
---------
Outstanding December 31, 1998.................... 5,331,857 3.57
Granted.......................................... 352,108 4.25
Exercised........................................ (281,555) 3.76
Forfeited........................................ -- --
---------
Outstanding March 31, 1999....................... 5,402,410 3.60
=========
Exercisable at December 31, 1997................. 356,445 2.90
=========
Exercisable at December 31, 1998................. 1,106,780 3.36
=========
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1998 and 1997, was $0.86 and $0.73, respectively. The range of
exercise prices for options outstanding as of December 31, 1998, is $2.90-
$3.82. The weighted-average remaining contractual lives of outstanding options
is 9.3 years.
11.SEGMENT REPORTING
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 requires a business enterprise, based upon a management
approach, to disclose financial and descriptive information about its operating
segments. Operating segments are components of an enterprise about which
separate financial information is available and regularly evaluated by the
chief operating decision maker(s) of an enterprise. Under this definition, the
Company operated as a single segment for all years and periods presented.
SFAS 131 also requires the disclosure of certain financial information
pertaining to geographic areas. Long-lived assets located outside of the United
States are not material. Information about the Company's revenues by geographic
area is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
----------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues from external customers:
United States....................... $12,352 $23,139 $22,811 $4,089 $ 7,319
Denmark............................. -- 1,532 9,595 845 3,476
UK and other Europe................. 457 1,436 883 249 510
------- ------- ------- ------ -------
Total............................... $12,809 $26,107 $33,289 $5,183 $11,305
======= ======= ======= ====== =======
</TABLE>
F-16
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12.EMPLOYEE STOCK PURCHASE PLAN
In March 1999, the Company established the Tanning Technology Corporation
1999 Qualified Stock Purchase Plan (the "Plan"). The Company intends that the
Plan qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. Employees scheduled to work at least 20 hours per week
and who have completed at least three months of continuous full-time employment
in the service of the Company are eligible to participate in the Plan. Under
the Plan, eligible employees can purchase shares, subject to limitations, of
the Company's Class C nonvoting common stock at a discount not to exceed 15% of
the market price as defined. No purchases were made as of March 31, 1999. On
April 15, 1999, the Company issued 59,094 shares of Class C nonvoting common
stock in conjunction with this plan.
F-17
<PAGE>
[TANNING LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth expenses and costs payable by Tanning (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this registration statement. All amounts are estimated except for the
Securities and Exchange Commission's registration fee and the National
Association of Securities Dealers' filing fee.
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Registration fee under Securities Act........................ $ 15,985
NASD filing fee.............................................. 6,250
The Nasdaq National Market fees.............................. 95,000
Legal fees and expenses...................................... 750,000
Accounting fees and expenses................................. 200,000
Advisory fee................................................. 250,000
Printing and engraving expenses.............................. 200,000
Registrar and transfer agent fees............................ 10,000
Miscellaneous expenses....................................... 222,765
----------
Total...................................................... $1,750,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits and proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's certificate of incorporation, bylaws, disinterested director
vote, stockholder vote, agreement, or otherwise.
Tanning's bylaws currently, and Tanning's certificate of incorporation and
bylaws, as they will be amended and restated immediately prior to this
offering, require Tanning to indemnify to the fullest extent authorized by the
DGCL any person made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he or she or a person of whom he or she is the legal
representative is or was a director of the officer of Tanning or is or was
serving at the request of Tanning 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 maintained
or sponsored by Tanning. Tanning will also be able to grant indemnification to
its other employees or agents. The amended and restated certificate of
incorporation and bylaws will also require Tanning to advance expenses, as
incurred, to its directors, officers and other agents and employees in
connection with a legal proceeding, to the fullest extent permitted by the
DGCL, subject to certain limited exceptions. The amended and restated
certificate of incorporation and bylaws will also permit Tanning to enter into
indemnification agreements with its directors and officers and to obtain
director and officer liability insurance.
II-1
<PAGE>
As permitted by Section 102(b)(7) of the DGCL, Tanning's certificate of
incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (a) from any breach of the director's
duty of loyalty to the corporation or its stockholders; (b) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (c) under Section 174 of the DGCL; or (d) from any
transaction from which the director derived an improper personal benefit.
Tanning has obtained primary and excess insurance policies insuring its
directors and officers and those of its subsidiaries against certain
liabilities they may incur in their capacity as directors and officers. Under
these policies, the insurer, on behalf of Tanning, may also pay amounts for
which Tanning has granted indemnification to the directors or officers.
Additionally, Mr. Mahan, as an employee of AEA Investors Inc., and Mr. Skelsey,
as a consultant to AEA Investors Inc., are covered by an excess coverage
insurance policy maintained by AEA Investors Inc. against certain liabilities
they may incur in their capacity as directors of Tanning in excess of the
coverage provided by Tanning's director and officer insurance policies.
Additionally, reference is made to the Underwriting Agreement that will be
filed as Exhibit 1.1 to this registration statement, which provides for
indemnification by the Underwriters of Tanning, its directors and officers who
sign the registration statement and persons who control Tanning, under certain
circumstances.
Item 15. Recent Sales of Unregistered Securities.
Since January 31, 1997, we have issued and sold the securities listed below.
All sales were made in reliance on Section 4(2) of the Securities Act and/or
Regulation D or Rule 701 promulgated under the Securities Act and were made
without general solicitation or advertising. All share numbers set forth below
reflect the stock splits described in Note 1 to the Financial Statements, which
are included in the prospectus.
1. On January 31, 1997, we issued and sold 3,657,342 shares of common
stock to the "TTC Investors Group," which consists of TTC Investors I
LLC, TTC Investors IA LLC, TTC Investors II LLC and TTC Investors IIA
LLC, for aggregate consideration of $9,076,910.
2. On June 6, 1997, we issued and sold 1,469,917 shares of common stock to
the TTC Investors Group for aggregate consideration of $3,648,090.
3. On June 9, 1998, we issued and sold 569,511 shares of common stock to
the TTC Investors Group for aggregate consideration of $1,900,000.
4. We have granted stock options to employees, consultants, directors and
other service providers pursuant to our 1997 stock option plan and our
1998 stock option plan and we have sold common stock pursuant to
options exercised under this plan.
5. We have issued and sold common stock to our employees pursuant to our
1999 stock purchase plan.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
II-2
<PAGE>
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Certificate of Incorporation of Tanning, as amended and
restated (to be effective upon consummation of the offering)
3.2 Form of Bylaws of Tanning, as amended and restated (to be effective
upon consummation of the offering)
4.1 Form of certificate of common stock
4.2 Form of Amended and Restated Registration Rights Agreement by and
among Tanning, Courtney Rose Corporation, Tanning Family Partnership,
L.L.L.P., WinSoft Corporation, Hippeli Enterprises, Inc., Larry
Tanning, Bipin Agarwal, Toni Hippeli, Stephen Brobst, Henry Skelsey,
AEA Tanning Investors Inc., TTC Investors I LLC, TTC Investors II LLC,
TTC Investors IA LLC and TTC Investors IIA LLC*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
10.1 Stock Purchase Agreement, dated as of December 24, 1996, by and among
Tanning Technology Group, L.L.C., Courtney Rose Corporation, WinSoft
Corporation, Hippeli Enterprises, Inc., Stephen Brobst, Larry Tanning,
Bipin Agarwal, Toni Hippeli and AEA Tanning Investors Inc.**
10.2 Supplement to Stock Purchase Agreement, dated as of January 31, 1997**
10.3 Amendment No. 1 to Stock Purchase Agreement, dated as of June 9, 1998,
by and among Tanning, Courtney Rose Corporation, WinSoft Corporation,
Hippeli Enterprises, Inc., Stephen Brobst, Larry Tanning, Bipin
Agarwal, Toni Hippeli, AEA Tanning Investors Inc., TTC Investors I
LLC, TTC Investors II LLC, TTC Investors IA LLC and TTC Investors IIA
LLC**
10.4 Form of Employment, Confidentiality and Non-Competition Agreement
(including Employee-Specific Terms) between Tanning and Larry Tanning
10.5 Form of Promissory Note in the amount of $250,000, made by Larry
Tanning in favor of Tanning
10.6 Form of Employment, Confidentiality and Non-Competition Agreement
(including Employee-Specific Terms) between Tanning and Bipin Agarwal
10.7 Form of Promissory Note in the amount of $250,000, made by Bipin
Agarwal in favor of Tanning
10.8 Form of Employment, Confidentiality and Non-Competition Agreement
between Tanning and each of P. Tracy Currie, Louis A. D'Alessandro,
Henry F. Skelsey, John Piccone, Mark Tanning and Frederick H. Fogel
10.9 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and P. Tracy Currie, dated as of
January 30, 1999
10.10 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and P. Tracy Currie, dated as of
June 1, 1997
10.11 Employment and Expatriate Assignment Agreement between Tanning and P.
Tracy Currie, dated November 15, 1998
10.12 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Louis A. D'Alessandro, dated
as of February 1, 1999
10.13 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Louis A. D'Alessandro, dated
as of October 1, 1997
10.14 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Henry F. Skelsey, dated as
of June 1, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.15 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Henry F. Skelsey, dated as
of July 16, 1998
10.16 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and John Piccone, dated as of
June 30, 1999
10.17 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Mark Tanning, dated as of
February 1, 1999
10.18 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Mark Tanning, dated as of
June 1, 1997
10.19 Employee-Specific Terms of Employment, Confidentiality and Non-
Competition Agreement between Tanning and Frederick H. Fogel, dated as
of June 30, 1999
10.20 Form of Amended and Restated Shareholder Agreement by and among
Tanning, Courtney Rose Corporation, Tanning Family Partnership,
L.L.L.P., WinSoft Corporation, Hippeli Enterprises, Inc., Larry
Tanning, Bipin Agarwal, Toni Hippeli, AEA Tanning Investors Inc., TTC
Investors I LLC, TTC Investors II LLC, TTC Investors IA LLC and TTC
Investors IIA LLC*
10.21 Lease Agreement, dated as of January 31, 1995, between HD Delaware
Properties, Inc. and Tanning for premises at 4600 South Ulster
Street**
10.22 Amendment No. 1 to Lease, dated as of September 15, 1995, by and
between HMS Office, Limited Partnership and Tanning for premises at
4600 South Ulster Street**
10.23 Amendment No. 2 to Lease, dated as of March 6, 1996, by and between
HMS Office, L.P. and Tanning for premises at 4600 South Ulster
Street**
10.24 Amendment No. 3 to Lease, dated as of November 27, 1996, by and
between HMS Office, L.P. and Tanning for premises at 4600 South Ulster
Street**
10.25 Amendment No. 4 to Lease, dated as of July 11, 1997, by and between
HMS Office, L.P. and Tanning for premises at 4600 South Ulster
Street**
10.26 Lease, dated as of June 3, 1998, by and between Denver Hines
Development, LLC and Tanning for premises at 4600 South Syracuse
Street**
10.27 Amendment No. 1 to Lease, dated as of March 11, 1999, by and between
Denver Hines Development, LLC and Tanning for premises at 4600 South
Syracuse Street**
10.28 Amendment No. 2 to Lease, dated as of May 28, 1999, by and between
Denver Hines Development, LLC and Tanning for premises at 4600 South
Syracuse Street**
10.29 Form of Excise Tax Agreement
10.30 1997 Stock Option Plan
10.31 1998 Stock Option Plan
10.32 1999 Employee Stock Purchase Plan
10.33 1999 Stock Option Plan
10.34 Separation Agreement and Release between Tanning and Thomas J. Stack,
dated as of May 14, 1999
21.1 Subsidiaries of Tanning**
23.1 Consent of Ernst & Young LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5.1 above)
23.3 Consent of Michael E. Shanahan
24.1 Power of Attorney**
27.1 Financial data schedule**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedule
II-4
<PAGE>
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(2) 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.
(3) 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Denver, State of Colorado, on July 21, 1999.
TANNING TECHNOLOGY CORPORATION
/s/ Henry F. Skelsey
By: __________________________________
Henry F. Skelsey
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Signature Title
Date
/s/ Larry G. Tanning President, Chief Executive July 21,
- ------------------------------ Officer and Director 1999
Larry G. Tanning (Principal Executive
Officer)
/s/ Henry F. Skelsey Executive Vice President, July 21,
- ------------------------------ Chief Financial Officer and 1999
Henry F. Skelsey Director (Principal
Financial and Accounting
Officer)
/s/ Bipin Agarwal Director July 21,
- ------------------------------ 1999
Bipin Agarwal
* Director
- ------------------------------
Toni S. Hippeli
* Director
- ------------------------------
Christopher P. Mahan
* Director
- ------------------------------
Joseph P. Roebuck
/s/ Henry F. Skelsey July 21,
*By: _________________________ 1999
Henry F. Skelsey
Attorney-in-fact
</TABLE>
II-6
<PAGE>
Report of Independent Auditors on Schedule
Board of Directors and Stockholders
Tanning Technology Corporation
We have audited the consolidated financial statements of Tanning Technology
Corporation as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
February 26, 1999 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Denver, Colorado
February 26, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
--------------
Charged
Beginning to Ending
Balance Deductions Expense Other Balance
--------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Period Ending December 31, 1996
Allowance for Doubtful Accounts... $ -- $ -- $ -- -- $ --
Period Ending December 31, 1997
Allowance for Doubtful Accounts... $ -- $234,323 $534,787 -- $300,464
Period Ending December 31, 1998
Allowance for Doubtful Accounts... $300,464 $111,395 $767,587 -- $956,656
</TABLE>
S-2
<PAGE>
EXHIBIT 1.1
4,000,000 Shares
TANNING TECHNOLOGY CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
July [_], 1999
Credit Suisse First Boston Corporation
Salomon Smith Barney, Inc.
CIBC World Markets Corp.
ING Barings LLC
Adams, Harkness & Hill, Inc.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. Tanning Technology Corporation, a Delaware corporation
("Company"), proposes to issue and sell to the Underwriters named in Schedule A
hereto ("Underwriters") 4,000,000 shares ("Firm Securities") of its common
stock, par value $0.01 per share ("Securities") and also proposes to issue and
sell to the several Underwriters, at the option of the Underwriters, an
aggregate of not more than 600,000 additional shares ("Optional Securities") of
its Securities as set forth below. The Firm Securities and the Optional
Securities are herein collectively called the "Offered Securities". As part of
the offering contemplated by this Agreement, Credit Suisse First Boston
Corporation (the "Designated Underwriter" or "CSFBC") has agreed to reserve out
of the Firm Securities purchased by it under this Agreement up to 200,000 shares
for sale to the Company's directors, officers, employees and other parties
associated with the Company (collectively, "Participants"), as set forth in the
Prospectus (as defined below) under the heading "Underwriting" (the "Directed
Share Program"). The Firm Securities to be sold by the Designated Underwriter
pursuant to the Directed Share Program (the "Directed Shares") will be sold by
the Designated Underwriter pursuant to this Agreement at the public offering
price. Any Directed Shares not orally confirmed for purchase by a Participant
by the end of the business day on which this Agreement is executed will be
offered to the public by the Underwriters as set forth in the Prospectus. The
Company hereby agrees with the several Underwriters as follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
<PAGE>
2
(a) A registration statement (No. 333-78657) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (i) an
additional registration statement ("additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the
<PAGE>
3
"Prospectus". No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission ("Rules and Regulations")
and did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the requirements of
the Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or will
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the Effective
Date of the Additional Registration Statement in which the Prospectus is
included, each Registration Statement and the Prospectus will conform, in
all material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all
material respects to the requirements of the Act and the Rules and
Regulations, neither of such documents will include any untrue statement of
a material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
and no Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect").
(d) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not
have a Material Adverse Effect; all of the issued and outstanding capital
stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid
<PAGE>
4
and nonassessable; and the capital stock of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered Securities
will have been, validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect to the
Securities.
(f) There are no contracts, agreements or understandings between the
Company and any person that would give rise to a valid claim against the
Company or any Underwriter for a brokerage commission, finder's fee or
other like payment in connection with this offering.
(g) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(h) The Offered Securities have been approved for listing on The
Nasdaq Stock Market's National Market.
(i) No consent, approval, authorization or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties, or
any agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject
(with such exceptions, individually or in the aggregate, as would not have
a Material Adverse Effect), or the charter or by-laws of the Company or any
such subsidiary, and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) The Company and its subsidiaries have good and marketable title to
all real properties and all other properties and assets owned by them, in
each case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or to be
made thereof by them; and the Company and its subsidiaries hold any
material leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
<PAGE>
5
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them, except for
such certificates, authorities or permits the failure of which to obtain
would not have a Material Adverse Effect and have not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
could reasonably be expected to have a Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can readily
acquire on reasonable terms, adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively, "intellectual
property rights") necessary to conduct the business now operated by them,
or presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with respect to
any intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect.
(p) Neither the Company nor any of its subsidiaries is in violation of
any statute, any rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "environmental laws"), owns or operates
any real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are, to the Company's knowledge, threatened.
(r) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company and
its consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis;
and the schedules included in each Registration Statement present fairly
the information required to be stated therein.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any
<PAGE>
6
development or event involving a prospective material adverse change, in
the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940.
(u) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
Furthermore, the Company represents and warrants to the Underwriters that (i)
the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $[_] per share, the respective numbers
of shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank reasonably acceptable to CSFBC drawn to the order of Tanning
Technology Corporation at the office of Cravath, Swaine & Moore, at 10:00 A.M.,
New York time, on [_], 1999, or at such other time not later than seven full
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "First Closing Date". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the offering. The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the office of Cravath, Swaine & Moore at least 24 hours prior to
the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of
<PAGE>
7
Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may
be purchased by the Underwriters only for the purpose of covering over-
allotments made in connection with the sale of the Firm Securities. No Optional
Securities shall be sold or delivered unless the Firm Securities previously have
been, or simultaneously are, sold and delivered. The right to purchase the
Optional Securities or any portion thereof may be exercised from time to time
and to the extent not previously exercised may be surrendered and terminated at
any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank reasonably acceptable to
CSFBC drawn to the order of Tanning Technology Corporation, at the office of
Cravath, Swaine & Moore. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the office of Cravath, Swaine & Moore at a reasonable
time in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as filed
or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent, which
consent shall not be unreasonably withheld; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of any
stop order
<PAGE>
8
proceedings in respect of a Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as
soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (of which six will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC reasonably requests. The Prospectus shall
be so furnished on or prior to 3:00 p.m., New York time, on the business
day following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution; provided, however that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.
(g) During the period of 5 years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
<PAGE>
9
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other
expenses (including reasonable fees and disbursements of counsel) incurred
in connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to the review by
the National Association of Securities Dealers, Inc. (the "NASD") of the
Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the Offered
Securities and for expenses incurred in distributing preliminary
prospectuses and the Prospectus (including any amendments and supplements
thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its capital stock or securities convertible
into or exchangeable or exercisable for any shares of its capital stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC except
for (i) issuances of securities pursuant to the exercise of stock options
outstanding on the date hereof, (ii) grants of stock options pursuant to
stock incentive plans in effect on the date hereof and issuances of
securities pursuant to exercise of such stock options, (iii) issuances of
securities pursuant to employee stock purchase plans in effect on the date
hereof, (iv) issuances of securities in connection with strategic
acquisitions and investments so long as recipients of such securities enter
into the restrictions on the disposition of such securities set forth in
this Section 5(i) for the remainder of the 180 day period set forth in this
Section 5(i), and (v) issuances of securities pursuant to registration on
Form S-8.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the NASD or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such Securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares Program
and stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with the Underwriters that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the certificate in Section 6(f), to the
performance by the Company of its obligations hereunder and to the following
additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and
<PAGE>
10
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time of the Initial Registration Statement
is subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective Time),
of Ernst & Young LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules examined
by them and included in the Registration Statements comply as to form
in all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements
for them to be in conformity with generally accepted accounting
principles;
(B) at the date of the latest available balance sheet read by
such accountants, or at a subsequent specified date not more than
three business days prior to the date of such letter, there was any
change in the capital stock or any increase in short-term indebtedness
or long-term debt of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current assets
or net assets, as compared with amounts shown on the latest balance
sheet included in the Prospectus; or
(C) for the period from the closing date of the latest income
statement included in the Prospectus to the closing date of the latest
available income statement read by such accountants there were any
decreases, as compared with the corresponding period of the previous
year and with the period of corresponding length ended the date of the
latest income statement included in the Prospectus, in consolidated
net sales or net operating income, or in the total or per share
amounts of consolidated income before extraordinary items or net
income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which are described in such letter;
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
<PAGE>
11
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter; and
(v) they have (A) examined, in accordance with Statements on
Standards for Attestation Engagements Section 8, the Management's
Discussion and Analysis of Financial Condition and Results of
Operations of the Company and its subsidiaries taken as a whole for
the year ended December 31, 1998, as included in the Registration
Statements (and their restricted examination report thereon is
attached as an appendix to such letter) and (B) reviewed, in
accordance with Statements on Standards for Attestation Engagements
Section 8, the Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company and its
subsidiaries taken as a whole for the three month period ended March
31, 1999, as included in the Registration Statements (and their
restricted review report thereon is attached as an appendix to such
letter);
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, "Registration Statements" shall mean the initial
registration statement as proposed to be amended by the amendment or post-
effective amendment to be filed shortly prior to its Effective Time, (ii)
if the Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration Statement is subsequent to such execution and
delivery, "Registration Statements" shall mean the Initial Registration
Statement and the additional registration statement as proposed to be filed
or as proposed to be amended by the post-effective amendment to be filed
shortly prior to its Effective Time, and (iii) "Prospectus" shall mean the
prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBC. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
<PAGE>
12
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the
New York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and
to such counsel's knowledge, all other outstanding shares of the
Common Stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and conform to the
description thereof contained in the Prospectus; and the stockholders
of the Company have no preemptive rights with respect to the
Securities under the Delaware General Corporation Law, the charter or
by-laws of the Company or any of the agreements, contracts or
instruments filed as exhibits to the Registration Statement;
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court of the United
States of America or the States of New York or Delaware (as it relates
to the General Corporation Law of the State of Delaware) known by us
to be applicable to the Company or any of its properties is required
on the part of the Company for the consummation of the transactions
contemplated by this Agreement in connection with the issuance or sale
of the Offered Securities by the Company, except such as have been
obtained and made under the Act and such as may be required under
state securities laws;
<PAGE>
13
(v) The execution, delivery and performance of this Agreement
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court of the United States
of America or the States of New York or Delaware (as it relates to the
General Corporation Law of the State of Delaware) known by us to be
applicable to the Company or any subsidiary of the Company or any of
their properties, or any agreement or instrument to which the Company
or any such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, which is listed as an exhibit to
the Registration Statement, or the charter or by-laws of the Company
as in effect on the date hereof or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement;
(vi) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate in all material respects
and fairly present the information required to be shown in all
material respects; and such counsel do not know of any legal or
governmental proceedings required to be described in a Registration
Statement or the Prospectus which are not described as required or of
any contracts or documents of a character required to be described in
a Registration Statement or the Prospectus or to be filed as exhibits
to a Registration Statement which are not described and filed as
required; it being understood that such counsel need express no
opinion as to the financial statements and the notes thereto,
financial schedules or other financial data contained in the
Registration Statements or the Prospectus; and
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
<PAGE>
14
(e) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of Ernst & Young LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
(h) Each executive officer and director of the Company shall have
furnished to the Representatives a letter substantially in the form of Exhibit A
hereto relating to sales of Securities or any securities convertible into or
exercisable or exchangeable for such Securities, and each such letter shall be
in full force and effect on the date hereof.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon 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,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of
<PAGE>
15
such documents in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information furnished by any Underwriter consists of the information described
as such in subsection (b) below; and provided, further, that with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from any preliminary prospectus, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Underwriter that sold
Offered Securities to the person asserting any such losses, claims, damages or
liabilities, to the extent that such sale was an initial resale by such
Underwriter and any such loss, claim, damage or liability of such Underwriter
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Offered Securities to such
person, a copy of the prospectus correcting such untrue statement or alleged
untrue statement in or omission or alleged omission from such preliminary
prospectus if the Company had previously furnished copies of such correcting
prospectus to such Underwriter.
The Company will indemnify and hold harmless the Designated Underwriter and
each person, if any, who controls the Designated Underwriter within the meaning
of either Section 15 of the Act or Section 20 of the Exchange Act (the
"Designated Entities"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue statement
of a material fact contained in any material prepared by or with the consent of
the Company for distribution to Participants in connection with the Directed
Share Program or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) caused by the failure of any Participant to pay for
and accept delivery of Directed Shares that the Participant agreed to purchase;
or (iii) related to, arising out of, or in connection with the Directed Share
Program, other than losses, claims, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph, the information regarding discretionary sales contained in the sixth
paragraph and the over-allotment and stabilization information contained in the
last two paragraphs, in each case under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In
<PAGE>
16
case any such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement (i)
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action and (ii) does not
include a statement as to, or an admission of, fault, culpability or a failure
to act by or on behalf of an indemnified party. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to the
last paragraph in Section 7(a) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of not
more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control the Designated Underwriter within the meaning of either Section 15
of the Act of Section 20 of the Exchange Act.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
<PAGE>
17
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed by overnight mail, delivered by hand or sent
by facsimile transmission and confirmed to the Representatives, c/o Credit
Suisse First Boston Corporation, Eleven Madison Avenue, New York, NY 10010-3629,
Attention: Investment Banking Department--Transactions Advisory Group, or, if
sent to the Company, will be mailed by overnight mail, delivered by hand or sent
by facsimile transmission and confirmed to it at Tanning Technology Corporation,
4600 South Ulster Street, Suite 380, Denver, CO,
<PAGE>
18
Attention: Henry F. Skelsey, Chief Financial Officer; provided, however, that
any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
<PAGE>
19
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
Tanning Technology Corporation
By
_______________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Credit Suisse First Boston Corporation
Salomon Smith Barney Inc.
CIBC World Markets Corp.
ING Barings LLC
Adams, Harkness & Hill, Inc.
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By Credit Suisse First Boston Corporation
By
_______________________
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Securities
----------- ---------------
Credit Suisse First Boston Corporation........................
Salomon Smith Barney Inc......................................
CIBC World Markets Corp.......................................
ING Barings LLC...............................................
Adams, Harkness & Hill, Inc...................................
___________
Total.................................................... [$]________
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TANNING TECHNOLOGY CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
* * * * * * *
We, the undersigned, President and Secretary, respectively, of Tanning
Technology Corporation, do hereby certify as follows:
1. The name of the corporation (the "Corporation") is Tanning Technology
Corporation.
2. The original Certificate of Incorporation was filed with the Secretary of
State of the State of Delaware on January 29, 1997 and an Amended and
Restated Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on May 21, 1998.
3. In accordance with Sections 242 and 245 of the General Corporation Law of
the State of Delaware (the "DGCL"), this Amended and Restated Certificate of
Incorporation (a) has been duly proposed by resolutions adopted and declared
advisable by the Board of Directors of the Corporation, (b) approved by
written consent of the holders of a majority of the outstanding shares of
voting stock and a majority of the outstanding shares of each class of
capital stock of the Corporation in accordance with Section 228 of the DGCL
and (c) duly executed by an officer of the Corporation in accordance with
Section 103 of the DGCL and, upon filing with the Secretary of State in
accordance with Section 103, shall supersede the original Certificate of
Incorporation, as amended and restated, and shall, as it may thereafter be
amended in accordance with its terms and applicable law, be the Certificate
of Incorporation of the Corporation.
4. Pursuant to Section 103(d) of the DGCL, this Amended and Restated
Certificate of Incorporation shall become effective at 8:00 a.m. on July
[ ], 1999.
5. The text of the Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation (the "Corporation") is Tanning Technology
Corporation.
<PAGE>
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized and incorporated under the General
Corporation Law of the State of Delaware (the "DGCL").
ARTICLE IV
(a) The total number of shares of stock that the Corporation shall have
authority to issue is 75,000,000, consisting of 5,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and
70,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock").
(b) (1) Upon the effectiveness of this Amended and Restated Certificate
of Incorporation following its filing with the Secretary of State of the
State of Delaware, (i) each share of issued and outstanding Class A common
stock, par value $.01 per share, and Class C common stock, par value $.01
per share, of the Corporation, shall be changed and reclassified, without
further action on the part of the holder thereof, into 0.32738904 of a
share of Common Stock, thereby giving effect to a 1.0-for-3.05447 reverse
stock split and (ii) each share of issued and outstanding Class B common
stock, par value $.01 per share, of the Corporation, shall be changed and
reclassified into 0.37467778 of a share of Common Stock, thereby giving
effect to a 1.0-for-2.66896 reverse stock split.
(2) The total number of shares of authorized stock of the Corporation
set forth in this Article IV sets forth the total authorized stock of the
Corporation after giving effect to the foregoing reverse stock splits.
(3) Promptly after the filing of this Amended and Restated Certificate
of Incorporation, the Corporation shall deliver to each former holder of
issued and outstanding shares of Class A, Class B and Class C common stock
that surrender for cancellation a certificate or certificates representing
outstanding shares of Class A, Class B and Class C common stock prior to
the reverse stock splits, a certificate or certificates representing the
number of shares of Common Stock issuable by reason of the reverse stock
splits in the name of such holder. This issuance of certificates for
shares of Common Stock shall be made without charge for any issuance tax in
respect thereof or other cost incurred by the Corporation in
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<PAGE>
connection with such reverse stock split and the related issuance of shares
of Common Stock. From and after the filing of this Amended and Restated
Certificate of Incorporation, certificates representing outstanding shares
of Class A, Class B and Class C common stock prior to the reverse stock
split shall thereupon be deemed for all corporate purposes to evidence
ownership of the number of shares of Common Stock issuable by reason of the
reverse stock splits.
(4) No fractional shares resulting from the reverse stock splits shall
be issued. Any holder of Common Stock who by reason of a reverse stock
split would have been entitled to receive a fraction of a share of Common
Stock shall receive only the nearest whole share, with 0.5 of a share or
more fractional shares being rounded up to the next whole share.
(c) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware (a "Preferred Stock Designation"),
to establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations and restrictions
thereof. The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(1) The designation of the series, which may be by distinguishing
number, letter or title.
(2) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) Whether dividends, if any, shall be cumulative or noncumulative and
the dividend rate of the series.
(4) The dates on which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for shares of
the series.
(6) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of, shares of
the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
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<PAGE>
(8) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Corporation or
any other corporation, and, if so, the specification of such other class or
series of such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates at which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
(9) Restrictions on the issuance of shares of the same series or of any
other class or series.
(10) The voting rights, if any, of the holders of shares of the series.
(d) The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Each share of Common Stock shall be equal to each
other share of Common Stock. The holders of shares of Common Stock shall be
entitled to one vote for each such share upon all questions presented to the
stockholders.
Except as may be provided in this Amended and Restated Certificate of
Incorporation or in a Preferred Stock Designation, or as may be required by law,
the holders of Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders at which
they are not entitled to vote.
Without limiting the generality of the foregoing, the right of the
holders of shares of Common Stock to remove a director other than for cause
shall be only as set forth in the Amended and Restated Shareholder Agreement,
dated as of July [ ], 1999, by and among the Corporation and certain of its
stockholders (the "Shareholder Agreement").
(e) The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
ARTICLE V
In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the bylaws of the Corporation; provided,
however, that the bylaws adopted by the Board of Directors under the powers
hereby conferred may be amended or repealed by the Board of Directors or by
the stockholders having voting power with respect thereto, provided further
that in the
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<PAGE>
case of amendments by stockholders, the affirmative vote of the holders of
at least 66 2/3% of the voting power of the then outstanding Voting Stock
(as defined below), voting together as a single class, shall be required to
alter, amend or repeal any provision of the bylaws; and
(2) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Amended and Restated Certificate of Incorporation or in
any Preferred Stock Designation, no stockholder shall have any right to
inspect any account, book or document of the Corporation other than such
rights as may be conferred by applicable law.
The Corporation may in its bylaws confer powers upon the Board of Directors
in addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66 2/3% of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with paragraph (1) of this Article V. For the purposes of
this Amended and Restated Certificate of Incorporation, "Voting Stock" shall
mean the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE VI
(a) Subject to the rights of the holders of any series of Preferred Stock
or any other series or class of stock as set forth in this Amended and Restated
Certificate of Incorporation to elect additional directors under specific
circumstances:
(1) any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of such holders and may not be effected by any consent in writing
by such holders; and
(2) special meetings of stockholders of the Corporation for any
purpose or purposes may be called only by the Board of Directors, the
Chairman of the Board of Directors, or the President of the Corporation.
(b) No business other than that stated in the notice shall be transacted at
any special meeting.
-5-
<PAGE>
(c) Advanced notice of the proposal of business by stockholders shall be
given in the manner provided in the bylaws of the Corporation, as amended and in
effect from time to time.
(d) Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of at least
66 2/3% of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend, repeal or adopt any
provision inconsistent with this Article VI.
ARTICLE VII
(a) Subject to the rights of the holders of any series of Preferred Stock
or any other series or class of stock as set forth in this Amended and Restated
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed from
time to time exclusively by the Board of Directors.
(b) The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock as set forth
in this Amended and Restated Certificate of Incorporation, shall be divided into
three classes, as nearly equal in number as possible. One class of directors
shall be initially elected for a term expiring at the annual meeting of
stockholders to be held in 2000, another class shall be initially elected for a
term expiring at the annual meeting of stockholders to be held in 2001, and
another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2002. At each succeeding annual meeting
of the stockholders of the Corporation, the successors of the class of directors
whose term expires at that meeting shall be elected by a plurality vote of all
votes cast at such meeting to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible.
(c) A director shall hold office until the annual meeting of the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation or removal from office.
(d) Subject to (i) the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this Amended and
Restated Certificate of Incorporation to elect additional directors under
specified circumstances and (ii) the provisions of the Shareholder Agreement,
any director may be removed from office at any time only for cause by the
affirmative vote of the holders of at least a majority of the voting power of
all Voting Stock then outstanding, voting together as a single class.
Notwithstanding the foregoing, whenever holders of outstanding shares of one or
more series of Preferred Stock are entitled to elect directors of the
Corporation pursuant to the
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<PAGE>
provisions applicable in the case of arrearages in the payment of dividends or
other defaults contained in a Preferred Stock Designation, any such director of
the Corporation so elected may be removed in accordance with the provisions of
such Preferred Stock Designation.
(e) Except as otherwise provided for in a Preferred Stock Designation and
subject to the provisions of the Shareholder Agreement, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the directors then in office, even if less than a quorum, or by
a sole remaining director, or by stockholders if such vacancy was caused by the
removal of a director by the action of stockholders. 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 duly elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(f) Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the bylaws of the corporation, as
amended and in effect from time to time.
(g) Unless and except to the extent that the bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
(h) Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66 2/3% of the voting power of the then outstanding Voting
Stock, voting together as a single class, shall be required to amend, repeal or
adopt any provision inconsistent with this Article VII.
ARTICLE VIII
(a) Each person who is or was or has agreed to become a director or officer
of the Corporation, or each such person who is or was serving or who has agreed
to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans (including the heirs, executors, administrators or estate of such person),
shall be indemnified by the Corporation, in accordance with the bylaws of the
Corporation, to the fullest extent permitted from time to time by the DGCL as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader
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<PAGE>
indemnification rights than said law permitted prior to such amendment) or any
other applicable laws as presently or hereafter in effect.
(b) Without limiting the generality or the effect of the foregoing, the
Corporation may enter into one or more agreements with any person that provide
for indemnification greater than or different from that provided in this Article
VIII.
(c) Any amendment or repeal of this Article VIII shall not adversely affect
any right or protection existing hereunder in respect of any act or omission
occurring prior to such amendment or repeal.
ARTICLE IX
(a) 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, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
(b) Any amendment or repeal of this Article IX shall not adversely affect
any right or protection of a director of the Corporation existing hereunder in
respect of any act or omission occurring prior to such amendment or repeal.
ARTICLE X
Except as may be expressly provided in this Amended and Restated
Certificate of Incorporation, the Corporation reserves the right at any time and
from time to time to amend, alter, change or repeal any provision contained in
this Amended and Restated Certificate of Incorporation or a Preferred Stock
Designation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed herein or by applicable law, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Amended and Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article X; provided, however, that
any amendment or repeal of Article VIII or Article IX of this Amended and
Restated Certificate of Incorporation shall not adversely affect any right or
protection existing hereunder in respect of any act or omission occurring prior
to such amendment or repeal; and provided further that no Preferred Stock
Designation shall be amended after the issuance of any shares of the series of
Preferred Stock created thereby, except in accordance with the terms of such
Preferred Stock Designation and the requirements of applicable law.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Larry G. Tanning, its President,
and Mark Warren Reinhardt, its Secretary, this ___ day of July, 1999.
TANNING TECHNOLOGY CORPORATION
By:
---------------------------------
Larry G. Tanning, President
By:
---------------------------------
Mark Warren Reinhardt, Secretary
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<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
TANNING TECHNOLOGY CORPORATION
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
--------------
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
----------------
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
------------------
Bylaws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders
------
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
<PAGE>
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
------------------
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. 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. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business that might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in his
------------
absence, the President shall call all meetings of the stockholders to order, and
shall act as Chairman of such meetings. In the absence of the Chairman of the
Board and the President, the holders of a majority in number of the shares of
stock of the Corporation present in person or represented by proxy and entitled
to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
------
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled
to vote at a meeting of stockholders may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot.
Except as otherwise provided by law or by the Certificate of Incorporation,
Directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the stockholders entitled to vote in the election and, whenever
any corporate action, other than the election
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<PAGE>
of Directors is to be taken, it shall be authorized by a majority of the votes
cast at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Notice of Stockholder Business and Nominations.
----------------------------------------------
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in Section 3 of this Article I, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section 8.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 8, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation, and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to such
annual meeting and not later than the close of business on the later of the 90th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. 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 all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14a-11 thereunder (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on
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<PAGE>
whose behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 8 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for election as director or specifying the size of the increased
Board of Directors at least 100 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Section
8 shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 8, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 8. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 8 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 8 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 8. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, the chairman of the meeting shall
have the power and duty to determine whether a nomination
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<PAGE>
or any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this Section
8 and, if any proposed nomination or business is not in compliance with this
Section 8, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Section 8 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of preferred stock to elect directors under
specified circumstances.
SECTION 9. Inspectors. When required by law or directed by the
----------
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
ARTICLE II
----------
Board of Directors
------------------
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board of
Directors, who need not be stockholders of the Corporation. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
SECTION 2. Number and Term of Office. Subject to the rights of the
-------------------------
holders of any series of preferred stock to elect directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Board. The
directors, other than those who may be elected by the holders of any series of
preferred stock under specified circumstances, shall be divided, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as is reasonably possible, designated Class I, Class II
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<PAGE>
and Class III, with the initial term of office of the Class I directors to
expire at the 2000 annual meeting of stockholders, the initial term of office of
the Class II directors to expire at the 2001 annual meeting of stockholders and
the initial term of office of the Class III directors to expire at the 2002
annual meeting of stockholders, with each director to hold office until his or
her successor shall have been duly elected and qualified. At each annual meeting
of stockholders, commencing with the 2000 annual meeting, directors elected to
succeed those directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified.
SECTION 3. Removal, Vacancies and Additional Directors. Subject to
-------------------------------------------
the provisions of the Amended and Restated Shareholder Agreement, dated as of
July [ ], 1999, by and among the Corporation and certain of its stockholders,
the stockholders may, at any special meeting the notice of which shall state
that it is called for that purpose, remove, only for cause, any Director and
fill the vacancy; provided that whenever any Director shall have been elected by
the holders of any class of stock of the Corporation voting separately as a
class under the provisions of the Certificate of Incorporation, such Director
may be removed and the vacancy filled only by the holders of that class of stock
voting separately as a class. Vacancies caused by any such removal and not
filled by the stockholders at the meeting at which such removal shall have been
made, or any vacancy caused by the death or resignation of any Director or for
any other reason, and any newly created directorship resulting from any increase
in the authorized number of Directors, may be filled by the affirmative vote of
a majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign 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 as herein provided in connection with the
filling of other vacancies.
SECTION 4. Place of Meeting. The Board of Directors may hold its
----------------
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 6. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by telephone, electronic transmission, telegraph, facsimile or
telex at least two
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<PAGE>
hours before the meeting or by causing the same to be delivered personally or
sent by certified, registered or overnight mail at least one day before the
meeting to each Director. Unless otherwise indicated in the notice thereof, any
and all business other than an amendment of these Bylaws may be transacted at
any special meeting, and an amendment of these Bylaws may be acted upon if the
notice of the meeting shall have stated that the amendment of these Bylaws is
one of the purposes of the meeting. At any meeting at which every Director shall
be present, even though without any notice, any business may be transacted,
including the amendment of these Bylaws.
SECTION 7. Quorum. Subject to the provisions of Section 3 of this
------
Article II, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present,
a majority of those present may adjourn the meeting from time to time.
SECTION 8. Organization. The Chairman of the Board or, in his
------------
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of the Chairman of the Board and the President, a Chairman shall
be elected from the Directors present. The Secretary of the Corporation shall
act as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 9. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided by resolution passed by a majority of the whole Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these Bylaws; and unless such resolution, these Bylaws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 10. Conference Telephone Meetings. Unless otherwise
-----------------------------
restricted by the Certificate of Incorporation or by these Bylaws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute
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<PAGE>
presence in person at such meeting. Each party participating in such meeting
shall be assumed to be able to hear and communicate with each other party.
SECTION 11. Consent of Directors or Committee in Lieu of Meeting.
----------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or by 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 committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
SECTION 12. Records. The Board of Directors shall cause to be kept
-------
a record containing the minutes of the proceedings of the meetings of the Board
of Directors and of the stockholders, appropriate stock books and registers and
such books of records and accounts as may be necessary for the proper conduct of
the business of the Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Officers. The officers of the Corporation shall be a
--------
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the President, one or
more Vice Presidents, the Secretary and the Treasurer shall be elected by the
Board of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors.
Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these Bylaws, the officers shall have such authority
and shall perform such duties as from time to time may be determined by the
Board of Directors.
SECTION 2. Powers and duties of the Chairman of the Board. The
----------------------------------------------
Chairman of the Board, subject to the control of the Board of Directors, shall
have general charge and control of all its business and affairs and shall
perform all duties incident to the
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<PAGE>
office of the Chairman of the Board. He shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these Bylaws or by the Board of Directors.
SECTION 3. Powers and Duties of the Chief Executive Officer. The
-------------------------------------------------
Chief Executive Officer, subject to the provisions of these Bylaws and to the
direction of the Board of Directors, shall have ultimate authority for decisions
relating to the general management and control of the business and affairs of
the Corporation. The Chief Executive Officer shall perform such other duties as
may be assigned by the Board of Directors from time to time and shall, in the
absence of the Chairman of the Board of Directors, preside at all meetings of
the stockholders and the Board of Directors.
SECTION 4. Powers and Duties of the President. The President shall
----------------------------------
have such powers and perform such duties as may from time to time be assigned to
him by these Bylaws or by the Board of Directors or the Chief Executive Officer.
SECTION 5. Powers and Duties of the Vice Presidents. Each Vice
----------------------------------------
President shall perform all duties incident to the office of Vice President and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors, the
Chairman of the Board or the President.
SECTION 6. Powers and Duties of the Secretary. The Secretary shall
----------------------------------
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose; he shall
attend to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors, the Chairman of the
Board or the President shall authorize and direct; he shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors, the Chairman of the Board or the President
shall direct, all of which shall at all reasonable times be open to the
examination of any Director, upon application, at the office of the Corporation
during business hours; and he shall perform all duties incident to the office of
Secretary and shall also have such other powers and shall perform such other
duties as may from time to time be assigned to him by these Bylaws or the Board
of Directors, the Chairman of the Board or the President.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall
----------------------------------
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation that may have come into his
hands; he may endorse on behalf of the Corporation for collection checks, notes
and other obligations and shall deposit the same to the credit of the
Corporation in such bank or banks or depositary or depositories as the Board of
Directors may designate; he shall sign all receipts and vouchers for payments
made to the Corporation; he shall enter or cause to be entered regularly in the
books of the Corporation kept for the purpose full and accurate accounts of all
moneys received or paid or otherwise disposed of by him and whenever required by
the Board of Directors or the President shall render statements of such
accounts; he shall, at all reasonable times, exhibit his books and accounts to
any Director of the Corporation upon application at the office of the
Corporation during business hours; and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers
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<PAGE>
and shall perform such other duties as may from time to time be assigned to him
by these Bylaws or by the Board of Directors, the Chairman of the Board or the
President.
SECTION 8. Additional Officers. The Board of Directors may from time
-------------------
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
--------------------------
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the Board
------------------
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meetings of stockholders of any
corporation in which the Corporation may hold stock, and at any such meetings
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 11. Compensation of Officers. The officers of the Corporation
------------------------
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
----------
Stock-Seal-Fiscal Year
----------------------
SECTION 1. Certificates For Shares of Stock. The certificates for
--------------------------------
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed manually or in facsimile form, by
the Chairman of the Board, the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued
-10-
<PAGE>
and delivered as though the person or persons who signed such certificate or
certificates had not ceased to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
--------------------------------------
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
------------------
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in the preceding section.
SECTION 4. Regulations. The Board of Directors shall have power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. 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 or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, as the case may be, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day 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 day on which the meeting is held; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution
-11-
<PAGE>
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate
---------
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
--------------
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be
used by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall
-----------
begin on the first day of January and end on the thirty-first day of December of
each year.
ARTICLE V
---------
Miscellaneous Provisions
------------------------
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
-------------------
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer, or otherwise as the Board of Directors may from time to time,
by resolution, determine.
SECTION 2. Waivers of Notice. Whenever any notice whatever is
-----------------
required to be given by law, by the Certificate of Incorporation or by these
Bylaws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. The attendance of any
stockholder at a meeting in person or by proxy, without protesting at the
beginning of the meeting the lack of notice of such meeting, shall constitute a
waiver of notice of such stockholder.
-12-
<PAGE>
SECTION 3. Offices Outside Delaware. Except as otherwise required by
------------------------
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside the State of Delaware at such
place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the President.
SECTION 4. Audits. The accounts, books and records of the
------
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.
SECTION 5. Resignations. Any director or any officer or assistant
------------
officer, whether elected or appointed, may resign at any time by giving written
notice of such resignation to the Chairman, the President, or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received or at such later time as is specified therein.
No formal action shall be required of the Board of Directors or the stockholders
to make any such resignation effective.
SECTION 6. Indemnification of Directors, Officers and Employees.
----------------------------------------------------
(A) Each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit, or proceeding, whether civil,
criminal, administrative or investigative (hereinafter, a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer 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 maintained
or sponsored by the Corporation, whether the basis of such 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,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law (the "DGCL") as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, and excise taxes or penalties arising under
the Employee Retirement Income Security Act of 1974, as in effect from time to
time, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith (each, a "Loss"), and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (B) of this Section 6, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors. The right to indemnification conferred in
this Section 6 shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in
-13-
<PAGE>
defending any such proceeding in advance of its final disposition, such advances
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that if the DGCL
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer in advance of the final disposition of
a proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Section 6 or otherwise. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and rights to have the Corporation
pay the expenses incurred in defending any proceeding in advance of its final
disposition, to any employee or agent of the Corporation to the fullest extent
of the provisions of this Section 6 with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
(B) If a claim under paragraph (A) of this Section 6 is not paid in
full by the Corporation within 30 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 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 any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct that makes it permissible under the DGCL for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(C) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section 6 shall not be exclusive of any other right that any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, these Bylaws, agreement, vote of stockholders or otherwise. No
repeal or modification of this Section 6 shall in any way diminish or adversely
affect the rights of any director, officer, employee or agent of the Corporation
hereunder in respect of any occurrence or matter arising prior to any such
repeal or modification.
(D) The Corporation may maintain insurance, at its expense, to protect
-14-
<PAGE>
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any Loss, regardless whether the Corporation would have the power to
indemnify such person against such Loss under the DGCL.
(E) If any provision or provisions of this Section 6 shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this
Section 6 (including, without limitation, each portion of any paragraph of this
Bylaw containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Section 6 (including, without
limitation, each such portion of any paragraph of this Bylaw containing any such
provision held to be invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
ARTICLE VI
----------
Amendments
----------
These Bylaws and any amendment thereof may be altered, amended or
repealed, or new Bylaws may be adopted, at any meeting of the Board of Directors
or of the stockholders, provided that the notice of such meeting shall have
stated that the amendment of these Bylaws was one of the purposes of the
meeting; provided, however, that, in the case of amendments or adoptions by
stockholders, notwithstanding any other provisions of these Bylaws or any
provision of law that might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law, the Certificate
of Incorporation or these Bylaws, the affirmative vote of the holders of at
least 66 2/3% of the voting power of all the then-outstanding shares of stock
entitled to vote generally for directors, voting together as a single class,
shall be required to alter, amend or repeal any provision of these Bylaws or
adopt any new Bylaw.
-15-
<PAGE>
Exhibit 4.1
[Form of common stock certificate of
Tanning Technology Corporation]
NUMBER COMMON STOCK
TT SHARES
INCORPORATED UNDER TANNING TECHNOLOGY SEE REVERSE FOR
THE LAWS OF THE STATE CORPORATION CERTAIN DEFINITIONS OF DELAWARE
THIS CERTIFICATE IS
TRANSFERABLE IN NEW
YORK, NY AND
RIDGEFIELD PARK, NJ
THIS CERTIFIES that CUSIP 87588P 10 1
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
Tanning Technology Corporation
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This certificate
is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its authorized officers.
Dated:
<PAGE>
Tanning Technology
/s/ Wesley A. Light Corporation /s/ Larry G. Tanning
- ----------------- ---------------------
SECRETARY CORPORATE CHAIRMAN OF THE BOARD
SEAL
1997
DELAWARE
*
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
2
<PAGE>
[Form of reverse of common stock certificate of Tanning Technology Corporation]
Tanning Technology Corporation
The Corporation will furnish without charge of 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. Such request should be sent to the Secretary of the Corporation at its
home office, or to its Transfer Agent named on the face of this certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT--____ Custodian ______
(Cust) (Minor)
TEN ENT -- as tenants by the under Uniform Gifts to Minors
entireties Act __________________
(State)
JT TEN -- as joint tenants with right of
survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________________________ hereby sell, assign and
transfer unto
3
<PAGE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------------------
- -----------------------------------------------------------
- --------------------------------------------------------------------- (PLEASE
PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
____________________________________________________________shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
_____________________________________________________________Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated_______________________
4
<PAGE>
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
5
<PAGE>
EXHIBIT 5.1
[Letterhead of Fried, Frank, Harris, Shriver & Jacobson]
212-859-8176
July 21, 1999 (FAX: 212-859-8589)
Tanning Technology Corporation
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
RE: Registration Statement on Form S-1 (No. 333-78657)
Ladies and Gentlemen:
We have acted as special counsel for Tanning Technology Corporation, a
Delaware corporation (the "Company"), in connection with the underwritten
initial public offering (the "Offering") by the Company of shares (the "Shares")
of common stock, $0.01 par value per share (the "Common Stock"), of the Company,
including Shares which may be offered and sold upon the exercise of an over-
allotment option granted to the underwriters. The Shares are to be offered to
the public pursuant to an underwriting agreement to be entered into among the
Company, Credit Suisse First Boston Corporation, Salomon Smith Barney Inc., CIBC
World Markets Corp., ING Barings LLC, and Adams, Harkness & Hill, Inc., as
representatives of the underwriters (the "Underwriting Agreement"). The opinion
set forth below is based on the assumption that, prior to the sale of the Shares
pursuant to the Underwriting Agreement, the Company's Amended and Restated
Certificate of Incorporation will have become effective substantially in the
form filed as Exhibit 3.1 to the Registration Statement, as amended, of the
Company on Form S-1 (No. 333-78657) (the "Registration Statement"), and that at
least par value will be paid for the Shares.
With your permission, all assumptions and statements of reliance herein
have been made without any independent investigation or verification on our part
except to the extent otherwise expressly stated, and we express no opinion with
respect to the subject matter or accuracy of such assumptions or items relied
upon.
In connection with this opinion, we have (i) investigated such questions of
law, (ii) examined originals or certified, conformed or reproduction copies of
such agreements, instruments, documents and records of the Company, such
certificates
<PAGE>
Tanning Technology Corporation -2- July 21, 1999
of public officials and such other documents, and (iii) received such
information from officers and representatives of the Company as we have deemed
necessary or appropriate for the purposes of this opinion. In all examinations,
we have assumed the legal capacity of all natural persons executing documents,
the genuineness of all signatures, the authenticity of original and certified
documents and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduction copies. As to various questions of
fact relevant to the opinions expressed herein, we have relied upon, and assume
the accuracy of, representations and warranties contained in the documents and
certificates and oral or written statements and other information of or from
representatives of the Company and others and assume compliance on the part of
all parties to the documents with their covenants and agreements contained
therein.
Based upon the foregoing and subject to the limitations, qualifications and
assumptions set forth herein, we are of the opinion that the Shares registered
pursuant to the Registration Statement (when issued, delivered and paid for in
accordance with the terms of the Underwriting Agreement) will be duly
authorized, validly issued, fully paid and non-assessable.
The opinion expressed herein is limited to the General Corporation Law of
the State of Delaware, as currently in effect.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming part of the Registration Statement. In
giving such consent, we do not hereby admit that we are in the category of such
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Joseph A. Stern
_____________________________________
Joseph A. Stern
<PAGE>
Exhibit 10.4
AGREEMENT
EMPLOYMENT, CONFIDENTIALITY, AND NON-COMPETITION
THIS AGREEMENT, entered into this ___ day of July, 1999 by and between
TANNING TECHNOLOGY CORPORATION, a Delaware corporation doing business at 4600
South Ulster St., Suite 380, Denver, Colorado 80237 (hereafter referred to as
"Employer") and Larry Tanning (hereafter referred to as "Employee"), is made
upon the following terms and conditions:
RECITALS:
Employer is willing to accept and engage Employee to work for the Employer
for an indeterminate period of time solely at the Employer's will, and during
such period of employment Employer will provide Employee with certain salary,
benefits, training, workspace, and guidance in return for the full and faithful
performance by the Employee of those duties and responsibilities of the job as
identified in this Agreement and by the Employer from time to time.
Employee understands that significant assets of the Employer consist of
data, code, programs, software, processes, client contacts and lists, and other
technical, business, and financial information of all types developed by the
Employer and the Employer's employees for itself as well as clients and
customers, which assets are held by the Employer as trade secrets (hereinafter,
the "Trade Secrets").
Employee understands that certain information and data may be provided to
the Employer from time to time by clients and customers of the Employer, on the
understanding and condition that such data and information (hereinafter, the
"Third Party Information") will be protected by the Employer and its Employees
as confidential information, and as such will not be disclosed to any entity or
person not authorized by the client or customer.
Employee understands that in the course of performing work for the
Employer that he or she will develop from time to time ideas, processes, codes,
applications, information, data, and other items that will be the work product
of the employment relationship (hereinafter, the "Employment Work Product"), and
that any and all such Employment Work Product shall be and remain the property
of the Employer.
Employee understands that the Employer will invest substantial time and
money into the further training, education, and skill development of the
Employee, both by formal guidance and informal logistical and technical support,
and that such investment in the Employee is also a substantial asset of the
Employer which the Employer is entitled to protect.
<PAGE>
Employee understands and agrees that all present and future information
and know-how regarding Employer's business, financial affairs, services,
products, ideas, techniques, processes, plans, technology, codes, clients and
customers, whether or not in writing, and including all Trade Secrets, Third
Party Information, and Employment Work Product (collectively "Confidential
Information") will not be disclosed by the Employee to any person or entity
without the specific authorization of the Employer.
THEREFORE, for and in consideration of the recitals, covenants,
conditions, duties, and forbearances set forth in this document, the Employer
and Employee agree as follows:
1. Period of Employment and the Term of this Agreement. Unless otherwise
---------------------------------------------------
clearly specified in the document entitled "Employee Specific Terms"
(which document is attached to this Agreement and fully incorporated into
this Agreement by this reference), the Employee shall be employed by and
work for the Employer on an "at will" basis. Employment "at will" means
that both the Employer and Employee are given the full right to terminate
the employment relationship at any time, with or without cause to do so,
provided that the obligations set forth hereafter regarding "Termination
of Employment" are met. The provisions of Sections 5, 6, 7, 8, 10, and
14, hereafter, shall survive the termination of this Agreement.
2. Services of the Employee. During the "Period of Employment", the Employee
------------------------
agrees to devote his full time and attention to the business of the
Employer and those duties and obligations entrusted to the Employee as
specified in the Employee Specific Terms document and as specified by the
Employee's supervisor or superiors from time to time. "Period of
Employment" shall mean that period of time that the Employee provides
labor and/or services for the Employer, which may be prior to and after
the date of this Agreement. This obligation shall not prohibit the
Employee from engaging in charitable activities or passive investments on
the Employee's own time. The Employee's primary place of work shall be as
specified in the Employee Specific Terms document.
3. Wage or Salary, Benefits, Vacation, and Other Compensation. Employee
----------------------------------------------------------
shall be paid in the fashion, and at such rate or sum, as are more
particularly set forth in the Employee Specific Terms document. The
Employee shall be eligible for such benefits and Vacation as are also set
forth in the Employee Specific Terms document. The Employer agrees to
reimburse the Employee for all reasonable expenses incurred by the
Employee in connection with the Employee's services to Employer,
consistent with Employer's policies and procedures for reimbursement of
such expenses, as such policies and procedures may exist from time to
time.
-2-
<PAGE>
4. Termination of Employment. Unless provided otherwise in the Employee
-------------------------
Specific Terms document, this Agreement, together with the employment
relationship and the Period of Employment shall terminate under certain
circumstances as follows. The termination of the employment relationship
and the Period of Employment shall not terminate the obligation of the
parties to comply with those terms of this Agreement intended to extend
beyond the termination of the Period of Employment, including, without
limitation, those obligations with respect to confidentiality and non-
competition.
A. Death. This Agreement and the Period of Employment shall
-----
automatically terminate upon the death of the Employee.
B. Disability. This Agreement and the Period of Employment shall
----------
automatically terminate in the event of the Disability of the
Employee, subject to any limitations imposed by applicable law, upon
30 days' prior written notice by Employer. "Disability" shall have
the meaning given to such term in the Employer's disability insurance
policies as in effect from time to time.
C. Cause. This Agreement and the Period of Employment shall terminate at
-----
the option of the Employer immediately upon delivery by Employer of
written notice to Employee that:
i. the Employee has acted or failed to act in such a fashion as to
constitute dishonesty, fraud, or other serious misconduct
deemed by Employer to have a material adverse effect upon the
operation of the Employer's business, or
ii. the Employee has willfully failed to follow the lawful
instructions of his or her superiors, or
iii. the Employee has failed to comply with the requirements of this
Agreement and/or any workplace or job performance rule set
forth under the authority of this Agreement, or
iv. the Employee has failed to successfully or adequately perform
his or her work obligations as the same have been delegated to
him or her.
D. Not for Cause. Because the employment relationship created by this
-------------
Agreement is expressly understood to be "at will", of both parties,
this Agreement and the Period of Employment shall terminate upon at
least 14 days' written notice by either party to the other, unless
provided otherwise in the Employee Specific Terms document. In such
event, the Employer shall have the option, in its sole discretion,
to relieve the Employee of his or
-3-
<PAGE>
her work obligations and to deny the employee access to the
Employer's place of business for any reason other than to retrieve
the Employee's personal property.
E. Constructive Termination The Period of Employment shall terminate at
------------------------
the option of the Employee, upon at least 14 days' written notice by
the Employee, in the event that there is:
(i) a reduction in the Employee's Base Salary as set forth in the
Employee Specific Terms; or
(ii) a change in the location of Employee's employment outside the
metropolitan Denver area; or
(iii) a material decrease in Employee's benefits (other than a
decrease in benefits that is (a) Company-wide or (b)
applicable generally to senior executives of the Company); or
(iv) a material decrease in the Employee's responsibilities; or
(v) a material decrease in the Employee's title or reporting line.
In the event of any termination pursuant to paragraphs A, B, or C
above, the Employee shall be entitled to receive his or her salary and/or
other compensation as identified in the Employee Specific Terms document
through the effective date of termination. In the event of termination
pursuant to paragraphs A or B above, the Employee shall be entitled to
any benefits payable under any health, welfare or insurance plan
maintained by the Employer which covers such event. In the event of
termination pursuant to paragraphs A, B, or C above, the employee shall
not be entitled to any severance or other compensation except as provided
above, or except as may be provided otherwise in the Employee Specific
Terms document.
In the event of termination pursuant to paragraph D above, upon
notice by the Employee, the Employee shall be entitled to receive his or
her other salary or other compensation due prior to termination so long
as Employee continues to effectively perform his or her job obligations.
In the event of termination pursuant to paragraph D above, upon notice by
the Employer, or E above, the Employee shall be entitled to severance in
an amount equal to one year of the base salary in effect at the time of
termination, payable on a pro rata basis during the twelve months
--- ----
following termination. The Employee Specific Terms document and/or any
written agreement between the parties subsequent to the date of this
Agreement may specify additional or lesser payments or benefits due to
the Employee by reason of termination not for cause.
-4-
<PAGE>
5. Non-Competition Covenant and Agreement. The Employee acknowledges and
--------------------------------------
understands that his or her position with the Employer will be as an
officer of Employer, a member of executive or management personnel of the
Employer, or as a member of the professional staff of such executive or
management personnel. The Employer has invested and/or will invest
considerable time and money in the development and enhancement of the
Employee's skills and knowledge of the Employer's unique business and
unique type of business, which business is worldwide in scope and market.
This enhanced skill and knowledge will be the principal reason that the
Employer continues the employment relationship and continues to
compensate the Employee for his or her work. In addition, the Employee
has or will become aware of the Trade Secrets and trade practices of the
Employer which secrets and practices in the hands of a competitor or
potential competitor would cause substantial loss and damage to the
Employer and/or its customers and clients. Finally, the Employee has had
close customer contact, which would enable him or her to divert customer
trade. In consideration of all of the above identified matters, the
Employee agrees and acknowledges that it is appropriate to accept
restrictions on his or her right to work or be employed in a fashion
which will compete with the Employer's business and type of business.
Therefore Employee covenants, agrees to, and accepts the following
restrictions:
A. Employee will not, without the prior written consent of an authorized
officer of the Employer, during the Period of Employment, and for one
year after the termination of employment for any reason, alone or in
concert or cooperation with any other person or entity, as principal,
employee, shareholder, consultant, or any other type of advisor,
directly or indirectly develop, seek to develop, market, produce or
provide any commercial product or service in the nature of those
provided by or under development by the employer or any of its
affiliates during the Period of Employment. This non-competition
obligation shall apply to North America, Europe and any other country
where Employer or any of its subsidiaries or affiliates are actively
engaged in or pursuing business during the Employee's Period of
Employment. This paragraph A shall not prohibit the ownership by
Employee of less than 5% of any publicly traded corporation.
B. During the period that Employee is subject to the restrictions set
forth in A above, he or she shall not (1) hire or solicit the
employment or services of any person who is an employee or consultant
of the Employer or its successors or assigns, or any former employee
of the Employer whose employment has been terminated for less than six
(6) months; or (2) directly or indirectly solicit business competitive
with the Employer's then current
-5-
<PAGE>
business from any customer or client which has done business with the
Employer or from which the Employer has solicited business at any time
or from time to time within two (2) years from the date of such
solicitation. The above shall not prohibit the Employee from using the
services of any such person in a way that clearly does not compete
with the business of Employer.
C. The time periods of the restrictions set forth in A and B above shall
be extended for any period of time that Employee is found to be in
violation of any provision of this Section 5.
6. Confidentiality, Non-Disclosure, and Proprietary Rights. Employee
-------------------------------------------------------
understands and acknowledges that all present and future information and
know-how regarding the Confidential Information, whether or not created by
the Employee, whether or not formally marked or identified as
confidential, are and shall remain the exclusive property of the Employer.
Any material, ideas and information which is generally known to the public
will not be deemed Confidential Information. Employee understands that
such Confidential Information and the proprietary rights contained therein
are substantial and essential assets of Employer's business, and as such,
it is essential that the same be protected. In order to meet this goal,
the Employee covenants and promises to the Employer as follows:
A. During Employee's Period of Employment by the Employer, and
thereafter, the Employee will not use, disclose, or permit access to
any Confidential Information, and will take all reasonable precautions
to prevent any person or entity access to any of the Confidential
Information other than as required in the performance of Employee's
duties with the Employer. In order to satisfy the needs of Employer's
clients and customers, Employee will sign any confidentiality
agreement reasonably requested by such third parties and/or Employer.
Employee understands that he or she is not permitted to sell, license,
market or otherwise exploit any products, services or other
Confidential Information, in whole or in part, including software or
code in any form.
B. At the end of the Employee's Period of Employment, Employee will
deliver to the Employer all tangible materials embodying the
Confidential Information, including, without limitation, any computer
software, input sheets and descriptions, code, code libraries,
electronic storage disks, practice aids and practice aid materials
(worksheets, schedules, tables, brochures, manuals, etc.),
documentation, records, listings, notes, data, sketches, drawings,
memoranda, models, accounts, reference materials, samples, human or
machine-readable media and equipment, and any other
-6-
<PAGE>
material which is or in any way relates to the Confidential
information, to the businesses of the Employer, to the representation
of the Employer, or to the clients, customers, suppliers vendors, or
similar contacts of the Employer. Employee further agrees not to
retain any copies of the above-described materials.
C. Employee hereby agrees to assign and does hereby assign all of
Employee's right, title and interest in or to any and all ideas,
concepts, know-how, techniques, processes, inventions, discoveries,
devleopments, works of authorship, inovations and improvements
(collectively "Inventions") conceived or made by Employee, whether
alone or in concert with others whether patentable or subject to
potential copyrights or not, except those that the Employee developed
or develops entirely on his or her own time without using the
equipment, supplies, facilities, or Confidential Information of the
Employer and provided that such Inventions are unrelated to the
business of the Employer. Employee agrees to promptly inform and
disclose all Inventions to the Employer in writing and with respect to
those Inventions that Employee is required to assign to the Employer
hereunder to provide all assistance reasonably requested by the
Employer in the preservation of its interests in the Inventions (such
as by executing documents, testifying, etc.), such assistance to be
provided at the Employer's expense but without additional compensation
to the Employee.
D. Employee agrees that any work prepared by the Employee during his or
her Period of Employment which work is subject to assignment under C
above and which is eligible for United States copyright protection or
protection under the Universal Copyright Convention the Berne
Copyright Convention and/or the Buenos Aires Copyright Convention,
shall be a "work made for hire". In the event that any such work is
deemed not to be a "work made for hire". Employee hereby assigns all
right, title and interest in and to the copyright in such work to the
Employer, and agrees to provide all assistance reasonably requested in
the establishment, preservation and enforcement of the Employer's
copyright in such work, such assistance to be provided at the
Employer's expense but without any additional compensation to
Employee.
E. In the event that the Employer is unable, as a result of inability to
find the Employee after a reasonably diligent effort, as a result of
the death or incapacity of the Employee, or as a result of the
unjustifiable refusal of the Employee, to secure the Employee's
signature on any letters patent, copyright or other analogous
protection relating to Inventions or other proprietary rights, the
Employee hereby irrevocably designates and appoints Employer, by its
duly authorized officers and agents as the Employee's
-7-
<PAGE>
agent and attorney-in-fact, to act for and on the Employee's behalf
and stead to execute and file any such application or applications and
to do all other lawfully permitted acts to further the prosecution and
issuance of letters patent, copyright, or other analogous protection
thereon with the same legal force and effect as if executed by the
Employee.
7. Employment Notification Requirement. During the Period of Employment, and
-----------------------------------
thereafter during any subsequent period of time that the Employee is
reasonably likely to be subject to a continuing obligation under the terms
of this Agreement, the Employee will notify the Employer of any change of
address, and the Employee will identify and notify the Employer of each
and any new job or other business activity in which the Employee plans to
engage, together with the name and address of the new employer and the
nature of the Employee's new position with such new employer.
8. Former Employment or Work. Employee represents, acknowledges and agrees
-------------------------
that he or she has not brought, and will not bring with him or her, or use
in the performance of his or her duties for the Employer, any materials or
documents of any former employer, person, or entity of any type, which are
not generally available to the public, unless the Employee has obtained
written authorization for the possession and use of such materials or
documents and provided such authorization to Employer. Employee also
understands and agrees, that in his or her employment with the Employer,
Employee shall not breach any obligation of confidentiality or legal duty
that Employee has to any former employer or client and agrees that he or
she will fulfill any and all such obligations during his or her Period of
Employment.
9. Assignment. This Agreement and the duties, obligations and benefits
----------
hereunder shall bind and benefit the parties hereto and to the extent
necessary to carry out its intentions, the legal and personal
representatives of the parties. This Agreement may not be assigned
without the written permission of the parties except that the Employer may
assign this Agreement to any successor of the Employer by reason of
reorganization, merger, consolidation, or the partial or complete sale of
the Employer's business and/or assets.
10. Indemnification and Remedy. Each party agrees to indemnify, and save
--------------------------
harmless the other against any, and all damages, claims, losses or
expenses, including reasonable attorney's fees, arising from or relating
to any breach of this Agreement. Both parties acknowledge and agree that
a breach by the Employee of the obligations set forth in Sections 5
through 9 above, will result in immediate and irreparable harm to Employer
and that Employer would have no adequate remedy at law and that as a
result, the Employer will be entitled to specific performance as well as
other appropriate injunctive and equitable
-8-
<PAGE>
remedies such as a temporary restraining order. None of the foregoing
shall limit the Employer from seeking a legal remedy including the
recovery of monetary damages.
11. Workplace Rules. The Employer may make, adopt, and provide to the
---------------
Employee such rules as the Employer deems necessary to provide for a safe,
efficient, productive and effective workplace and work environment. Any
such rules, to the extent not violative of any legal right of the
Employee, shall be deemed to be as binding upon the employee as if they
were included in the body of this Agreement.
12. Entire Agreement and Amendment. This Agreement, together with the
------------------------------
Employee Specific Terms document, constitutes the entire agreement between
the Employer and Employee, and any verbal or written communication between
the parties prior to the adoption of this Agreement shall be deemed merged
herein and of no further force and effect. This Agreement may only be
altered or amended by a writing signed by the Employee and an authorized
officer of the Employer. This Agreement shall become effective on the
date the Employer consummates an underwritten public offering of its
shares of common stock pursuant to a registration statement declared
effective by the Securities and Exchange Commission (the "IPO Date").
13. Waiver. Neither the delay nor failure by the Employer or Employee to
------
exercise any right under this Agreement, nor partial or single exercise of
any such right, shall constitute a waiver of that or any other right.
14. Governing Law, Interpretation and Venue. This Agreement is entered into
---------------------------------------
in Denver, Colorado, and as such it shall be interpreted and enforced
under the laws of the state of Colorado applicable to contracts made to be
performed entirely within Colorado. In the event that any one or more
provision in this Agreement shall, for any reason, held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such provision had never been
contained herein. If any provision in this Agreement shall be held to be
excessively broad as to duration, activity or subject in any jurisdiction,
it shall be construed by limiting and reducing the provision which is
deemed excessively broad. A limitation or reduction in the application of
any provision in one jurisdiction shall not affect the application of the
same provision in any other jurisdiction. The proper venue for any legal
action as to the interpretation or enforcement of this Agreement shall be
a court of appropriate jurisdiction located in the City and County of
Denver, Colorado.
-9-
<PAGE>
15. Notices. Any notice required or permitted by this Agreement shall be
-------
effective when received and shall be sufficient if in writing and
personally delivered (including by express courier) or sent by certified
mail with return receipt to the address set forth at the end of this
Agreement or at such other address as may by notice be specified by one
party to the other.
16. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which shall together
constitute one and the same Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above (June ___, 1999).
TANNING TECHNOLOGY EMPLOYEE
CORPORATION (Employer)
By:
------------------------------ ---------------------------------
Printed Name: Larry Tanning
--------------------
Title:
---------------------------
4600 South Ulster St., Suite 380
Denver, CO 80237
303-220-9944
-11-
<PAGE>
Employee Specific Terms
-----------------------
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: July _____, 1999
To: Larry Tanning
From: Compensation Committee
Tanning Technology is pleased to offer you the following Executive Compensation
plan for fiscal year 1999 (January 1 to December 31, 1999).
Job Title: President, CEO & Chairman of Board of Directors
Supervisor: Board of Directors
The effective date of this compensation plan will be the IPO Date. Tanning is
pleased to provide you with the following compensation plan in recognition of
your important job responsibilities:
KEY COMPENSATION ELEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Annual Base Salary: $295,000 Effective Date of
Semi-monthly pay rate: $12,291.67 base salary rate: IPO Date
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part I: Global Revenue Bonus Incentive Plan
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Revenue Goals $45.0 M $48.0 M $52.0 M $56.0 M $60.0 M $64.0 M $68.0 M $72.0 M
Bonus as % of Base Salary: 0.0% 5.0% 9.0% 12.0% 15.0% 18.0% 21.0% 24.0%
- ------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $14,750 $26,550 $35,400 $44,250 $53,100 $61,950 $70,800
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part II: Global EBIT Bonus Incentive Plan
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary: 0.0% 8.0% 10.0% 13.0% 15.0% 18.0% 21.0% 24.0%
- ------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $23,600 $29,500 $38,350 $44,250 $53,100 $61,950 $70,800
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part III: Stock Appreciation Incentive Plan
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Appreciation at 12/31/99: 25.0% 30.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0%
Bonus as % of Base Salary: 0.0% 7.0% 10.0% 13.0% 15.0% 18.0% 21.0% 23.0%
- -------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $20,650 $29,500 $38,350 $44,250 $53,100 $61,950 $67,850
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Part IV: MBO Goals Bonus Incentive Plan
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 0.0% 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 17.0%
- -------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $11,800 $17,700 $23,600 $29,500 $35,400 $44,250 $50,150
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Establish leadership as CEO with the Management Committee and optimize
decision making
#2: Insure positive employee relations climate and minimal involuntary turnover
levels
#3: Establish 66% sales backlog by 12/31/99
#4: Complete IPO Implementation in 1999
#5: Commit 25% of time to employee, organizational and communication
development by 4th quarter 1999
#6: Strengthen operational integration between U.S. and European organizations
#7: Hire head of sales and insure competent and effective sales organization
staffing
#8: Complete formation of Board of Directors and Board Committees
#9: Develop and implement Marketing communications plans and internal
communciations plans
SUMMARY OF EARNINGS POTENTIAL FOR PAID COMPENSATION
<TABLE>
<CAPTION>
Compensation Plan: Summary of Earnings Potential for Incentive Plan Parts I, II, III & IV
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 0.0% 24.0% 35.0% 46.0% 55.0% 66.0% 78.0% 88.0%
Total Bonus Value: $ 0 $ 70,800 $103,250 $135,700 $162,250 $194,700 $230,100 $259,600
- ----------------------------------------------------------------------------------------------------------------------
Total Base+Bonus Potential: $295,000 $365,800 $398,250 $430,700 $457,250 $489,700 $525,100 $554,600
- -------------------------------=======================================================================================
</TABLE>
TANNING TECHNOLOGY CORPORATION ACKNOWLEDGEMENT OF RECEIPT
AND UNDERSTANDING OF TERMS
BY:
---------------------------------- --------------------------------
Compensation Committee Chairman Larry Tanning
President, CEO & Chairman
Date: Date:
-------------------- --------------------
CC: Bipin Agarwal, Henry Skelsey
-13-
<PAGE>
Exhibit 10.5
PROMISSORY NOTE
---------------
$250,000.00 July ___, 1999
FOR VALUE RECEIVED, Larry Tanning (the "Borrower"), promises to pay to
Tanning Technology Corporation, a Delaware corporation ("Lender"), the principal
sum of TWO HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000.00) (the "Advance
Balance"), together with interest on the unpaid principal balance of this Note
from time to time outstanding at a rate of ____ per annum, compounded semi-
annually, until paid in full. Principal and interest shall be paid in full in
cash on July __, 2001. This Promissory Note shall become effective on the IPO
Date (as defined in the Employment, Confidentiality, and Non-Competition
Agreement between the Borrower and the Lender).
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed. All payments by the Borrower under
this Note shall be in immediately available funds, which may be made other than
by wire transfer.
This Note may be prepaid in whole or in part at any time or from time
to time. Any such prepayment shall be without premium or penalty. Whenever any
amount is paid under this Note, such amount shall be applied first to interest
and then to principal.
If any amount due under this Note becomes due and payable on a
Saturday, Sunday, or public or other banking holiday under the laws of the State
of Colorado, the due date therefor thereof shall be extended to the next
succeeding business day, and interest shall be payable thereon at the rate
hereunder specified during such extension, unless such next succeeding business
day falls in the next calendar month, in which case the maturity shall be the
next preceding business day.
Upon the failure to pay any interest or principal under this Note when
due, which shall remain unremedied for ten days following the date when such
interest or principal was due hereunder; then, and in any such event (an "Event
of Default"), the Lender may declare, by notice of default given to the
Borrower, the entire principal amount of this Note to be due and payable,
whereupon the entire principal amount of this Note outstanding and any accrued
and unpaid interest hereunder shall become due and payable without presentment,
demand, protest, notice of dishonor and all other demands and notices of any
kind. Upon the occurrence of an Event of Default, the accrued and unpaid
interest hereunder shall thereafter bear the same rate of interest as on the
principal hereunder, but in no event shall such interest be charged which would
violate any applicable usury law.
No delay or failure by the Lender in the exercise of any right or
remedy shall constitute a waiver thereof, and no single or partial exercise by
the Lender of any right or remedy shall preclude other or future exercise
thereof or the exercise of any other right or remedy.
The Borrower shall pay on demand all reasonable costs and expenses of
Lender in connection with the enforcement of this Note including the reasonable
fees and expenses of counsel with respect thereto.
<PAGE>
The Borrower expressly waives any and all rights that it may have to
presentment, demand, protest, or other notice of any kind.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified, or amended.
THIS NOTE SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES). THE BORROWER HEREBY SUBMITS TO NON-EXCLUSIVE JURISDICTION AND
TO THE LAYING OF VENUE IN THE COUNTY OF ________, STATE OF COLORADO, WITH
RESPECT TO ALL MATTERS RELATING TO THIS NOTE.
------------------------------------
Larry Tanning
STATE OF ____________ )
) ss.:
COUNTY OF ___________ )
On the ___ day of July, 1999, before me personally came Larry Tanning,
to me known to be the individual(s) described in and who executed the foregoing
instrument, and acknowledged that he executed the same.
--------------------------------------
Notary Public
<PAGE>
Exhibit 10.6
AGREEMENT
EMPLOYMENT, CONFIDENTIALITY, AND NON-COMPETITION
THIS AGREEMENT, entered into this ___ day of July, 1999 by and between
TANNING TECHNOLOGY CORPORATION, a Delaware corporation doing business at 4600
South Ulster St., Suite 380, Denver, Colorado 80237 (hereafter referred to as
"Employer") and Bipin Agarwal (hereafter referred to as "Employee"), is made
upon the following terms and conditions:
RECITALS:
Employer is willing to accept and engage Employee to work for the Employer
for an indeterminate period of time solely at the Employer's will, and during
such period of employment Employer will provide Employee with certain salary,
benefits, training, workspace, and guidance in return for the full and faithful
performance by the Employee of those duties and responsibilities of the job as
identified in this Agreement and by the Employer from time to time.
Employee understands that significant assets of the Employer consist of
data, code, programs, software, processes, client contacts and lists, and other
technical, business, and financial information of all types developed by the
Employer and the Employer's employees for itself as well as clients and
customers, which assets are held by the Employer as trade secrets (hereinafter,
the "Trade Secrets").
Employee understands that certain information and data may be provided to
the Employer from time to time by clients and customers of the Employer, on the
understanding and condition that such data and information (hereinafter, the
"Third Party Information") will be protected by the Employer and its Employees
as confidential information, and as such will not be disclosed to any entity or
person not authorized by the client or customer.
Employee understands that in the course of performing work for the
Employer that he or she will develop from time to time ideas, processes, codes,
applications, information, data, and other items that will be the work product
of the employment relationship (hereinafter, the "Employment Work Product"), and
that any and all such Employment Work Product shall be and remain the property
of the Employer.
Employee understands that the Employer will invest substantial time and
money into the further training, education, and skill development of the
Employee, both by formal guidance and informal logistical and technical support,
and that such investment in the Employee is also a substantial asset of the
Employer which the Employer is entitled to protect.
<PAGE>
Employee understands and agrees that all present and future information
and know-how regarding Employer's business, financial affairs, services,
products, ideas, techniques, processes, plans, technology, codes, clients and
customers, whether or not in writing, and including all Trade Secrets, Third
Party Information, and Employment Work Product (collectively "Confidential
Information") will not be disclosed by the Employee to any person or entity
without the specific authorization of the Employer.
THEREFORE, for and in consideration of the recitals, covenants,
conditions, duties, and forbearances set forth in this document, the Employer
and Employee agree as follows:
1. Period of Employment and the Term of this Agreement. Unless otherwise
---------------------------------------------------
clearly specified in the document entitled "Employee Specific Terms"
(which document is attached to this Agreement and fully incorporated into
this Agreement by this reference), the Employee shall be employed by and
work for the Employer on an "at will" basis. Employment "at will" means
that both the Employer and Employee are given the full right to terminate
the employment relationship at any time, with or without cause to do so,
provided that the obligations set forth hereafter regarding "Termination
of Employment" are met. The provisions of Sections 5, 6, 7, 8, 10, and
14, hereafter, shall survive the termination of this Agreement.
2. Services of the Employee. During the "Period of Employment", the Employee
------------------------
agrees to devote his full time and attention to the business of the
Employer and those duties and obligations entrusted to the Employee as
specified in the Employee Specific Terms document and as specified by the
Employee's supervisor or superiors from time to time. "Period of
Employment" shall mean that period of time that the Employee provides
labor and/or services for the Employer, which may be prior to and after
the date of this Agreement. This obligation shall not prohibit the
Employee from engaging in charitable activities or passive investments on
the Employee's own time. The Employee's primary place of work shall be as
specified in the Employee Specific Terms document.
3. Wage or Salary, Benefits, Vacation, and Other Compensation. Employee
----------------------------------------------------------
shall be paid in the fashion, and at such rate or sum, as are more
particularly set forth in the Employee Specific Terms document. The
Employee shall be eligible for such benefits and Vacation as are also set
forth in the Employee Specific Terms document. The Employer agrees to
reimburse the Employee for all reasonable expenses incurred by the
Employee in connection with the Employee's services to Employer,
consistent with Employer's policies and procedures for reimbursement of
such expenses, as such policies and procedures may exist from time to
time.
-2-
<PAGE>
4. Termination of Employment. Unless provided otherwise in the Employee
-------------------------
Specific Terms document, this Agreement, together with the employment
relationship and the Period of Employment shall terminate under certain
circumstances as follows. The termination of the employment relationship
and the Period of Employment shall not terminate the obligation of the
parties to comply with those terms of this Agreement intended to extend
beyond the termination of the Period of Employment, including, without
limitation, those obligations with respect to confidentiality and non-
competition.
A. Death. This Agreement and the Period of Employment shall
-----
automatically terminate upon the death of the Employee.
B. Disability. This Agreement and the Period of Employment shall
----------
automatically terminate in the event of the Disability of the
Employee, subject to any limitations imposed by applicable law, upon
30 days' prior written notice by Employer. "Disability" shall have
the meaning given to such term in the Employer's disability insurance
policies as in effect from time to time.
C. Cause. This Agreement and the Period of Employment shall terminate at
-----
the option of the Employer immediately upon delivery by Employer of
written notice to Employee that:
i. the Employee has acted or failed to act in such a fashion as to
constitute dishonesty, fraud, or other serious misconduct
deemed by Employer to have a material adverse effect upon the
operation of the Employer's business, or
ii. the Employee has willfully failed to follow the lawful
instructions of his or her superiors, or
iii. the Employee has failed to comply with the requirements of
this Agreement and/or any workplace or job performance rule set
forth under the authority of this Agreement, or
iv. the Employee has failed to successfully or adequately perform
his or her work obligations as the same have been delegated to
him or her.
D. Not for Cause. Because the employment relationship created by this
-------------
Agreement is expressly understood to be "at will", of both parties,
this Agreement and the Period of Employment shall terminate upon at
least 14 days' written notice by either party to the other, unless
provided otherwise in the Employee Specific Terms document. In such
event, the Employer shall have the option, in its sole discretion, to
relieve the Employee of his or
-3-
<PAGE>
her work obligations and to deny the employee access to the Employer's
place of business for any reason other than to retrieve the Employee's
personal property.
E. Constructive Termination The Period of Employment shall terminate at
------------------------
the option of the Employee, upon at least 14 days' written notice by
the Employee, in the event that there is:
(i) a reduction in the Employee's Base Salary as set forth in the
Employee Specific Terms; or
(ii) a change in the location of Employee's employment outside the
metropolitan Denver area; or
(iii) a material decrease in Employee's benefits (other than a
decrease in benefits that is (a) Company-wide or (b) applicable
generally to senior executives of the Company); or
(iv) a material decrease in the Employee's responsibilities; or
(v) a material decrease in the Employee's title or reporting line.
In the event of any termination pursuant to paragraphs A, B, or C
above, the Employee shall be entitled to receive his or her salary and/or
other compensation as identified in the Employee Specific Terms document
through the effective date of termination. In the event of termination
pursuant to paragraphs A or B above, the Employee shall be entitled to
any benefits payable under any health, welfare or insurance plan
maintained by the Employer which covers such event. In the event of
termination pursuant to paragraphs A, B, or C above, the employee shall
not be entitled to any severance or other compensation except as provided
above, or except as may be provided otherwise in the Employee Specific
Terms document.
In the event of termination pursuant to paragraph D above, upon
notice by the Employee, the Employee shall be entitled to receive his or
her other salary or other compensation due prior to termination so long
as Employee continues to effectively perform his or her job obligations.
In the event of termination pursuant to paragraph D above, upon notice by
the Employer, or E above, the Employee shall be entitled to severance in
an amount equal to one year of the base salary in effect at the time of
termination, payable on a pro rata basis during the twelve months
--- ----
following termination, plus a pro rata portion of his bonus for the year
--- ----
of termination. The Employee Specific Terms document and/or any written
agreement between the parties subsequent to the date of this
-4-
<PAGE>
Agreement may specify additional or lesser payments or benefits due to
the Employee by reason of termination not for cause.
5. Non-Competition Covenant and Agreement. The Employee acknowledges and
--------------------------------------
understands that his or her position with the Employer will be as an
officer of Employer, a member of executive or management personnel of the
Employer, or as a member of the professional staff of such executive or
management personnel. The Employer has invested and/or will invest
considerable time and money in the development and enhancement of the
Employee's skills and knowledge of the Employer's unique business and
unique type of business, which business is worldwide in scope and market.
This enhanced skill and knowledge will be the principal reason that the
Employer continues the employment relationship and continues to compensate
the Employee for his or her work. In addition, the Employee has or will
become aware of the Trade Secrets and trade practices of the Employer
which secrets and practices in the hands of a competitor or potential
competitor would cause substantial loss and damage to the Employer and/or
its customers and clients. Finally, the Employee has had close customer
contact, which would enable him or her to divert customer trade. In
consideration of all of the above identified matters, the Employee agrees
and acknowledges that it is appropriate to accept restrictions on his or
her right to work or be employed in a fashion which will compete with the
Employer's business and type of business.
Therefore Employee covenants, agrees to, and accepts the following
restrictions:
A. Employee will not, without the prior written consent of an authorized
officer of the Employer, during the Period of Employment, and for one
year after the termination of employment for any reason, alone or in
concert or cooperation with any other person or entity, as principal,
employee, shareholder, consultant, or any other type of advisor,
directly or indirectly develop, seek to develop, market, produce or
provide any commercial product or service in the nature of those
provided by or under development by the employer or any of its
affiliates during the Period of Employment. This non-competition
obligation shall apply to North America, Europe and any other country
where Employer or any of its subsidiaries or affiliates are actively
engaged in or pursuing business during the Employee's Period of
Employment. This paragraph A shall not prohibit the ownership by
Employee of less than 5% of any publicly traded corporation.
B. During the period that Employee is subject to the restrictions set
forth in A above, he or she shall not (1) hire or solicit the
employment or services of any person who is an employee or consultant
of the Employer or its
-5-
<PAGE>
successors or assigns, or any former employee of the Employer whose
employment has been terminated for less than six (6) months; or (2)
directly or indirectly solicit business competitive with the
Employer's then current business from any customer or client which has
done business with the Employer or from which the Employer has
solicited business at any time or from time to time within two (2)
years from the date of such solicitation. The above shall not prohibit
the Employee from using the services of any such person in a way that
clearly does not compete with the business of Employer.
C. The time periods of the restrictions set forth in A and B above shall
be extended for any period of time that Employee is found to be in
violation of any provision of this Section 5.
6. Confidentiality, Non-Disclosure, and Proprietary Rights. Employee
-------------------------------------------------------
understands and acknowledges that all present and future information and
know-how regarding the Confidential Information, whether or not created by
the Employee, whether or not formally marked or identified as
confidential, are and shall remain the exclusive property of the Employer.
Any material, ideas and information which is generally known to the public
will not be deemed Confidential Information. Employee understands that
such Confidential Information and the proprietary rights contained therein
are substantial and essential assets of Employer's business, and as such,
it is essential that the same be protected. In order to meet this goal,
the Employee covenants and promises to the Employer as follows:
A. During Employee's Period of Employment by the Employer, and
thereafter, the Employee will not use, disclose, or permit access to
any Confidential Information, and will take all reasonable precautions
to prevent any person or entity access to any of the Confidential
Information other than as required in the performance of Employee's
duties with the Employer. In order to satisfy the needs of Employer's
clients and customers, Employee will sign any confidentiality
agreement reasonably requested by such third parties and/or Employer.
Employee understands that he or she is not permitted to sell, license,
market or otherwise exploit any products, services or other
Confidential Information, in whole or in part, including software or
code in any form.
B. At the end of the Employee's Period of Employment, Employee will
deliver to the Employer all tangible materials embodying the
Confidential Information, including, without limitation, any computer
software, input sheets and descriptions, code, code libraries,
electronic storage disks, practice aids and practice aid materials
(worksheets, schedules, tables,
-6-
<PAGE>
brochures, manuals, etc.), documentation, records, listings, notes,
data, sketches, drawings, memoranda, models, accounts, reference
materials, samples, human or machine-readable media and equipment, and
any other material which is or in any way relates to the Confidential
information, to the businesses of the Employer, to the representation
of the Employer, or to the clients, customers, suppliers vendors, or
similar contacts of the Employer. Employee further agrees not to
retain any copies of the above-described materials.
C. Employee hereby agrees to assign and does hereby assign all of
Employee's right, title and interest in or to any and all ideas,
concepts, know-how, techniques, processes, inventions, discoveries,
devleopments, works of authorship, inovations and improvements
(collectively "Inventions") conceived or made by Employee, whether
alone or in concert with others whether patentable or subject to
potential copyrights or not, except those that the Employee developed
or develops entirely on his or her own time without using the
equipment, supplies, facilities, or Confidential Information of the
Employer and provided that such Inventions are unrelated to the
business of the Employer. Employee agrees to promptly inform and
disclose all Inventions to the Employer in writing and with respect to
those Inventions that Employee is required to assign to the Employer
hereunder to provide all assistance reasonably requested by the
Employer in the preservation of its interests in the Inventions (such
as by executing documents, testifying, etc.), such assistance to be
provided at the Employer's expense but without additional compensation
to the Employee.
D. Employee agrees that any work prepared by the Employee during his or
her Period of Employment which work is subject to assignment under C
above and which is eligible for United States copyright protection or
protection under the Universal Copyright Convention the Berne
Copyright Convention and/or the Buenos Aires Copyright Convention,
shall be a "work made for hire". In the event that any such work is
deemed not to be a "work made for hire". Employee hereby assigns all
right, title and interest in and to the copyright in such work to the
Employer, and agrees to provide all assistance reasonably requested in
the establishment, preservation and enforcement of the Employer's
copyright in such work, such assistance to be provided at the
Employer's expense but without any additional compensation to
Employee.
E. In the event that the Employer is unable, as a result of inability to
find the Employee after a reasonably diligent effort, as a result of
the death or incapacity of the Employee, or as a result of the
unjustifiable refusal of the Employee, to secure the Employee's
signature on any letters patent,
-7-
<PAGE>
copyright or other analogous protection relating to Inventions or
other proprietary rights, the Employee hereby irrevocably designates
and appoints Employer, by its duly authorized officers and agents as
the Employee's agent and attorney-in-fact, to act for and on the
Employee's behalf and stead to execute and file any such application
or applications and to do all other lawfully permitted acts to further
the prosecution and issuance of letters patent, copyright, or other
analogous protection thereon with the same legal force and effect as
if executed by the Employee.
7. Employment Notification Requirement. During the Period of Employment, and
-----------------------------------
thereafter during any subsequent period of time that the Employee is
reasonably likely to be subject to a continuing obligation under the terms
of this Agreement, the Employee will notify the Employer of any change of
address, and the Employee will identify and notify the Employer of each
and any new job or other business activity in which the Employee plans to
engage, together with the name and address of the new employer and the
nature of the Employee's new position with such new employer.
8. Former Employment or Work. Employee represents, acknowledges and agrees
-------------------------
that he or she has not brought, and will not bring with him or her, or use
in the performance of his or her duties for the Employer, any materials or
documents of any former employer, person, or entity of any type, which are
not generally available to the public, unless the Employee has obtained
written authorization for the possession and use of such materials or
documents and provided such authorization to Employer. Employee also
understands and agrees, that in his or her employment with the Employer,
Employee shall not breach any obligation of confidentiality or legal duty
that Employee has to any former employer or client and agrees that he or
she will fulfill any and all such obligations during his or her Period of
Employment.
9. Assignment. This Agreement and the duties, obligations and benefits
----------
hereunder shall bind and benefit the parties hereto and to the extent
necessary to carry out its intentions, the legal and personal
representatives of the parties. This Agreement may not be assigned
without the written permission of the parties except that the Employer may
assign this Agreement to any successor of the Employer by reason of
reorganization, merger, consolidation, or the partial or complete sale of
the Employer's business and/or assets.
10. Indemnification and Remedy. Each party agrees to indemnify, and save
--------------------------
harmless the other against any, and all damages, claims, losses or
expenses, including reasonable attorney's fees, arising from or relating
to any breach of this Agreement. Both parties acknowledge and agree that
a breach by the Employee of the obligations set forth in Sections 5
through 9 above, will result in
-8-
<PAGE>
immediate and irreparable harm to Employer and that Employer would have no
adequate remedy at law and that as a result, the Employer will be entitled
to specific performance as well as other appropriate injunctive and
equitable remedies such as a temporary restraining order. None of the
foregoing shall limit the Employer from seeking a legal remedy including
the recovery of monetary damages.
11. Workplace Rules. The Employer may make, adopt, and provide to the
---------------
Employee such rules as the Employer deems necessary to provide for a safe,
efficient, productive and effective workplace and work environment. Any
such rules, to the extent not violative of any legal right of the
Employee, shall be deemed to be as binding upon the employee as if they
were included in the body of this Agreement.
12. Entire Agreement and Amendment. This Agreement, together with the
------------------------------
Employee Specific Terms document, constitutes the entire agreement between
the Employer and Employee, and any verbal or written communication between
the parties prior to the adoption of this Agreement shall be deemed merged
herein and of no further force and effect. This Agreement may only be
altered or amended by a writing signed by the Employee and an authorized
officer of the Employer. This Agreement shall become effective on the
date the Employer consummates an underwritten public offering of its
shares of common stock pursuant to a registration statement declared
effective by the Securities and Exchange Commission (the "IPO Date").
13. Waiver. Neither the delay nor failure by the Employer or Employee to
------
exercise any right under this Agreement, nor partial or single exercise of
any such right, shall constitute a waiver of that or any other right.
14. Governing Law, Interpretation and Venue. This Agreement is entered into
---------------------------------------
in Denver, Colorado, and as such it shall be interpreted and enforced
under the laws of the state of Colorado applicable to contracts made to be
performed entirely within Colorado. In the event that any one or more
provision in this Agreement shall, for any reason, held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such provision had never been
contained herein. If any provision in this Agreement shall be held to be
excessively broad as to duration, activity or subject in any jurisdiction,
it shall be construed by limiting and reducing the provision which is
deemed excessively broad. A limitation or reduction in the application of
any provision in one jurisdiction shall not affect the application of the
same provision in any other jurisdiction. The proper venue for any legal
-9-
<PAGE>
action as to the interpretation or enforcement of this Agreement shall be
a court of appropriate jurisdiction located in the City and County of
Denver, Colorado.
15. Notices. Any notice required or permitted by this Agreement shall be
-------
effective when received and shall be sufficient if in writing and
personally delivered (including by express courier) or sent by certified
mail with return receipt to the address set forth at the end of this
Agreement or at such other address as may by notice be specified by one
party to the other.
16. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which shall together
constitute one and the same Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above (June ___, 1999).
TANNING TECHNOLOGY EMPLOYEE
CORPORATION (Employer)
By:
---------------------------------- ---------------------------------
Printed Name: Bipin Agarwal
------------------------
Title:
-------------------------------
4600 South Ulster St., Suite 380
Denver, CO 80237
303-220-9944
-11-
<PAGE>
Employee Specific Terms
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: July ___, 1999
To: Bipin Agarwal
From: Larry Tanning
Tanning Technology is pleased to offer you the following Executive Compensation
plan for fiscal year 1999 (January 1 to December 31, 1999).
Job Title: Senior Vice President, North America Consulting Operations
Supervisor: Larry Tanning
The effective date of this compensation plan will be the IPO Date. Tanning is
pleased to provide you with the following compensation plan in recognition of
your important job responsibilities:
KEY COMPENSATION ELEMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Annual Base Salary: $ 275,000 Effective Date of
Semi-monthly pay rate: $11,041.67 base salary rate: IPO Date
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Part I: Global Revenue Bonus Incentive Plan
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Revenue Goals $45.0 M $48.0 M $52.0 M $56.0 M $60.0 M $64.0 M $68.0 M $72.0 M
Bonus as % of Base Salary: 0.0% 5.0% 9.0% 12.0% 15.0% 18.0% 21.0% 24.0%
- -----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $13,250 $23,850 $31,800 $39,750 $47,700 $55,650 $63,600
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part II: Global EBIT Bonus Incentive Plan
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary: 0.0% 8.0% 10.0% 13.0% 15.0% 18.0% 21.0% 24.0%
- -----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $21,200 $26,500 $34,450 $39,750 $47,700 $55,650 $63,600
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part III: Stock Appreciation Incentive Plan
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Appreciation at 12/31/99: 25.0% 30.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0%
Bonus as % of Base Salary: 0.0% 7.0% 10.0% 13.0% 15.0% 18.0% 21.0% 23.0%
- -----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $18,550 $26,500 $34,450 $39,750 $47,700 $55,650 $60,950
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Part IV: MBO Goals Bonus Incentive Plan
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 0.0% 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 17.0%
- -----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $10,600 $15,900 $21,200 $26,500 $31,800 $39,750 $45,050
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Exhibit leadership in establishing an effective, objective and supportive
senior management team
#2: Exhibit leadership in forming and instilling a high integrity, unbiased,
progressive company culture
#3: Establish 66% sales backlog by 12/31/99
#4: Commit 25% of time to customer relationship building and support by 3rd
quarter 1999
#5: Commit 25% of time to employee, organizational and communication
development by 4th quarter 1999
#6: Strengthen operational integration between U.S. and European organizations
#7: Insure positive employee relations climate and minimal involuntary turnover
levels
#8: Strengthen resource planning, deployment, utilization and development of
the Company's technical resources
#9: Exhibit leadership in strengthening the leadership and managerial
competencies of the company's supervisors
SUMMARY OF EARNINGS POTENTIAL FOR PAID COMPENSATION
<TABLE>
<CAPTION>
Part IV: MBO Goals Bonus Incentive Plan
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 0.0% 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 17.0%
- -----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $10,600 $15,900 $21,200 $26,500 $31,800 $39,750 $45,050
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
TANNING TECHNOLOGY CORPORATION ACKNOWLEDGEMENT OF RECEIPT
AND UNDERSTANDING OF TERMS
BY:
-------------------------- --------------------------------
Larry Tanning Bipin Agarwal
President & CEO Sr. Vice President, North America
Consulting Operations
Date: Date:
-------------------- --------------------
CC: Mark Tanning, Henry Skelsey
-13-
<PAGE>
Exhibit 10.7
PROMISSORY NOTE
---------------
$250,000.00 July ___, 1999
FOR VALUE RECEIVED, Bipin Agarwal (the "Borrower"), promises to pay to
Tanning Technology Corporation, a Delaware corporation ("Lender"), the principal
sum of TWO HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000.00) (the "Advance
Balance"), together with interest on the unpaid principal balance of this Note
from time to time outstanding at a rate of ____ per annum, compounded semi-
annually, until paid in full. Principal and interest shall be paid in full in
cash on July __, 2001. This Promissory Note shall become effective on the IPO
Date (as defined in the Employment, Confidentiality, and Non-Competition
Agreement between the Borrower and the Lender).
Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed. All payments by the Borrower under
this Note shall be in immediately available funds, which may be made other than
by wire transfer.
This Note may be prepaid in whole or in part at any time or from time
to time. Any such prepayment shall be without premium or penalty. Whenever any
amount is paid under this Note, such amount shall be applied first to interest
and then to principal.
If any amount due under this Note becomes due and payable on a
Saturday, Sunday, or public or other banking holiday under the laws of the State
of Colorado, the due date therefor thereof shall be extended to the next
succeeding business day, and interest shall be payable thereon at the rate
hereunder specified during such extension, unless such next succeeding business
day falls in the next calendar month, in which case the maturity shall be the
next preceding business day.
Upon the failure to pay any interest or principal under this Note when
due, which shall remain unremedied for ten days following the date when such
interest or principal was due hereunder; then, and in any such event (an "Event
of Default"), the Lender may declare, by notice of default given to the
Borrower, the entire principal amount of this Note to be due and payable,
whereupon the entire principal amount of this Note outstanding and any accrued
and unpaid interest hereunder shall become due and payable without presentment,
demand, protest, notice of dishonor and all other demands and notices of any
kind. Upon the occurrence of an Event of Default, the accrued and unpaid
interest hereunder shall thereafter bear the same rate of interest as on the
principal hereunder, but in no event shall such interest be charged which would
violate any applicable usury law.
No delay or failure by the Lender in the exercise of any right or
remedy shall constitute a waiver thereof, and no single or partial exercise by
the Lender of any right or remedy shall preclude other or future exercise
thereof or the exercise of any other right or remedy.
The Borrower shall pay on demand all reasonable costs and expenses of
Lender in connection with the enforcement of this Note including the reasonable
fees and expenses of counsel with respect thereto.
<PAGE>
The Borrower expressly waives any and all rights that it may have to
presentment, demand, protest, or other notice of any kind.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified, or amended.
THIS NOTE SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES). THE BORROWER HEREBY SUBMITS TO NON-EXCLUSIVE JURISDICTION AND
TO THE LAYING OF VENUE IN THE COUNTY OF ________, STATE OF COLORADO, WITH
RESPECT TO ALL MATTERS RELATING TO THIS NOTE.
---------------------------------
Bipin Agarwal
STATE OF ____________ )
) ss.:
COUNTY OF ___________ )
On the ___ day of July, 1999, before me personally came Larry Tanning,
to me known to be the individual(s) described in and who executed the foregoing
instrument, and acknowledged that he executed the same.
------------------------------------
Notary Public
<PAGE>
1
Exhibit 10.8
AGREEMENT
EMPLOYMENT, CONFIDENTIALITY, AND NON-COMPETITION
THIS AGREEMENT, entered into this __________, by and between TANNING
TECHNOLOGY CORPORATION, a Delaware corporation doing business at 4600 South
Ulster St., Suite 380, Denver. Colorado 80237 (hereafter referred to as
"Employer") and _______ of ____________ (hereafter referred to as "Employee"),
is made upon the following terms and conditions:
RECITALS:
Employer is willing to accept and engage Employee to work for the Employer
for an indeterminate period of time solely at the Employer's will, and during
such period of employment Employer will provide Employee with certain salary,
benefits, training, workspace, and guidance in return for the full and faithful
performance by the Employee of those duties and responsibilities of the job as
identified in this Agreement and by the Employer from time to time.
Employee understands that significant assets of the Employer consist of
data, code, programs, software, processes, client contacts and lists, and other
technical, business, and financial information of all types developed by the
Employer and the Employer's employees for itself as well as clients and
customers, which assets are held by the Employer as trade secrets (hereinafter,
the "Trade Secrets").
Employee understands that certain information and data may be provided to
the Employer from time to time by clients and customers of the Employer, on the
understanding and condition that such data and information (hereinafter, the
"Third Party Information") will be protected by the Employer and its Employees
as confidential information, and as such will not be disclosed to any entity or
person not authorized by the client or customer.
Employee understands that in the course of performing work for the Employer
that he or she will develop from time to time ideas, processes, codes,
applications, information, data, and other items that will be the work product
of the employment relationship (hereinafter, the "Employment Work Product"), and
that any and all such Employment Work Product shall be and remain the property
of the Employer.
Employee understands that the Employer will invest substantial time and
money into the further training, education, and skill development of the
Employee, both by formal guidance and informal logistical and technical support,
and that such investment in the Employee is also a substantial asset of the
Employer which the Employer is entitled to protect.
Employee understands and agrees that all present and future information and
know-how regarding Employer's business, financial affairs, services, products,
ideas, techniques, processes, plans, technology, codes, clients and customers,
whether or not in writing, and including all Trade Secrets, Third party
Information, and Employment Work Product (collectively "Confidential
Information") will not be disclosed by the Employee to any person or entity
without the specific authorization of the Employer.
THEREFORE, for and in consideration of the recitals, covenants, conditions,
duties, and forbearances set forth in this document, the Employer and Employee
agree as follows:
<PAGE>
2
1. Period of Employment and the Term this Agreement. Unless otherwise clearly
------------------------------------------------
specified in the document entitled "Employee Specific Terms" (which document is
attached to this Agreement and fully incorporated into this Agreement by this
reference), the Employee shall be employed by and work for the Employer on an
"at will" basis. Employment "at will" means that both the Employer and Employee
are given the full right to terminate the employment relationship at any time,
with or without cause to do so, provided that the obligations set forth
hereafter regarding "Termination of Employment" are met. The provisions of
Sections 5, 6, 7, 8, 10, and 14, hereafter, shall survive the termination of
this Agreement.
2. Services of the Employee. During the "Period of Employment", the Employee
------------------------
agrees to devote his full time and attention to the business of the Employer and
those duties and obligations entrusted to the Employee as specified in the
Employee Specific Terms document and as specified by the Employee's supervisor
or superiors from time to time. "Period of Employment" shall mean that period
of time that the Employee provides labor and/or services for the Employer, which
may be prior to and after the date of this Agreement. This obligation shall not
prohibit the Employee from engaging in charitable activities or passive
investments on the Employee's own time. The Employee's primary place of work
shall be as specified in the Employee Specific Terms document.
3. Wage or Salary, Benefits, Vacation, and Other Compensation. Employee shall
----------------------------------------------------------
be paid in the fashion, and at such rate or sum, as are more particularly set
forth in the Employee Specific Terms document. The Employee shall be eligible
for such benefits and Vacation as are also set forth in the Employee Specific
Terms document. The Employer agrees to reimburse the Employee for all
reasonable expenses incurred by the Employee in connection with the Employee's
services to Employer, consistent with Employer's policies and procedures for
reimbursement of such expenses, as such policies and procedures may exist from
time to time.
4. Termination of Employment. Unless provided otherwise in the Employee
-------------------------
Specific Terms document, this Agreement, together with the employment
relationship and the Period of Employment shall terminate under certain
circumstances as follows. The termination of the employment relationship and
the Period of Employment shall not terminate the obligation of the parties to
comply with those terms of this Agreement intended to extend beyond the
termination of the Period of Employment, including without limitation, those
obligations with respect to confidentiality and non-competition.
A. Death. This Agreement and the Period of Employment shall
-----
automatically terminate upon the death of the Employee.
B. Disability. This Agreement and the Period of Employment shall
----------
automatically terminate in the event of the Disability of the
Employee, subject to any limitations imposed by applicable law, upon
30 days prior written notice by Employer. "Disability" shall have the
meaning given to such term in the Employer's disability insurance
policies as in effect from time to time.
C. Cause. This Agreement and the Period of Employment shall terminate
-----
at the option of the Employer immediately upon delivery by Employer
of written notice to Employee that:
i. the Employee has acted or failed to act in such a fashion
as to constitute dishonesty, fraud, or other serious
misconduct deemed by Employer to have a material adverse
effect upon the operation of the Employer's business, or
ii. the Employee has willfully failed to follow the lawful
instructions of his or her superiors, or
<PAGE>
3
iii. the Employee has failed to comply with the requirements of
this Agreement and/or any workplace or job performance rule
set forth under the authority of this Agreement, or
iv. the Employee has failed to successfully or adequately
perform his or her work obligations as the same have been
delegated to him or her, and has failed to successfully
complete any corrective action program established pursuant
to the Employer's company wide employment policies.
D. Not for Cause. Because the employment relationship created by this
-------------
Agreement is expressly understood to be "at will" of both parties,
this Agreement and the Period of Employment shall terminate upon at
least 14 days written notice by either party to the other, unless
provided otherwise in the Employee Specific Terms document. In such
event, the Employer shall have the option, in its sole discretion, to
relieve the Employee of his or her work obligations and to deny the
employee access to the Employer's place of business for any reason
other than to retrieve the Employee's personal property.
In the event of any termination pursuant to paragraphs A, B, or C
above, the Employee shall be entitled to receive his or her salary and/or
other compensation as identified in the Employee Specific Terms document
through the effective date of termination. In the event of termination
pursuant to paragraphs A or B above, the Employee shall be entitled to any
benefits payable under any health, welfare or insurance plan maintained by
the Employer which covers such event. In the event of termination pursuant
to paragraphs A, B, or C above, the employee shall not be entitled to any
severance or other compensation except as provided above, or except as may
be provided otherwise in the Employee Specific Terms document.
In the event of termination pursuant to paragraph D above, upon notice
by the Employee, the Employee shall be entitled to receive his or her other
salary or other compensation due prior to termination so long as Employee
continues to effectively perform his or her job obligations. In the event
of termination pursuant to paragraph D above, upon notice by the Employer,
the Employee shall be entitled to severance payment in an amount equal to
six moths of the Employees then existing base salary, paid pro rata over a
six month period. The Employee Specific Terms document and/or any written
agreement between the parties subsequent to the date of this Agreement may
specify additional or lesser payments or benefits due to the Employee by
reason of termination not for cause.
5. Non-Competition Covenant and Agreement. The Employee acknowledges and
--------------------------------------
understands that his or her position with the Employer will be as an officer of
Employer, a member of executive or management personnel of the Employer, or as a
member of the professional staff of such executive or management personnel. The
Employer has invested and/or will invest considerable time and money in the
development and enhancement of the Employee's skills and knowledge of the
Employer's unique business and unique type of business, which business is
worldwide in scope and market. This enhanced skill and knowledge will be the
principal reason that the Employer continues the employment relationship and
continues to compensate the Employee for his or her work. In addition, the
Employee has or will become aware of the Trade Secrets and trade practices of
the Employer, which secrets and practices in the hands of a competitor or
potential competitor would cause substantial loss and damage to the Employer
and/or its customers and clients. Finally, the Employee has had close customer
contact, which would enable him or her to divert customer trade. In
consideration of all of the above identified matters, the Employee agrees and
acknowledges that is appropriate to accept restrictions on his or her right to
work or be employed in a fashion which will compete with the Employer's business
and type of business. Therefore Employee covenants, agrees to, and accepts the
following restrictions:
<PAGE>
4
A. Employee will not, without the prior written consent of an authorized
officer of the Employer, during the Period of Employment, and for six
months after the termination of employment for any reason, alone or in
concert or cooperation with any other person or entity, as principal,
employee, shareholder, consultant, or any other type of advisor,
directly or indirectly, develop, seek to develop, market, produce or
provide any commercial product or service in the nature of those
provided by, or under development by the Employer or any of its
affiliates during the Period of Employment. This non-competition
obligation shall apply to North America, Europe, and any other country
where Employer or any of its subsidiaries or affiliates are actively
engaged in or pursuing business during the Employee's Period of
Employment. This paragraph A shall not prohibit the ownership by
Employee of less than 5% of any publicly traded corporation.
B. During the period that Employee is subject to the restrictions set
forth in A. above, he or she shall not (1) hire or solicit the
employment or services of any person who is an employee or consultant
of the Employer or its successors or assigns, or any former employee
of the Employer whose employment has been terminated for less than six
(6) months; or (2) directly or indirectly solicit business competitive
with the Employer's then current business from any customer or client
which has done business with the Employer or from which the Employer
has solicited business at any time or from time to time within six
months from the date of such solicitation. The above shall not
prohibit the Employee from using the services of any such person in a
way that clearly does not compete with the business of Employer.
C. The time periods of the restrictions set forth in A. and B. above
shall be extended for any period of time that Employee is found to be
in violation of any provision of this Section 5.
6. Confidentiality, Non-Disclosure, and Proprietary Rights. Employee
-------------------------------------------------------
understands and acknowledges that all present and future information and know-
how regarding the Confidential Information, whether or not created by the
Employee, whether or not formally marked or identified as confidential, are and
shall remain the exclusive property of the Employer. Any material, ideas and
information which is generally known to the public will not be deemed
Confidential Information. Employee understands that such Confidential
Information and the proprietary rights contained therein are substantial and
essential assets of Employer's business, and as such, it is essential that the
same be protected. In order to meet this goal, the Employee covenants and
promises to the Employer as follows:
A. During Employee's Period of Employment by the Employer, and
thereafter, the Employee will not use, disclose, or permit access to
any Confidential Information, and will take all reasonable
precautions to prevent any person or entity access to any of the
Confidential Information other than as required in the performance of
Employee's duties with the Employer. In order to satisfy the needs of
Employer's clients and customers, Employee will sign any
confidentiality agreement reasonably requested by such third parties
and/or Employer. Employee understands that he or she is not permitted
to sell, license, market or otherwise exploit any products, services
or other Confidential Information, in whole or in part, including
software or code in any form.
B. At the end of the Employee's Period of Employment, Employee will
deliver to the Employer all tangible materials embodying the
Confidential Information, including without limitation any computer
software, input sheets and descriptions, code, code libraries,
electronic storage disks, practice aids and practice aid materials
(worksheets, schedules, tables, brochures, manuals, etc.),
documentation, records, listings, notes, data, sketches, drawings,
memoranda,
<PAGE>
5
models, accounts, reference materials, samples, human or machine
readable media and equipment, and any other material which is or in
any way relates to the Confidential Information, to the businesses of
the Employer, to the representation of the Employer, or to the
clients, customers, suppliers, vendors, or similar contacts of the
Employer. Employee further agrees not to retain any copies of the
above-described materials.
C. Employee hereby agrees to assign, and does hereby assign, all of
Employee's right, title and interest in or to any and all ideas,
concepts, know-how, techniques, processes, inventions, discoveries,
developments, works of authorship, innovations and improvements
(collectively "Inventions") conceived or made by Employee, whether
alone or in concert with others, whether patentable or subject to
potential copyrights or not, except those that the Employee developed
or develops entirely on his or her own time without using the
equipment, supplies, facilities, or Confidential Information of the
Employer, and provided that such Inventions are unrelated to the
business of the Employer. Employee agrees to promptly inform and
disclose all Inventions to the Employer in writing, and with respect
to those Inventions that Employee is required to assign to the
Employer hereunder, to provide all assistance reasonably requested by
the Employer in the preservation of its interests in the Inventions
(such as by executing documents, testifying, etc.), such assistance
to be provided at the Employer's expense with compensation to the
Employee for such assistance at a reasonable hourly rate.
D. Employee agrees that any work prepared by the Employee during his or
her Period of Employment, which work is subject to assignment under
C. above, and which is eligible for United States copyright
protection or protection under the Universal Copyright Convention,
the Berne Copyright Convention and/or the Buenos Aires Copyright
Convention shall be a "work made for hire". In the event that any
such work is deemed not to be a "work made for hire", Employee hereby
assigns all right, title and interest in and to the copyright in such
work to the Employer, and agrees to provide all assistance reasonably
requested in the establishment, preservation and enforcement of the
Employer's copyright in such work, such assistance to be provided at
the Employer's expense but without any additional compensation to
Employee.
E. In the event that the Employer is unable, as a result of inability to
find the Employee after a reasonably diligent effort, as a result of
the death or incapacity of the Employee, or as a result of the
unjustifiable refusal of the Employee, to secure the Employee's
signature on any letters patent, copyright or other analogous
protection relating to Inventions or other proprietary rights, the
Employee hereby irrevocably designates and appoints Employer, by its
duly authorized officers and agents as the Employee's agent and
attorney-in-fact, to act for and on the Employee's behalf and stead
to execute and file any such application or applications and to do
all other lawfully permitted acts to further the prosecution and
issuance of letters patent, copyright, or other analogous protection
thereon with the same legal force and effect as if executed by the
Employee.
7. Employee Notification Requirement. During the Period of Employment, the
---------------------------------
Employee will notify the Employer of any change of address, and the
Employee will identify and notify the Employer of each and any new job or
other business activity in which the Employee plans to engage, together
with the name and address of the new employer and the nature of the
Employee's new position with such new employer.
8. Former Employment or Work. Employee represents, acknowledges and agrees
-------------------------
that he or she has not brought, and will not bring with him or her, or use
in the performance of his or her duties for the Employer, any materials or
documents of any former employer, person, or entity of any type, which
<PAGE>
6
are not generally available to the public, unless the Employee has obtained
written authorization for the possession and use of such materials or
documents and provided such authorization to Employer. Employee also
understands and agrees, that in his or her employment with the Employer,
Employee shall not breach any obligation of confidentiality or legal duty
that Employee has to any former employer or client and agrees that he or
she will fulfill any and all such obligations during his or her Period of
Employment.
9. Assignment. This Agreement, and the duties, obligations and benefits
----------
hereunder shall bind and benefit the parties hereto, and to the extent
necessary to carry out its intentions, the legal and personal
representatives of the parties. This Agreement may not be assigned without
the written permission of the parties, except that the Employer may assign
this Agreement to any successor of the Employer by reason of
reorganization, merger, consolidation, or the partial or complete sale of
the Employer's business and/or assets.
10. Indemnification and Remedy. Each party agrees to indemnify and save
--------------------------
harmless the other against any and all damages, claims, losses or expenses,
including reasonable attorney's fees, arising from or relating to any
breach of this Agreement. Both parties acknowledge and agree that a breach
by the either party of the obligations set forth in Sections 5 through 9,
above, will result in immediate and irreparable harm to the other and that
the other would have no adequate remedy at law, and that as a result, the
aggrieved party will be entitled to specific performance as well as other
appropriate injunctive and equitable remedies such as a temporary
restraining order. None of the forgoing shall limit the Employer from
seeking a legal remedy including the recovery of monetary damages.
11. Workplace Rules. The Employer may make, adopt, and provide to the
---------------
Employee such rules as the Employer deems necessary to provide for a safe,
efficient, productive and effective workplace and work environment. Any
such rules, to the extent not violative of any legal right of the Employee,
shall be deemed to be as binding upon the employee as if they were included
in the body of this Agreement.
12. Entire Agreement and Amendment. This Agreement, together with the Employee
------------------------------
Specific Terms document, constitutes the entire agreement between the
Employer and Employee, and any verbal or written communication between the
parties prior to the adoption of this Agreement shall be deemed merged
herein and of no further force and effect. This Agreement may only be
altered or amended by a writing signed by the Employee and an authorized
officer of the Employer.
13. Waiver. Neither the delay nor failure by the Employer or Employee to
------
exercise any right under this Agreement, nor partial or single exercise of
any such right, shall constitute a waiver of that or any other right.
14. Governing Law, Interpretation and Venue. This Agreement is entered into
---------------------------------------
in Denver, Colorado, and as such it shall be interpreted and enforced under
the laws of the state of Colorado applicable to contracts made to be
performed entirely within Colorado. In the event that any one or more
provision in this Agreement shall, for any reason, held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such provision had never been
contained herein. If any provision in this Agreement shall be held to be
excessively broad as to duration, activity or subject in any jurisdiction,
it shall be construed by limiting and reducing the provision which is
deemed excessively broad. A limitation or reduction in the application of
any provision in one jurisdiction
<PAGE>
7
shall not affect the application of the same provision in any other
jurisdiction. The proper venue for any legal action as to the
interpretation or enforcement of this Agreement shall be a court of
appropriate jurisdiction located in the City and County of Denver,
Colorado.
15. Notices. Any notice required or permitted by this Agreement shall be
-------
effective when received, and shall be sufficient if in writing and
personally delivered (including by express courier) or sent by certified
mail with return receipt to the address set forth at the end of this
Agreement or at such other address as may by notice be specified by one
party to the other.
16. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which shall together
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
TANNING TECHNOLOGY EMPLOYEE
CORPORATION (Employer)
By:
---------------------------------- -----------------------------------
Printed Name: Employee
-----------------------
Title:
------------------------------
4600 South Ulster St., Suite 380 Address and Phone:
Denver, CO 80237
303-220-9944
<PAGE>
Exhibit 10.9
EMPLOYEE SPECIFIC TERMS
TANNING TECHNOLOGY CORPORATION,
-------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: January 30, 1999
To: Tracy Currie
From: Larry Tanning
Tanning Technology is pleased to offer you the following Executive Compensation
plan for fiscal year 1999 (January 1 to December 31, 1999).
Job Title: Group Vice President, Europe
Supervisor: Larry Tanning
The effective date of this compensation plan is January 1, 1999. Expatriate
terms will commence effective with the date of your relocation to London and are
governed by your Expatriate Agreement document. Tanning is pleased to provide
you with the following compensation plan for 1999 in recognition of your
important job responsibilities:
KEY COMPENSATION ELEMENTS
-------------------------
<TABLE>
<CAPTION>
Part I: Global Revenue Bonus Plan
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Incentive
Global Revenue Goals $45.0 M $48.0 M $52.0 M $56.0 M $60.0 M $64.0 M $68.0 M $72.0 M
Bonus as % of Base Salary: 5.0% 8.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0%
Total bonus earned: $12,500 $20,000 $30,000 $35,000 $40,000 45,000 $50,000 $55,000
Part II: Europe Revenue Bonus Plan
European Revenue Goals: 11.25 12 13 14 15 16 17 18
Bonus as % of Base Salary: 5.0% 10.0% 15.0% 20.0% 25.0% 35.0% 40.0% 45.0%
Total bonus earned: $12,500 $25,000 $37,500 $50,000 $62,500 $87,500 $100,000 $112,500
Part III: Global EBIT Bonus Incentive Plan
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary: 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0%
Total bonus earned: $10,000 $12,500 $15,000 $17,500 $20,000 $22,500 $25,000 $27,500
Part IV: MBO Goals Bonus Incentive Plan
U.S. EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
Total bonus earned: $5,000 S7,500 $10,000 $12,500 $15,000 $17,500 $20,000 S22,500
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Placement and effective functioning of a Managing Director for Europe by
September 1, 1999
#2: Relocate London facilities to an expanded and enhanced site by September 1,
1999
#3: Exhibit leadership in establishing an effective, objective and supportive
senior management team
#4: Exhibit leadership in forming and instilling a high integrity, unbiased,
progressive company culture in Europe
#5: Strengthen operational integration between U.S. and European organizations
#6: Strengthen resource planning, deployment, utilization and development of
Europe's technical resources
1
<PAGE>
#7: Insure positive employee relations climate and minimal involuntary turnover
levels in Europe
#8: Exhibit leadership in strengthening the leadership and managerial
competencies of Europe's supervisory team
SUMMARY OF EARNINGS POTENTIAL FOR PAID COMPENSATION
---------------------------------------------------
<TABLE>
<CAPTION>
Compensation Plan: Summary of Earnings Potential
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 16.0% 26.0% 37.0% 46.0% 55;0% 69.0% 78.0% 87.0%
Total Bonus Value: $ 40,000 $ 65,000 $ 92,500 $115,000 $137,500 $172,500 $195,000 $217,500
Total Base+Bonus Potential: $290,000 $315,000 $342,500 $365,000 $387,500 $422,500 $445,000 $467,500
</TABLE>
<TABLE>
<S> <C>
TANNING TECHNOLOGY CORPORATION ACKNOWLEDGEMENT OF AND UNDERSTANDING OF TERMS
By:/s/ Larry Tanning /s/ Tracy Currie
-------------------------------------- -----------------------------------------
Tracy Currie
Vice President-Europe
Date: Date:
---------------- ----------------
</TABLE>
CC: Mark Tanning
2
<PAGE>
EXHIBIT 10.10
TANNING TECHNOLOGY CORPORATION
EMPLOYEE SPECIFIC TERMS
-----------------------
(Employment Appendix Document)
Employee: P. TRACY CURRIE
Effective
Date: June 1, 1997
Term: THERE IS NO SPECIFIC PERIOD OR TERM OF EMPLOYMENT ASSOCIATED
WITH THIS JOB. EMPLOYMENT IS AT WILL, AND SUBJECT TO TERMINATION
-------
AT ANY TIME AS SPECIFIED IN SECTION 4 OF THE EMPLOYMENT
AGREEMENT. NO VERBAL REPRESENTATION, UNDERSTANDING,
CIRCUMSTANCE, OR DOCUMENT OF ANY KIND CAN OR WILL VARY THIS
AT WILL RELATIONSHIP.
-------
Job Title: VICE-PRESIDENT OF SERVICE DELIVERY
Supervisor: LARRY TANNING, AND BOARD OF DIRECTORS.
Job Duties or
Description: SEE ATTACHED SHEET
Workplace
Location: DENVER, COLORADO, AND SUCH OTHER LOCATIONS AND TRAVEL
DESTINATIONS AS ARE NECESSARY FROM TIME TO TIME TO EFFECTIVELY
CARRY OUT THE JOB DUTIES AND DESCRIPTIONS.
Performance
Review: PERIODICALLY BY LARRY TANNING AND THE TTC BOARD.
Bass Salary: SEMI-MONTHLY PAYMENTS BASED UPON A YEARLY RATE OF $250,000.
Bonus: SEMI-ANNUAL BONUS PAYMENTS COMPRISED OF THE FOLLOWING:
% of Rev. and 60% 70% 80% 90% 100% 110% 120% 130%
EBITDA Targets
Bonus % of Base Salary 13% 21% 30% 43% 55% 63% 77% 80%
30% OF THE ANUALIZED BONUS AMOUNT WILL BE PAID ON OR BEFORE
AUGUST 31ST OF EACH YEAR. 70% OF THE ANNUALIZED BONUS AMOUNT WILL
BE PAID ON OR BEFORE FEBRUARY 28TH (29TH) OF EACH YEAR.
THE BONUS PAYMENT WILL BE BASED UPON THE ANNUALIZED SALARY IN
EFFECT ON JUNE 1, 1997 FOR THE FIRST YEAR AND JANUARY 1ST OF EACH
YEAR THEREAFTER.
THE ABOVE SALARY AND BONUS COMPENSATION DOES NOT INCLUDE BONUS
AND OXFORD STOCK OPTIONS DUE TO EMPLOYEE AS PART OF THE OXFORD
SMC AND PULSE PROJECTS. SUCH SMC BONUS WILL BE A PORTION OF THE
ALLOCATION OF THE SMC PROJECT WITHHOLD
1
<PAGE>
($400,000+) TO EMPLOYEES BASED UPON CONTRIBUTION TO THE
SUCCESSFUL COMPLETION OF THAT ENGAGEMENT. SUCH OXFORD STOCK
OPTIONS WILL BE AN ALLOCATION OF A PORTION OF 15,000 -40,000
OXFORD STOCK OPTIONS TO EMPLOYEES BASED UPON THE FINAL
CONTRIBUTION OF SAID OPTIONS TO TTC BY OXFORD HEALTH PLANS, INC.
Benefit
Plans: IN ADDITION TO PARTICIPATING IN STANDARD COMPANY BENEFIT PLAN
COVERAGES PROVIDED TO FULL-TIME EMPLOYEES, YOU WILL RECEIVE THE
FOLLOWING:
STOCK OPTIONS: INITIAL STOCK OPTION GRANT OF 43,000 SHARES AT A
-------------
STRIKE PRICE OF $4.75 PER SHARE. 10,750 SHARES WILL VEST ON JUNE
1, 1997. 10,750 SHARES WILL VEST ON FEBRUARY 1, 1998. 10,750
SHARES WILL VEST ON FEBRUARY 1, 1999. 10,750 SHARES WILL VEST ON
FEBRUARY 1, 2000. ALL OTHER TERMS OF THE EMPLOYEE STOCK OPTION
PLAN SHALL APPLY. ADDITIONAL STOCK OPTIONS AS GRANTED FROM TIME
TO TIME BY THE COMPENSATION COMMITTEE OF THE TTC BOARD OF
DIRECTORS.
VACATION: 3 WEEKS PAID VACATION PER YEAR WITH AN ADDITIONAL ONE
--------
WEEK VACATION FOR THE PERIOD FROM MAY 1, 1996 THROUGH JUNE 1,
1997. SUCH VACATION TO BE TAKEN WITH DUE CONSIDERATION TO THE
BUSINESS NEEDS OF TTC. ONE WEEK OF UNUSED VACATION MAY BE CARRIED
OVER (ACCRUED) INTO THE FOLLOWING YEAR. NO MORE THAN 30 UNUSED
VACATION DAYS SHALL EVER BE ACCRUED.
LIFE INSURANCE: TTC WILL ACQUIRE AND MAINTAIN LIFE INSURANCE ON
--------------
EMPLOYEE NAMING EMPLOYEE'S DESIGNEE AS BENEFICIARY AT A VALUE OF
TWO-TIMES THE EMPLOYEE'S PRIOR YEAR'S W2 EARNINGS.
LONG TERM DISABILITY INSURANCE: TTC WILL ACQUIRE SHORT AND LONG
------------------------------
TERM DISABILITY INSURANCE FOR THE BENEFIT OF THE EMPLOYEE AT A
VALUE OF 60% OF EMPLOYEE'S PRIOR YEAR W2 EARNINGS.
BUSINESS TRAVEL ACCIDENT INSURANCE: TTC WILL ACQUIRE AND MAINTAIN
----------------------------------
BUSINESS TRAVEL ACCIDENT INSURANCE WITH A FACE VALUE OF
$1,000,000 FOR THE BENEFIT OF EMPLOYEE.
OFFICER & LIABILITY INSURANCE: TTC WILL ACQUIRE AND MAINTAIN
-----------------------------
CORPORATE OFFICER AND DIRECTOR LIABILITY INSURANCE.
SEVERANCE: TTC WILL PROVIDE FOR NINE MONTHS OF BASE SALARY PAY
---------
CONTINUATION (CURRENTLY $20,833.33 PER MONTH) AND BENEFITS
COVERAGE AND CORRESPONDINGLY SHORTEN THE LENGTH OF YOUR NON-
COMPETITION AND CONFIDENTIALITY AGREEMENT TO A PERIOD OF NINE
MONTHS IF YOU ARE TERMINATED NOT FOR CAUSE OR "CONSTRUCTIVELY
TERMINATED" AFTER COMPLETING ONE-YEAR OF CONTINUOUS COMPANY
SERVICE. "CONSTRUCTIVE TERMINATION" SHALL MEAN THE INVOLUNTARY
ACTUAL TERMINATION OF YOUR EMPLOYMENT DUE TO: (A) A REDUCTION IN
YOUR BASE SALARY WHICH IS NOT OFFSET IN EQUIVALENT VALUE IN
ALTERNATIVE FORMS OF COMPENSATION OR BENEFITS AS MUTUALLY AGREED
TO IN WRITING, (B) A MATERIAL DECREASE IN YOUR BENEFIT PACKAGE
WHICH IS IMPOSED ONLY UPON
2
<PAGE>
YOU AND NOT OTHERS IN A SIMILAR POSITION WITH TTC, (C) A
SIGNIFICANT REDUCTION IN YOUR JOB RESPONSIBILITIES, OR (D) A LOSS
OF COMPANY OFFICER STATUS.
THE BASE SALARY PAY AND BENEFITS COVERAGE CONTINUATION PERIOD
WILL BE EXTENDED TO A ONE-YEAR PERIOD IN THE EVENT OF YOUR
TERMINATION NOT FOR CAUSE OR "CONSTRUCTIVE TERMINATION" OF
EMPLOYMENT (AS DEFINED ABOVE) FOLLOWING: (A) THE COMPLETION OF 3
YEARS OF CONTINUOUS COMPANY SERVICE, OR (B) A 'CHANGE IN CONTROL'
IN THE COMPANY. THE BASE SALARY RATE APPLIED IN THE PAY
CONTINUATION PERIOD WILL BE THE HIGHEST TTC BASE SALARY RATE IN
EFFECT IN THE 3-YEAR PERIOD PRIOR TO YOUR CONSTRUCTIVE
TERMINATION OF EMPLOYMENT.
YOU WILL ALSO RECEIVE PAYMENT FOR ANY ACCRUED BUT UNUSED VACATION
TIME YOU HAVE ACCUMULATED FOR PRIOR YEAR ALLOCATIONS TO A MAXIMUM
OF 30 DAYS, PLUS EARNED BUT UNUSED VACATION ALLOCATIONS FOR THE
CURRENT YEAR.
By Signing below, Employee acknowledges these terms.
TANNING TECHNOLOGY CORPORATION: EMPLOYEE:
By:/s/ Larry Tanning /s/ P. Tracy Currie
------------------------------- -------------------------------
Larry Tanning P. Tracy Currie
President and CEO
3
<PAGE>
TANNING TECHNOLOGY CORPORATION
JOB DUTIES AND DESCRIPTION
for
TRACY CURRIE AS VICE PRESIDENT OF SERVICE DELIVERY
General Duties: Serve as an Officer of the Company at the discretion of the
Board of Directors.
Serve as a non-voting member of the Executive Committee of the
Board of Directors of the Company at the discretion of the Board
of Directors.
Serve as a full member of the NexTek Board of Directors at the
discretion of the Shareholders.
Specific Duties: Manage and direct, in concert with the TTC Management Team the
TTC North American consulting business as follows:
. Engagement approval for engagements up to $1,000,000 within North America
. Engagement pricing within North America
. Customer contract negotiations for consulting engagements within North
America and as specifically assigned from time to time outside North America
. Supervise, direct, recruit and terminate Account Management and Project
Management staff within North America
. Manage North American consulting engagements, promoting customer satisfaction
and quality delivery of TTC services and products
. Promote and develop business within an existing client or customer
. Support the development of new clients or customers by Larry Tanning or other
sales personnel
. Management and direction of the project work of technical staff is NOT within
the job duties of this position
4
<PAGE>
Exhibit 10.11
November 15, 1998
EMPLOYMENT & EXPATRIATE ASSIGNMENT AGREEMENT
--------------------------------------------
between Patrick Tracy Currie & Tanning Technology Corporation
This letter specifies the terms and conditions of employment which will be
provided to you as a full-time employee of Tanning Technology Corporation while
on expatriate assignment in London. Your job title will be Vice President of
European Operations and Business Development. You will continue to report to
Larry Tanning, President & CEO. You will be treated as an U.S. employee on
expatriate assignment in England for the duration of your expatriate assignment.
Before you depart on an international assignment an expatriate agreement is
required. The following programs are provided to help you and family assimilate
into the culture of the host country and to aid in the continuity of your
established lifestyle. This document specifies the additional terms and
conditions of employment which will be provided to you as a full-time employee
of Tanning Technology corporation while on expatriate assignment in London. In
the event of conflict, the terms of this Agreement will control.
I. EXPATRIATE ASSISTANCE PROGRAMS
-------------------------------------
1. Legal Documentation. Tanning Technology Corporation will pay all fees
-------------------
related to completing the necessary documentation and obtaining of permits
to support your entry and ability to work in Europe. Tanning will pay all
fees related to completion of necessary documentation and obtaining of
permits to support your dependants entry and residence in Europe.
2. Physicals and Vaccinations. You and your dependents are advised to obtain
--------------------------
vaccinations and inoculations legally or medially required by England as
well as for those anticipated for travel through other countries. These
costs will be paid directly or reimbursed to you by Tanning.
3. Dependent Education Assistance. Tanning will reimburse you for the
------------------------------
additional cost of schooling your children if the host country public school
system does not provide a comparable educational curriculum and school year
as the U.S., or meet the special educational needs of your dependents.
Tanning will reimburse you for the costs of tutoring in addition or as an
alternative to tuition costs in the event your dependent(s) are unable to
gain admission to a suitable school during the term of your assignment.
If there is a suitable school within reasonable commuting distance, Tanning
will reimburse your registration fees, tuition, books, uniforms and
transportation expenses for your dependents in grades equivalent to
kindergarten through high school (K-12). Tanning will not reimburse you for
post-high school equivalent education tuition, fees, books, room and board,
and other college expenses.
If there is not an adequate school within a reasonable commuting distance,
Tanning will reimburse school commuting costs (preferred), or room and board
costs for residence at a suitable school (in addition to registration fees,
tuition, books and uniforms).
<PAGE>
If you choose to send your children to a school in the U.S., you will be
reimbursed for education expenses up to the amount which would have been
spent for education at the nearest suitable school at the assignment
location (London).
Tanning will also pay for the professional service fees of referral and
assistance agencies required to identify and secure enrollment or tutoring
services for your children.
4. Maintenance Assistance. Tanning will pay up to $400 per month for receipted
----------------------
costs used for performing routine maintenance and caretaking services at
your Denver residence while you are on assignment in London. This assistance
will be provided for the duration of your foreign-service assignment.
5. Home Leave. You and your family members are eligible for a home leave trip
----------
after every three months of expatriate service. You and your dependants of
your family will be provided with company paid round-trip, coach class
airfares between London, England and the United States. Home leave is not in
addition to regular vacation time. Time allowed for home leave will be three
weeks (21 calendar days, including weekends and travel time). Additional
time-off requires the approval of a company officer. Home leave trips
(airfare) not taken within a calendar year period will be on a "use or
loose" basis. The first home leave may be taken in conjunction with the 1998
Christmas holiday. The second home leave may be taken in conjunction with
the Spring term school break.
Only business expenses you incur during periods of time spent on authorized
Company business during home leave will be reimbursed. Lodging, meals and
other expenses for accompanying legal dependents will be your
responsibility.
6. Unforeseen Events. If serious illness or death of a family member should
-----------------
occur during the assignment, special provisions for leave time and
extraordinary expenses will be considered.
II. EXPATRIATE COMPENSATION PROGRAMS
----------------------------------------
Compensation. The objective of Tanning's expatriate compensation program is to
- ------------
allow you reasonable continuity in your purchasing power in England compared
with the U.S. The elements of your compensation program will include:
. Base salary
. Bonus
. International service premium
. Goods and services differential
. Housing differential
. Stock Options
. Income Tax preparation
Both premiums and differentials are paid to you during the assignment. These
payments cease upon repatriation or retirement, upon a move to an assignment
location where these payments are
<PAGE>
inappropriate, when you of the Company terminates the assignment, or when you
goes on local payroll.
1. Base salary. Your base salary rate of pay (for bonus calculation purposes)
-----------
will continue at $250,000.00 per year. Your base salary and bonus payments
will be governed by the U.S. (your home country) salary administration
program. Larry Tanning (your immediate supervisor) will be responsible for
reviewing your performance and initiating the salary reviews and processing
any necessary salary change authorizations. Unless tax and legal
implications prohibit, you will be able to specify the portion of
compensation to be paid in local currency and the portion to be paid in home
country currency.
2. Bonus. Your existing U.S. bonus plan structure will continue under the same
-----
1998 format for 1999.
3. International Service Premium. In addition to your base salary, you will
-----------------------------
receive a 15% foreign-service premium. This premium will be paid as an
increment to your base salary in the amount of $3,625.00 per month (15% of
base salary plus $500 per month for incidentals). This payment is an
incentive which is intended as an offset for the problems inherent in making
an international move, breaking home ties and adjusting to the assignment
country's culture, etc. This premium will be paid in local currency monthly
beginning November 1, 1998.
4. Goods and Services Allowance. Based upon cost of living data research by
----------------------------
Organizational Resource Counselors, Inc. you will be entitled to a "Goods
and Services" allowance $4,802.14 (US$57,625.71 on an annualized basis).
This allowance will be paid to you in a monthly increment to your base
salary in the amount of $4,802.14. This Goods & Services allowance (G&S) is
designed to provide sufficient local currency with which to buy goods and
services comparable to those normally purchased in the U.S. Your G&S
allowance will be reviewed periodically, updated when appropriate and may
---
increase or decrease as conditions change. This allowance will be paid in
-----------------------------------------
local currency monthly beginning on November 1, 1998.
In situations where the G&S is negative, the Company will assume a zero G&S
differential..
5. Housing Allowance. Based upon cost of living data research by
-----------------
Organizational Resource Counselors, Inc. you will be entitled to a "housing
allowance" of up to (Pounds)4,500 per month (paid directly from the Company
to your designated landlord) plus utilities. Local housing costs will be
reviewed on a regular basis, updated when appropriate, and may increase or
decrease as conditions change.
6. Rental Furniture. Due to the interim nature of this assignment, Tanning
----------------
will not transport household furniture to host country. If suitable
furnished housing is not available, Tanning will rent furniture (or
otherwise acquire) suitable for a similar lifestyle as maintained in the
home country.
7. Insurance Allowance. You will be entitled to an "insurance allowance for
--------------------
personal property and liability for your leased housing and cars in the host
country.
6. Tax Equalization. It is Tanning's policy to use the tax equalization
----------------
approach for expatriates. When tax equalization is applied, you neither bear
the burden of any additional taxation nor
<PAGE>
reap any windfall as a consequence of the international expatriate
assignment. The Tanning tax equalization guideline is designated to ensure
that your income, personal property, employment or other tax cost, while an
expatriate, will approximate what your tax cost would have been in the U.S.
for your salary and bonus income. This equalization will be determined by
outside, independent tax specialists retained by you and paid for by
Tanning.
Cost-of-living differentials, housing, insurance, education and car
assistance plans are "tax protected" by Tanning which means that Tanning
will absorb home country (U.S.) and host country tax obligations for the
value of these payments to you (if applicable, meaning treated as "in kind"
personal income to you). Tanning will "tax equalize" your foreign service
premium payments which means that Tanning will absorb tax obligations you
incur in your assignment country which are in excess of the tax you would
have paid for the equivilent income in the U.S.
Private income and spousal income are not included in the tax equalization
program. The equalization program does not cover wealth, property, estate,
value added, sales or other similar taxes that are not directly associated
with income from your employment with Tanning.
7. Tax Counseling and Tax Return Preparation. Tanning will pay for one pre-
-----------------------------------------
transfer counseling session with a designated tax consultant. This session
is to be scheduled prior to departure and is intended to provide you with an
opportunity to assess the tax consequences arising from the assignment. In
addition to the pre-assignment tax counseling session, you should meet with
(at Tanning's expense) an approved England tax consultant within 30 days
after arriving in England. In order to ensure that taxes are filed promptly
and consistently within the laws of the home and host countries, you should
be discussing tax-filing obligations with the tax consultant during your
consultation session. Tanning will pay the cost of preparing home and host
country tax returns for tax years 1998, 1999 and future years if this
addendum is extended. Tax filling data will be kept strictly confidential
between you and our designated tax advisor.
8. Participation in Home Country Benefit Plans. You will be covered by the
-------------------------------------------
benefit plans provided to full-time U.S. employees. If during expatriation,
the employee is able to continue participation in the home country social
security and benefit plans, you must do so. In the even your home country
----
benefit plan coverage cannot be extended to England, arrangements for
obtaining reasonably similar levels of coverage through other means will be
provided in each of healthcare, disability and life insurance benefit plans.
If you incur duplicate costs, you will be reimbursed for any mandatory
contributions to England benefit programs on a "tax protected" basis.
Health Care Plan Participation. The company is committed to maintaining
------------------------------
equivilent levels of coverage in the U.K. compared to the U.S. Our health
care plan allows for continuing coverage for up to a one year period for
employees and dependents residing outside the U.S. For incidental medical
expenses it is best to pay them direct and send claims to us for processing
and reimbursement. For larger expense items many doctors will accept delayed
payment (when you receive reimbursement from our plan). If there are issues
with payment timing the company will provide advance payment on your behalf
and then reconcile with you when final payments are processed. We will
examine the impact of costs to you and take measures appropriate to keep
cost exposures comparable to what you would experience using the plan in the
U.S.
<PAGE>
9. Maintaining Home country Social Security Benefits. You will be responsible
-------------------------------------------------
for maintaining your participation in the U.S. social security benefit plans
during your expatriate assignment to England. Lapses in contributions could
reduce the value of your social security benefits that are eventually
available at the time of your retirement. Maintaining this participation
through payroll deductions (split pay arrangement) or personally directed
contributions to the appropriate government agency is strongly encouraged.
If you keep your U.S. social security contributions current you will be
reimbursed for the value of the social security contributions required in
England (since it is highly unlikely you will realize any future social
security benefits from England due to the temporary nature of your
assignment). Because you will be reimbursed for contributions to host
country government plans, any benefits payable from these plans will revert
to Tanning.
III. RELOCATION & TRANSPORTATION ASSISTANCE
-----------------------------------------------
1. Transportation to/from England. Tanning will provide round-trip airfare for
---------------------------------
you and your dependants from Denver, Colorado to your assignment in England
at the start and end of your assignment. Tanning will provide airfare for
your spouse to finalize schooling and housing arrangements in October, 1998.
2. Movement of Household Goods. Tanning will assume reasonable expenses for
---------------------------
the limited shipment of personal effects necessary to support day-to-day
living requirements in London. Due to the temporary nature and intent of
this type of assignment household goods should be limited to items essential
for daily living requirements that cannot be reasonably obtained in London.
Household goods are to be limited because Tanning will provide for furnished
accommodations in the foreign service environment.
Special packing or importation costs and insurance for shipment of objects
of unusual value such as antiques, works of art, etc., will not be borne by
the Company. In general, furniture items will not be shipped to the
---
assignment location. In cases where you does not ship furniture and
furnished housing is unavailable in the assignment location, a furniture
rental or acquisition allowance will be provided.
2. Storage of Goods in U.S. Tanning will reimburse you for household goods
-----------------------
placed in storage in the U.S.
3. Transportation in England. You will be provided with two cars for use
-------------------------
during the term of your assignment. These cars should be obtained in a
manner consistent with the company's car allowance and lease program. The
intent of this transportation allowance is to assist you in leasing a car
for yourself and your spouse in England at a reasonable cost.
IV. MISCELLANIOUS PROVISIONS
----------------------------
1. Term of Assignment. This expatriate assignment will be from November 15,
1998 through June 31, 1999. It may be extended upon mutual agreement of the
parties.
<PAGE>
2. Repatriation. At the conclusion of your assignment you will be repatriated
to the U.S. (Denver) in a Corporate Executive position. Tanning will assume
reasonable expenses for the shipment of personal effects and moving of your
family back to Denver, Colorado upon the conclusion of this assignment.
Tanning has made a good faith effort to estimate the component costs of elements
of this overall package. While the cost of individual components within this
overall package may vary from established estimates, the overall package of
benefits is capped at a cost of $215,000 through the period ending 6/31/99, but
exclusive of tax equalization expenses. Extensions on the term of your
assignment will not be subject to the caps established above. To accept this
Employment & Expatriate Agreement, please review, sign and return this document
by fax (303-804-9467) or courier to Tanning Technology Corporation, 4600 South
Ulster Street, Suite 380, Denver, Colorado 80237 (telephone: 303-220-9944).
Tanning Technology Corporation offers a challenging and rewarding environment
with the opportunity for accelerated career development. We very much look
forward to an anticipated long-term and mutually beneficial association.
Sincerely, Accept:
------------------------
Tracy Currie
Mark Tanning
VP of Administration & Treasurer Date:
-------------------------
Date:
-----------------------
<PAGE>
Exhibit 10.12
EMPLOYEE SPECIFIC TERMS
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: February 1, 1999
To: Lou D'Alessandro
From: Bipin Agarwal CC: Mark Tanning
Tanning Technology is pleased to offer you the following Executive Compensation
plan for fiscal year 1999 (January 1 to December 31, 1999).
Job Title: Vice President of Technical Services
Supervisor: Senior VP of North American Consulting Operations
The effective date of this compensation plan will be January 1, 1999. Tanning is
pleased to provide you with the following compensation plan in recognition of
your important job responsibilities:
KEY COMPENSATION ELEMENTS
-------------------------
<TABLE>
<S> <C> <C>
Annual Base Salary: $175,000.00 Effective Date of
Semi-monthly pay rate: $ 7,291.67 base salary rate: January 1, 1999
</TABLE>
Part I: U.S. Revenue Bonus Incentive
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Revenue Goals: $39.0M $41.0M $42.0M $43.0M $45.0M $48.0M $51.0M $54.0M
Bonus as % of Base Salary: 5.0% 10.0% 15.0% 20.0% 25.0% 35.0% 40.0% 45.0%
Total bonus earned: $8,750 $17,500 $26,250 $35,000 $43,750 $61,250 $70,000 $78,750
Part II: Tech Services Cost Bonus Incentive
U.S. TS Cost as % of Revenues: 52.0% 51.0% 50.0% 49.0% 48.0% 47.0% 46.0% 45.0%
Bonus as % of Base Salary: 5.0% 8.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0%
Total bonus earned: $8,750 $14,000 $21,000 $24,500 $28,000 $31,500 $35,000 $38,500
Part III: U.S. EBIT Bonus Incentive
U.S. EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary: 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0%
Total bonus earned: $7,000 $8,750 $10,500 $12,250 $14,000 $15,750 $17,500 $19,250
Part IV: MBO Goals Bonus-Incentive
U.S. EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
Total bonus earned: $3,500 $5,250 $7,000 $8,750 $10,500 $12,250 $14,000 $15,750
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Training program development & implementation, internal orientation program
for new hires
#2: Process & methodology development & implementation with Web based deployment
#3: Resource scheduling process development & implementation with Web based
access
#4: Function in Account Executive sponsor role for sales support (2 accounts)
#5: European integration of methodologies and relationship enhancement and
support
#6: MIS build-out for new space, on schedule/on budget completion
1
<PAGE>
#7: Recruiting pipeline, contributions to new hires from your personal
relationships
#8: Component development, establishment of Joint Venture integration capacity
SUMMARY OF EARNINGS POTENTIAL FOR PAID COMPENSATION
---------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
Total Bonus Value* $ 28,000 $ 45,500 $ 64,750 $ 80,500 $ 96,250 $120,750 $136,500 $152,250
Total Base + Bonus Potential: $203,000 $220,500 $239,750 $255,500 $271,250 $295,750 $311,500 $327,250
</TABLE>
1999 Bonus Guarantee: Your 1999 Compensation plan includes a 50% minimum
bonus earnings guarantee of $48,125.00 for the 1999 fiscal
year performance period payable by 2/28/2000.
STOCK OPTION INCENTIVE PLAN
---------------------------
You will participate in the following Stock Option Incentive Plan which
provides the opportunity to earn additional stock options based on your
overall performance. Options will be at the $1.25 strike price and a four-
year vesting schedule will apply. You have received 50,000 options with an
effective date of 1/l/99 that are subject to four-year vesting. These
options are not tied to performance criteria. In each of years 1999, 2000
and 2001 you will receive additional option incentives which are based on
your overall job performance level. Your job performance level will be
established using your total bonus percentage earned in a given year. If
your total bonus percentage earned is at or above your "bonus target" of
55%, you will receive the full allocation. If your total bonus percentage
earned is below 55%, you will receive a proportionate allocation
corresponding to the ratio of actual bonus % to target bonus %. In other
words, if in 1999 your actual bonus percentage is 46%, then you would earn
46/55th's of your 60,000 option incentive, or 50,182 shares. All option
incentives use the $1.25 strike price and a four-year vesting schedule with
vesting credit starting effective on the date the options are earned.
Options that are not earned due to performance below target are recoverable
and will fully vest if you complete 5 years of service with the company.
You will fully vest in the portion of your options that are below target
(in the plan below) if you are an active full-time employee on 12/01/03.
Part V: Stock Options incentive Plan
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Final Bonus % Earned: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
1999 Options Earned (12/31/99): 17,455 28,364 40,364 50,182 60,000 60,000 60,000 60,000
2000 Final Bonus % Earned: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
2000 Options Earned (12/31/00): 17,455 28,364 40,364 50,182 60,000 60,000 60,000 60,000
2001 Final Bonus % Earned: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
2001 Options Earned (12/31/01):, 46,545 75,636 107,636 133,818 160,000 160,000 160,000 160,000
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
TANNING TECHNOLOGY CORPORATION: ACKNOWLEDGEMENT OF RECEIPT AND UNDERSTANDING OF TERMS
By: /s/ Bipin Agarwal /s/ Lou D'Alessandro
- --------------------------------------------- ------------------------------------------
Bipin Agarwal Lou D'Alessandro
Sr. V.P. of Consulting Operations-Americas V.P. of Technical Services
Date: 2-1-99 Date: 2/12/99
---------------------------------------- ----------------------------------------
</TABLE>
BY:/s/ Mark Tanning
-----------------------
Mark Tanning
V.P. of HR & Administration
CC: Larry Tanning, Henry Skelsey
3
<PAGE>
Exhibit 10.13
TANNING TECHNOLOGY CORPORATION
EMPLOYEE SPECIFIC TERMS
-----------------------
(Employment Agreement Appendix Document)
Employee: LOUIS D'ALESSANDRO
Effective
Date: October 1, 1997
Term: THERE IS NO SPECIFIC PERIOD OR TERM OF EMPLOYMENT ASSOCIATED
WITH THIS JOB. EMPLOYMENT IS AT WILL, AND SUBJECT TO
-------
TERMINATION AT ANY TIME AS SPECIFIED IN SECTION 4 OF THE
EMPLOYMENT AGREEMENT. NO VERBAL REPRESENTATION, UNDERSTANDING,
CIRCUMSTANCE, OR DOCUMENT OF ANY KIND CAN OR WILL VARY THIS
AT WILL RELATIONSHIP.
-------
Job Title: VICE-PRESIDENT OF TECHNOLOGIES SERVICES
Supervisor LARRY TANNING, AND BOARD OF DIRECTORS.
Workplace
Location: DENVER, COLORADO, AND SUCH OTHER LOCATIONS AND TRAVEL
DESTINATIONS AS ARE NECESSARY FROM TIME-TO-TIME TO EFFECTIVELY
CARRY OUT THE JOB DUTIES AND DESCRIPTIONS.
Performance
Review: PERIODICALLY BY LARRY TANNING AND THE TTC BOARD.
Base Salary: SEMI-MONTHLY PAYMENTS BASED UPON A YEARLY RATE OF $160,000.
Signing
Bonus: YOU WILL BE PAID A SIGNING BONUS IN THE AMOUNT OF $40,000 PAYABLE
ON THE COMPLETION OF 30 DAYS OF EMPLOYMENT WITH TANNING.
BONUS PLAN: SEMI-ANNUAL BONUS PAYMENTS COMPRISED OF THE FOLLOWING.
Part I Bonus:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue Value $19.6 $22.8 $26.1 $29.3 $32.6 $35.9 $39.1 $42.4
% of Plan 60% 70% 80% 90% 100% 110% 120% 130%
Bonus % of Base 5% 8% 12% 16% 18% 22% 26% 30%
</TABLE>
Part II Bonus:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA Value $3.5 $4.1 $4.7 $5.3 $5.9 $6.4 $7.0 $7.6
% of Plan 60% 70% 80% 90% 100% 110% 120% 130%
Bonus % of Base 5% 8% 12% 16% 18% 22% 26% 30%
</TABLE>
Part III Bonus:
Discretionary Bonus Element: Performance Outcomes vs. Key Objectives
Bonus % of Base 0% to 25% range, with 20% "targeted" for strong performance
1
<PAGE>
Parts I, II & III Combined
Total % of Base 13% 21% 30% 43% 55% 63% 72% 80%
30% OF THE ANUALIZED BONUS AMOUNT WILL BE PAYED ON OR BEFORE
AUGUST 31ST OF EACH YEAR. 70% OF THE ANNUALIZED BONUS AMOUNT
WILL BE PAYED ON OR BEFORE FEBRUARY 28TH (29TH) OF EACH YEAR. THE
BONUS PAYMENT WILL BE BASED UPON CUMULATIVE BASE SALARY EARNINGS
PAID TO YOU FOR THE FISCAL YEAR (CALENDAR YEAR) PERFORMANCE
PERIOD. YOU WILL BE PAID A GUARANTEED BONUS OF NOT LESS THAN
$32,000 FOR THE NINE-MONTH PERIOD ENDING 5/31/98.
Benefit
Plans: IN ADDITION TO PARTICIPATING IN STANDARD COMPANY BENEFIT PLAN
COVERAGES PROVIDED TO FULL-TIME EMPLOYEES, YOU WILL RECEIVE THE
FOLLOWING:
STOCK OPTIONS: INITIAL STOCK OPTION GRANT OF 30,000 SHARES AT A
-------------
STRIKE PRICE OF $4.75 PER SHARE. 7,500 SHARES WILL VEST ON
OCTOBER 1, 1997. 7,500 SHARES WILL VEST ON OCTOBER 1, 1998. 7,500
SHARES WILL VEST ON OCTOBER 1, 1999. 7,500 SHARES WILL VEST ON
OCTOBER 1, 2000. ALL OTHER TERMS OF THE EMPLOYEE STOCK OPTION
PLAN SHALL APPLY. SUBSEQUENT STOCK OPTIONS AS GRANTED FROM TIME-
TO-TIME BY THE COMPENSATION COMMITTEE OF THE TTC BOARD OF
DIRECTORS WILL BE GOVERNED BY THE SPECIFIC TERMS AND CONDITIONS
ESTABLISHED IN EACH NEW PLAN.
VACATION: YOU WILL BE PROVIDED WITH 3 WEEKS OF PAID VACATION FOR
--------
CALENDAR YEAR 1998, AND 4 WEEKS OF PAID VACATION BEGINNING WITH
THE 1999 CALENDAR YEAR PERIOD. YOU WILL BE PROVIDED WITH ONE WEEK
OF PAID VACATION FOR USE DURING THE 1997 CHRISTMAS PERIOD. ONE
WEEK OF UNUSED VACATION MAY BE CARRIED OVER (ACCRUED) INTO THE
FOLLOWING YEAR. NO MORE THAN 30 UNUSED VACATION DAYS SHALL EVER
BE ACCRUED.
LIFE INSURANCE: TTC WILL ACQUIRE AND MAINTAIN LIFE INSURANCE ON
--------------
EMPLOYEE NAMING EMPLOYEE'S DESIGNEE AS BENEFICIARY AT A VALUE OF
TWO-TIMES THE EMPLOYEE'S PRIOR YEAR'S W2 EARNINGS.
LONG TERM DISABILITY INSURANCE: TTC WILL ACQUIRE SHORT AND LONG
------------------------------
TERM DISABILITY INSURANCE FOR THE BENIFIT OF THE EMPLOYEE AT A
VALUE OF 60% OF EMPLOYEE'S PRIOR YEAR W2 EARNINGS.
BUSINESS TRAVEL ACCIDENT INSURANCE: TTC WILL ACQUIRE AND MAINTAIN
----------------------------------
BUSINESS TRAVEL ACCIDENT INSURANCE WITH A FACE VALUE OF
$1,000,000 NAMING EMPLOYEE'S DESIGNEE AS BENEFICIARY.
Relocation
Benefits: MOVING EXPENSES: ACTUAL AND REASONABLE MOVING EXPENSES FOR THE
---------------
MOVEMENT OF HOUSEHOLD GOODS BETWEEN THE EAST COAST AND DENVER
WILL BE PAID BY TANNING. TTC AGREES TO GROSS-UP (TAX EQUALIZE)
THE PORTION OF MOVING COSTS WHICH RESULTS IN A PERSONAL TAX
LIABILITY TO THE D'ALESSANDROS.
2
<PAGE>
LOSS ON HOME SALE: TANNING AGREES TO REIMBURSE "EQUITY LOSSES"
-----------------
EXPERIENCED BY THE D'ALESSANDROS ON THE SALE OF THEIR BOSTON
RESIDENCE -- BUT NOT TO EXCEED 5% OF THE SELLING PRICE OF THE
PROPERTY. AN "EQUITY LOSS" WILL BE DEEMED TO OCCUR WHEN THE
SELLING PRICE OF YOUR BOSTON CONDO AFTER DEDUCTING REAL ESTATE
COMMISSION FEES, IS LESS THAN THE ORIGINAL (1997) PURCHASE PRICE
OF THE SAME PROPERTY BY THE D'ALESSANDROS. THIS PROVISION WILL
EXPIRE EFFECTIVE ON 5/31/98 IF NOT UTILIZED.
INTERIM COMMUTING EXPENSES: TTC WILL REIMBURSE YOU FOR TRAVEL
--------------------------
(COACH-CLASS ROUND TRIP AIRFARE), LODGING AND CAR RENTAL EXPENSES
IN DENVER FOR THE PERIOD OF TIME YOU ARE COMMUTING BETWEEN BOSTON
AND DENVER -- BUT NOT TO EXTEND PAST 6/15/98.
TEMPORARY LIVING EXPENSES: YOU WILL BE REIMBURSED FOR INTERIM
-------------------------
DENVER LODGING EXPENSES IN THE EVENT YOUR FAMILY HAS RELOCATED TO
DENVER BUT YOUR RESIDENCE IS NOT READY FOR OCCUPANCY. THIS
PROVISION WILL APPLY FOR UP TO A MAXIMUM OF THREE MONTHS.
HOUSE HUNTING TRIPS: TTC WILL REIMBURSE YOU FOR UP TO TWO FAMILY
-------------------
HOUSE HUNTING TRIPS TO DENVER INCLUDING ROUNDTRIP COACH-CLASS
AIRFARE, LODGING AND CAR RENTAL EXPENSES.
This offer will expire effective Wednesday September 3, 1998.
By Signing below, Employee acknowledges these terms
TANNING TECHNOLOGY CORPORATION: EMPLOYEE:
By:_____________________________ ____________________________________
Larry Tanning Louis D'Alessandro
President and CEO
3
<PAGE>
Exhibit 10.14
Employee Specific Terms
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: June 1, 1999 (extension of 9/1/98 employment terms for the 1999 fiscal
year period)
To: Henry Skelsey
From: Larry Tanning
Tanning Technology is pleased to offer you the following Executive Compensation
plan for fiscal year 1999 (January 1 to December 31, 1999).
Job Title: Executive Vice President & Chief Financial Officer
Supervisor: Larry Tanning
The effective date of this compensation plan will be January 1, 1999. Tanning
is pleased to provide you with the following compensation plan in recognition of
your important job responsibilities:
KEY COMPENSATION ELEMENTS
-------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Annual Base Salary: $ 175,000 Effective Date of
Semi-monthly pay $7,291.67 base salary rate: January 1, 1999
rate:
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part I: Global Revenue Bonus Plan
Incentive
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Revenue Goals $45.0 M $48.0 M $52.0 M $56.0 M $60.0 M $64.0 M $68.0 M $72.0 M
Bonus as % of Base Salary: 0.0% 5.0% 9.0% 12.0% 15.0% 18.0% 21.0% 24.0%
- ----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $0 $8,750 $15,750 $21,000 $26,250 $31,500 $36,750 $42,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part II: Global EBIT Bonus Incentive Plan
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary 0.0% 8.0% 10.0% 13.0% 15.0% 18.0% 21.0% 24.0%
- ----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $0 $14,000 $17,500 $22,750 $26,250 $31,500 $36,750 $42,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Part III: Stock Appreciation Incentive Plan
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Appreciation at 12/31/99: 25.0% 30.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0%
Bonus as % of Base Salary: 0.0% 7.0% 10.0% 13.0% 15.0% 18.0% 21.0% 23.0%
- ----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $0 $12,250 $17,500 $22,750 $26,250 $31,500 $36,750 $40,250
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Part IV: MBO Goals Bonus Incentive Plan
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 0.0% 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 17.0%
- ----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $7,000 $10,500 $14,000 $17,500 $21,000 $26,250 $29,750
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
MBO Goal Subjects:
- -----------------------
#1: Exhibit leadership in establishing an effective, objective and supportive
senior management team
#2: Exhibit leadership in forming and instilling a high integrity, unbiased,
progressive company culture
#3: Exert effective leadership role in the execution of the Company's initial
public offering
#4: Establish positive and effective industry and financial analyst relations
programs for the company
#5: Assist in the development of new business development opportunities for the
company including new ventures, strategic alliances, new accounts and
growth at existing accounts
#6: Strengthen operational integration between U.S. and European financial
organizations
#7: Insure positive employee relations climate and minimal involuntary turnover
levels
#8: Strengthen internal infrastructure including financial analysis &
reporting, utilization & revenue forecasting
#9: Exhibit leadership in strengthening the leadership and managerial
competencies of the company's supervisors
SUMMARY OF EARNINGS POTENTIAL FOR PAID COMPENSATION
---------------------------------------------------
<TABLE>
<CAPTION>
Compensation Plan: Summary of Earnings Potential for Incentive Plan Parts I, II, III & IV
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 0.0% 24.0% 35.0% 46.0% 55.0% 66.0% 78.0% 88.0%
- ------------------------------------------------------------------------------------------------------------------
Total Bonus Value: $0 $ 42,000 $ 61,250 $ 80,500 $ 96,250 $115,500 $136,500 $154,000
- ------------------------------------------------------------------------------------------------------------------
Total Base+Bonus Potential: $175,000 $217,000 $236,250 $255,500 $271,250 $290,500 $311,500 $329,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
TANNING TECHNOLOGY CORPORATION ACKNOWLEDGEMENT OF
RECEIPT AND UNDERSTANDING OF TERMS
BY: __________________________ ________________________________
Larry Tanning Henry Skelsey
President & CEO Executive VP & CEO
Date: _______________________ Date: ______________________
CC: Mark Tanning, Henry Skelsey
2
<PAGE>
EXHIBIT 10.15
EMPLOYEE SPECIFIC TERMS
-----------------------
(Employment Appendix Document)
Employee: Henry F. Skelsey
Term: There is no specific period or term of employment associated with
this job. Employment is at will and subject to termination at any
time as specified in Section 4 of the Employment Agreement. No
verbal representation, understanding, circumstance, or document of
any kind can or will vary this at will relationship.
Position: "Working Director": 7/20/98 to 8/31/98: Job Title:
"Corporate Board Director, and Chairman of the Finance Committee
"Employee" Beginning 9/01/98: Job Title: (in addition to above):
"Executive Vice President & Chief Financial Officer"
Supervisor: Larry Tanning
Job Duties: As Chairman of the Finance Committee (effective 7/20/98): Henry
Skelsey (hereafter referred to as "you") is responsible for guiding
and directing the formation of company financial policy as adopted
from time to time by the Board of Directors. The Committee will
oversees the development and execution of strategies and effective
utilization of financial staff and resources in support of company
financial goals. The Committee is to insure compliance with
regulatory standards and insures that company financial assets and
funds are protected and prudently invested. The Committee will
frame and guide the development of relationships with external
financial markets and resources and financial information reporting
to the public.
As Executive Vice President & Chief Financial Officer (effective
9/1/98): As the company's top corporate financial officer, you will
have responsibility for formulating financial policy and plans and
for providing overall direction for the accounting, tax, budget,
credit, treasury, capital investment and asset management
functions. You are to direct activities associated with the
security and investment of the organization's assets and funds, and
ensure that financial transactions, policies and procedures meet
corporate short and long term objectives, and regulatory body
requirements. As a member of the Company's Executive Committee you
are to monitor and assist in ensuring compliance with goals,
policies and objectives established by the CEO and the Board of
Directors, you are to assist the Senior Management Team in the
setting of direction, and overseeing the coordination and
administration of all aspects of company operations and subsidiary
operations.
<PAGE>
Other
Activities: You are authorized to remain a director of other AEA companies and
provide consulting services to AEA and their affiliated companies
over the next two year period to the extent it does not materially
impede your ability to fulfill your job responsibilities at Tanning
as judged by Tanning's CEO.
Workplace
Location: Primarily at Stanford, Connecticut and Denver, Colorado and at such
other locations as agreed upon and may be required by client
activities and Tanning's CEO.
Performance
Review: Periodically by Larry Tanning
Base Salary: Beginning 9/01/98: Semi-monthly payments based upon a yearly rate
of $200,000 ($8,333.33 per semi-monthly pay
period).
Bonus: Beginning 9/01/98: Participation in the company's Senior
Management bonus plan as approved and governed
by the Compensation Committee of the Board
which reserves the right to modify the plan in
support of changing business objectives and
conditions. The plan will consist of semi-
annual bonus payments calculated based on a
comparison of actual business & financial
results compared to established goals using the
following structure:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
% of Rev., EBIT & 60% 70% 80% 90% 100% 110% 120% 130%
Discre. Targets
Bonus % of Base 16% 24% 33% 44% 55% 65% 75% 85%
Salary
- ----------------------------------------------------------------------------------------------------------
</TABLE>
30% of the annualized bonus amount as projected for total year
performance will be paid on or before August 31st of each year. 70%
of the annualized bonus earned will be paid on or before February 28th
(29th) of each year. The bonus payment will be based on the
annualized salary in effect on June lst of each year.
Benefit
Plans Vacation: Effective 9/1/98 you will receive 4 weeks paid vacation
---------
per year. Such vacation to be taken with due consideration to
the business needs of TTC. One week of unused vacation may be
carried over (accrued) into the following year. No more than 30
unused vacation days shall ever be accrued.
Health Insurance: Effective 9/1/98 you will participate in the
----------------
company sponsored health insurance plan at the family coverage level
consistent with the coverages and underwriting provisions established
for full-time employee participants.
2
<PAGE>
Life Insurance: Effective 9/1/98 you will participate in the
--------------
company's life insurance plan. Tanning will acquire and maintain
life insurance on you naming your designee as beneficiary at a
value "targeted" for two-times your projected annual Tanning
earnings, but subject to underwriting approval or limitations
which are based on your personal health profile.
Long Term Disability Insurance: You will participate in the
-------------------------------
company's long term disability insurance plan. Tanning will
acquire short and long term disability insurance for your benefit
at a value of 60% of your prior year Tanning W2 earnings
(projected earnings for the first year). The final level of
insurance placed is subject to and governed by insurance policy
limitations.
Other Plans: In addition to participating in standard company benefit plan
coverages provided to full-time employees, you will receive the
following:
Stock Options: Initial stock option grant of 5,000,000 shares at a
-------------
strike price of $1.25 per share. 1,250,000 shares will vest
effective July 20, 1998, 1,250,000 will vest on July 20, 1999,
1,250,000 shares will vest on July 20, 2000, and 1,250,000 shares
will vest on July 20, 2001. All options will vest on an
accelerated basis and as of the same date of a "change of control"
as defined in the stock plan document. The vesting schedule
identified above will be subordinate to the accelerated change of
control vesting schedule. The terms and conditions of the stock
option allocation will be governed by the plan document, unless
otherwise established in executed written agreements. You are
eligible to participate in other stock options plans as granted
from time-to-time by the Compensation Committee of the TTC Board
of Directors and at their sole discretion.
Business Travel Accident Insurance: You will participate in the
----------------------------------
company's BTA insurance plan (Tanning will acquire and maintain
business travel accident insurance with a face value of $1,000,000
naming employee's designee as beneficiary).
Officer & Liability Insurance: Tanning will acquire and maintain
-----------------------------
Corporate Officer and Director liability insurance.
Termination
Terms: Termination "Not for Cause": "You will receive the following
----------------------------
separation of employment terms in the event you are terminated
"Not for Cause":
1. three months of base salary pay continuation (currently
$200,000 annually) and benefits coverage if you have completed
no less than one-year of continuous company service (January 1,
2000),
2. the acceleration of one additional vesting period (25%) for
non-vested options,
3. the extension of your exercise period on vested options
following termination to three years starting with the
effective date of your separation of employment with the
company.
Termination "For Cause": You will be subject to the following
------------------------
separation of employment terms in the event you are terminated
"For Cause":
1. the forfeiture of non-vested stock options,
2. the termination of base salary payments effective following the
final day of your employment, and
3
<PAGE>
3. a pro-rata reduction in bonus payments (proportionate payment
for the period of time you are employed relative to the
corresponding performance period).
Reimbursable
Denver
Expenses: Tanning shall provide you with reimbursement for reasonable hotel,
auto rental and meal expenses incurred while at work at the
company's Denver location. In addition, Tanning agrees to cover
in-route travel expenses between Stanford, Connecticut and Denver,
Colorado. These reimbursable expenses shall include coach-class
roundtrip airfare (or alternative similarly priced transportation
methods) and associated airport parking and commuting expenses for
travel between residences and airports. Tanning agrees to allow
you to commute to Denver as needed on an indefinite basis to the
extent it does not materially impede your ability to fulfill your
job responsibilities as judged by the organization's CEO.
Reimbursable
Connecticut
Expenses: Tanning agrees to reimburse you for telephone expenses, office
supply expenses, and other incidental expenses incurred in
Connecticut or in such other locations which are in direct support
of Tanning business activities upon presentation of documenting
receipts.
By Signing below, Employee acknowledges these terms.
TANNING TECHNOLOGY CORPORATION: EMPLOYEE:
By:
---------------------------- ------------------------------
Mark Tanning Henry F. Skelsey
Date: _______________ Date: _______________
4
<PAGE>
Exhibit 10.16
EMPLOYEE SPECIFIC TERMS
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: June 30, 1999
To: John Piccone
From: Larry Tanning
Tanning Technology is pleased to offer you the following Executive Compensation
plan for the remainder of the 1999 fiscal year period (June 30 to December 31,
1999) in recognition of your promotion to Chief Operating Officer.
Job Title: Executive Vice President & Chief Operating Officer
Supervisor: Larry Tanning
The effective date of this compensation plan will be June 30, 1999. Tanning is
pleased to provide you with the following compensation plan in recognition of
your important job responsibilities:
KEY COMPENSATION ELEMENTS
-------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Annual Base Salary: $250,000 Effective Date of
Semi-monthly pay rate: $10,416.67 base salary rate: July 1, 1999
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Part I: Global Revenue Bonus Incentive Plan
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Revenue Goals $45.0 M $48.0 M $52.0 M $56.0 M $60.0 M $64.0 M $68.0 M $72.0 M
Bonus as % of Base Salary: 0.0% 5.0% 9.0% 12.0% 15.0% 18.0% 21.0% 24.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $12,500 $22,500 $30,000 $37,500 $45,000 $52,500 $60,000
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part II: Global EBIT Bonus Incentive Plan
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary: 0.0% 8.0% 10.0% 13.0% 15.0% 18.0% 21.0% 24.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $20,000 $25,000 $32,500 $37,500 $45,000 $52,500 $60,000
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part III: Stock Appreciation Incentive Plan
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Appreciation at 12/31/99: 25.0% 30.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0%
Bonus as % of Base Salary: 0.0% 7.0% 10.0% 13.0% 15.0% 18.0% 21.0% 23.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 0 $17,500 $25,000 $32,500 $37,500 $45,000 $52,500 $57,500
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Part IV: MBO Goals Incentive Plan
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Goals Successfully Achieved 1 goals 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 18.0% 20.0%
- ---------------------------------------------------------------------------------------------------------------------------
Total bonus earned: $7,000 $10,500 $14,000 $17,500 $21,000 $26,250 $31,500 $35,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Establish strategic planning process and articulate corporate vision,
mission and critical success factors
#2: Operationalize strategic plan into tactical implementation action plans
#3: Define new business initiatives into sales models, messaging and
marketplace branding
#5: Assist in the realization of a 66% twelve month rolling forward sales
backlog (4% per month compounded growth rate)
#6: Create competitive analysis assessments and position and differentiate
Tanning's capabilities and core competencies
#7: Develop new technologies assessment process
#8: Function as a key contributor in establishing new business engagements
#9: Assist in the development of managerial capabilities to assess, formulate
and implement new business initiatives and identify and strengthen current
business methodologies and practices
SUMMARY OF EARNINGS POTENTIAL FOR PAID COMPENSATION
---------------------------------------------------
<TABLE>
<CAPTION>
Compensation Plan: Summary of Earnings Potential for Incentive Plan Parts I, II, III & IV
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 0.0% 24.0% 35.0% 46.0% 55.0% 66.0% 78.0% 88.0%
Total Bonus Value: $ 0 $ 60,000 $ 87,500 $115,000 $137,500 $165,000 $195,000 $220,000
- ---------------------------------------------------------------------------------------------------------------------------
Total Base+Bonus Potential: $250,000 $310,000 $337,500 $365,000 $387,500 $415,000 $445,000 $470,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The compensation amounts identified above will be prorated in 1999 since
--------
bonus payment calculations (percentage of base salary) will use actual base
salary payments (April 15 through December 31) for the 1999 performance year
period. The totals identified above are based on a full year of base salary
payments (are overstated) as opposed to your 8 & 1/2 months of actual base
salary payments in 1999 ($161,458.33).
STOCK OPTION INCENTIVE PLAN
---------------------------
The Company will provide you the opportunity to purchase 500,000 shares of Class
--------------
"C" Common Stock ("Common Stock") of the Company. Your 500,000 shares will be
divided into two allotments. The first allotment of 250,000 shares will be at a
$2.66 per share purchase price. The second allotment of 250,000 shares will be
at the final IPO price. These shares will vest in 20% annual installments
(100,000 shares per year over five years) with each installment tied to the
completion of a full year of active company service. Vesting credit for
completed service time will start effective July 1, 1999. The vesting schedule
will accelerate to 100% vesting in the event of a "change of control" in the
ownership of the company. This accelerated vesting provision becomes effective
on the first day of a change in control of company ownership.
OTHER EMPLOYMENT PROVISIONS
---------------------------
. Business and Recreational Membership Allowance. The company agrees to
----------------------------------------------
pay for membership fees up to $9,000 annually for you to join business and
recreational clubs and associations.
2
<PAGE>
. Relocation and Closing Costs.
----------------------------
. Tanning will cover actual and reasonable moving expenses for the movement
of household goods and two cars between Philadelphia and Denver.
. Tanning will reimburse you for up to two family house-hunting trips to
Denver including roundtrip coach class airfare, lodging and car rental
expenses.
. Assistance with costs for the purchase of a home in Denver, but not to
exceed $15,000.
. You will be reimbursed for interim Denver lodging expenses and storage of
household goods expenses in the event your family has relocated to Denver
but your residence is not ready for occupancy. This provision will apply
for up to a maximum of three months.
Tanning Technology Benefit Plans Summary
----------------------------------------
. You will be provided with a $1,000,000 Business, Travel Accident insurance
policy with you designating the beneficiary as part of your insurance
enrollment process. This policy also provides protection while you are
commuting between home and work.
. You will participate in all Tanning benefit programs, including comprehensive
family medical and dental insurance, life and disability insurance plans,
401(K) plan and Stock Purchase Plan.
. You will also receive a 3-week annual vacation allowance exercised with
appropriate consideration for the business needs of Tanning. Tanning also
observes 12 company paid holidays per year.
Note: While it is expected that this plan will not be subject to frequent
change, the company reserves the right, at its sole discretion, to terminate or
change this plan at any time.
To accept this offer of employment, you will be expected to sign and return the
enclosed Employment Agreement. To accept our Proposal of Employment, please sign
and return both copies of this Employment Agreement letter. This and other
documents will be executed your first day of employment and one copy will be
returned to you.
TANNING TECHNOLOGY CORPORATION ACKNOWLEDGEMENT OF RECEIPT
AND UNDERSTANDING OF TERMS
BY: /s/ John Piccone
---------------------------------- --------------------------------
Larry Tanning John Piccone
President & CEO Executive Vice President &
Chief Operating Officer
3
<PAGE>
Date: Date: 6/30/99
------------------------- ----------------------
CC: Mark Tanning
4
<PAGE>
Exhibit 10.17
EMPLOYEE SPECIFIC TERMS
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: February 1, 1999
To: Mark Tanning
From: Larry Tanning
Tanning Technology is pleased to offer you the following Executive Compensation
plan for fiscal year 1999 (January 1 to December 31, 1999).
Job Title: Vice President of Human Resources & Administration
Supervisor: Larry Tanning, President & CEO
The effective date of this compensation plan will be January 1, 1999. Tanning is
pleased to provide you with the following compensation plan in recognition of
your important job responsibilities:
KEY COMPENSATION ELEMENTS
-------------------------
<TABLE>
<S> <C> <C>
Annual Base Salary: $ 180,000 Effective Date of
Semi-monthly pay rate: $7,500.00 base salary rate: January 1, 1999
</TABLE>
<TABLE>
<CAPTION>
Part I: Global Revenue Bonus
Incentive
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Revenue Goals: $45.0M $48.0M $52.0M $56.0M $60.0M $64.0M $68.0M $72.0M
Bonus as % of Base Salary: 5.0% 10.0% 15.0% 20.0% 25.0% 32.0% 36.0% 40.0%
Total bonus earned: $9,000 $18,000 $27,000 $36,000 $45,000 $57,600 $64,800 $72,000
Part II: Global ESIT Bonus Incentive
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary 7.0% 10.0% 14.0% 16.0% 18.0% 22.0% 24.0% 27.0%
Total bonus earned: $12,600 $18,000 $25,200 $28,800 $32,400 $39,600 $43,200 $48,600
Part III: MBO Goals Bonus Incentive
Global EBIT Goals: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 18.0% 20.0%
Total bonus earned: $7,200 $10,800 $14,400 $18,000 $21,600 $27,000 $32,400 $36,000
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Hire global director of recruitment and strengthen recruitment methods and
results
#2: Completion of new facilities and relocation on time, with high quality and
within budget
#3: Development & implementation of a new employee orientation & training
program
#4: Comprehensive and cost effective Risk Management insurance plan
#5: Formalized compensation methodology and establish project performance bonus
plan
#6: Conduct Management Development Training
#7: Conduct Employee Attitude survey in 1999
#8: Formation of functioning business structure in India and integration with
Corporate mission/culture
#9: Performance within Administration budget for controllable items
1
<PAGE>
SUMMARY OF EARNINGS POTENTUL FOR PAID COMPENSATION
--------------------------------------------------
<TABLE>
<CAPTION>
Compensation Plan: Summary of Earnings Potential for Incentive Plan Parts I, II & III
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
Total Bonus Value: $ 28,800 $ 46,800 $ 66,600 $ 82,800 $ 99,000 $124,200 $140,400 $156,600
Total Base+Bonus Potential: $208,800 $226,800 $246,600 $262,800 $279,000 $304,200 $320,400 $336,600
</TABLE>
STOCK OPTION INCENTIVE PLAN
---------------------------
You will participate in the following Stock Option Incentive Plan which
provides the opportunity to earn additional stock options based on your
overall performance. Options will be at the $1.25 strike price and a four-
year vesting schedule will apply. You have received 50,000 options with an
effective date of 12/1/98 that are subject to four-year vesting. These
options are not tied to performance criteria.
In each of years 1999, 2000, and 2001 you will receive additional option
incentives which are based on your overall job performance level. Your job
performance level will be established using your total bonus percentage
earned in a given year. If your total bonus percentage earned is at or
above your "bonus target" of 55%, you will receive the full allocation. If
your total bonus percentage earned is below 55%, you will receive a
proportionate allocation corresponding to the ratio of actual bonus % to
target bonus %. In other words, if in 1999 your actual bonus percentage is
46%, then you would earn 46/55th's of your 60,000 option incentive, or
50,182 shares. All option incentives use the $1.25 strike price and are
subject to 25% immediate vesting and 25% annual installment vesting with
vesting credit commencing on December 1st for the year immediately
preceding the performance year period.
Part V: Stock Options Incentive Plan
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Final Bonus % Earned: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
1999 Options Earned (1/1/99): 17,465 28,364 40,364 50,182 60,000 60,000 60,000 60,000
2000 Final Bonus % Earned: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
2000 Options Earned (1/1/00): 29,091 47,273 67,273 83,636 100,000 100,000 100,000 100,000
2001 Final Bonus % Earned: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
2001 Options Earned (1/1/01): 34,909 56,727 80,727 100,364 120,000 120,000 120,000 120,000
</TABLE>
<TABLE>
<CAPTION>
TANNING TECHNOLOGY CORPORATION: Acknowledgement of Receipt and Understanding of Terms
<S> <C>
By: /s/ Mark Tanning
--------------------------------------------- ------------------------------------------------------
Senior Officer Mark Tanning
Date: 2-1-99
----------------------------
</TABLE>
CC: Bipin Agarwal, Henry Skelsey
2
<PAGE>
EXHIBIT 10.18
[LOGO]
T A N N I N G
TECHNOLOGY CORPORATION
EMPLOYEE SPECIFIC TERMS
-----------------------
(Employment Appendix/Document)
Employee: Mark W. Tanning
Effective Date: June 1, 1997
Term: There is no specific period or term of employment associated
with this job. Employment is at will and subject to termination
at any time as specified in Section 4 of the Employment
Agreement No verbal representation, understanding,
circumstance, or document of any kind can or will vary this at
will relationship.
Job Title: Vice-President of Administration
Supervisor Larry Tanning
Job Duties: See attached sheet.
Workplace
Location: Primarily at Denver, Colorado and at such other locations as
agreed upon (up to two days per week on average in Minnesota),
and as may be directed by TTC in support of client engagements.
Performance
Review: Periodically by Larry Tanning and the Tanning Board
Base Salary: Semi-monthly payments based upon a yearly rate of $180,000.
30% of the annualized bonus amount will be paid on or before
August 31st of each year. 70% of the annualized bonus amount
will be paid on or before the last day of February of each
year. The bonus payment will be based upon the annualized base
salary rate in effect on June 1st of each year.
Bonus: Semi-annual bonus payments comprised of the following:
% of Rev., EBIT& Discre. Targets 60% 70% 80% 90% 100% 110% 120% 130%
Bonus % of Base Salary 16% 24% 33% 44% 55% 65% 75% 85%
30% of the annualized bonus amount will be paid on or before
August 31st of each year. 70% of the annualized bonus amount
will be paid on or before February 28th (29th) of each year.
The bonus payment will be based on the annualized salary in
effect on June 1st of each year.
Benefit Plans: In addition to participating in standard company benefit plan
coverages provided to full-time employees, Mark Tanning will
receive the following:
1
<PAGE>
Stock Options: Initial stock option grant of 30,000 shares at a
-------------
strike price of $4.75 per share. 7,500 shares will vest
effective June 1, 1997, 7,500 shares will vest on February 1,
1998, 7,500 shares will vest on February 1, 1999, and 7,500
shares will vest on February 1, 2000. All other standard terms
of the Employee Stock Option Plan shall apply. Additional stock
options as granted from time-to-time by the Compensation
Committee of the TTC Board of Directors.
Vacation: 4 weeks paid vacation per year. Such vacation to be
--------
taken with due consideration to the business needs of TTC. One
week of unused vacation may be carried over (accrued) into the
following year. No more than 30 unused vacation days shall ever
be accrued.
Life Insurance: TTC will acquire and maintain life insurance on
--------------
employee naming employee's designee as beneficiary at a value
of two-times the employee's prior year's W2 earnings.
Long Term Disability Insurance: TTC will acquire short and long
------------------------------
term disability insurance for the benefit for the employee at a
value of 60% of employee's prior year W2 earnings.
Business Travel Accident Insurance: TTC will acquire and
maintain business travel accident insurance with a face value
of $1,000,000 naming employee's designee as beneficiary.
Officer & Liability Insurance: TTC will acquire and maintain
-----------------------------
Corporate Officer and Director liability insurance.
Severance: TTC will provide for six months of base salary pay
---------
continuation (currently $180,000 annually) and benefits
coverage if Mark Tanning is constructively terminated after
completing one year of continuous company service. Constructive
termination shall mean the involuntary actual termination of
Mark Tanning's employment due to: (A) a reduction in your base
salary which is not offset in equivalent value in alternative
forms of compensation and benefits and agreed upon in writing
by Mark Tanning, (B) a material decrease in Tanning's benefit
package which is imposed only upon Tanning and not others in a
similar position with TTC, (C) a significant reduction in
Tanning's job responsibilities, or (D) a loss of company
officer status.
The base salary pay and benefits coverage continuation period
will be extended to a nine-month period in the event of your
termination "not for cause" or "constructive termination" of
employment (as defined above) following: (A) the completion of
3 years of continuous company service, or (B) a "change in
control" in the company. The base salary rate applied in the
pay continuation period will be the highest TTC base salary
rate in effect in the 3-year period prior to your constructive
termination of employment. You will also receive payment for
any accrued but unused vacation time you have accumulated for
prior year allocations to a maximum of 30 days, plus earned but
unused vacation allocations for the current year.
Reimbursable
Denver
Expenses: TTC shall provide Mark Tanning with housing at no charge while
staying at the Company's residence at 10623 Powers Drive in
Englewood and reimburse auto rental/lease expenses while
commuting to work in Denver. Mark Tanning agrees to coordinate
and share the use of a rented/leased vehicle with TTC employee
Bill Belknap
2
<PAGE>
when reasonably feasible to do so. In addition, TTC agrees to
cover in-route travel expenses between St. Paul, Minnesota and
Denver, Colorado. These reimbursable expenses shall include
coach-class roundtrip airfare (or alternative similarly priced
transportation methods) and associated airport parking and
commuting expenses for travel between residences and airports.
TTC agrees to allow Mark Tanning to commute to Denver on an
indefinite basis to the extent it does not materially impede
his ability to fulfill his job responsibilities as judged by
the organization's CEO.
Reimbursable
Minnesota
Expenses: TTC agrees to reimburse Mark Tanning for telephone expenses and
office supply expenses incurred in Minnesota while are in
direct support of TTC business activities.
Relocation
Expenses: TTC will provide reasonable and actual reimbursement for costs
involved in the movement of household goods at the time of Mark
Tanning's move from St. Paul, Minnesota to Denver, Colorado.
TTC will provide reimbursement for closing costs associated
with the purchase of a house in the Denver area, but not to
exceed $10,000.
By Signing below, Employee acknowledges these terms.
TANNING TECHNOLOGY CORPORATION: EMPLOYEE:
By:/s/ Larry Tanning /s/ Mark Tanning
----------------------------- -----------------------------
Larry Tanning Mark Tanning
Date: 8-22-97 Date: 8-01-97
------- ----------
3
<PAGE>
Exhibit 10.19
Employee Specific Terms Document
TANNING TECHNOLOGY CORPORATION
------------------------------
1999 EXECUTIVE COMPENSATION PLAN
Date: June 30, 1999
To: Fred Fogel
From: Henry Skelsey & Larry Tanning
Dear Fred,
We have great confidence in the value and impact you will have as a member of
the senior management team at Tanning Technology Corporation. Based on our
discussions, and our high regard for your skills and abilities, we are offering
you the position of "Vice President Business Affairs and General Counsel" with
employment starting on or before the consummation of Tanning's initial public
offering . Tanning Technology is pleased to offer you the following
Compensation plan for fiscal year 1999 (abbreviated from June 30 to December 31,
1999) and other terms of employment.
Job Title: Vice President Business Affairs and General Counsel, member of
executive committee
Supervisor: President & CEO
Your base salary rate is annualized and is paid on a semi-monthly basis over a
12-month period. Bonuses are paid within 60 days of the close of the fiscal
year (February 28, 2000). Base salary may not be reduced for subsequent fiscal
years. Tanning is pleased to provide you with the following compensation plan
in recognition of your important job responsibilities:
KEY COMPENSATION PLAN ELEMENTS (ANNUALIZED)
-------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Annual Base Salary: $ 175,000 Effective Date of
Semi-monthly pay rate: $7,291.67 base salary rate: June 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part I: Global Revenue Bonus Incentive
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Revenue Goals $45.0 M $48.0 M $52.0 M $56.0 M $60.0 M $64.0 M $68.0 M $72.0 M
Bonus as % of Base Salary: 5.0% 10.0% 15.0% 20.0% 25.0% 32.0% 36.0% 40.0%
- -----------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 8,750 $17,500 $26,250 $35,000 $43,750 $56,000 $63,000 $70,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Part II: Global EBIT Bonus Incentive
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global EBIT Goals: 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 23.0%
Bonus as % of Base Salary: 7.0% 10.0% 14.0% 16.0% 18.0% 22.0% 24.0% 27.0%
- --------------------------------------------------------------------------------------------------------------------------
Total bonus earned: $12,250 $17,500 $24,500 $28,000 $31,500 $38,500 $42,000 $47,250
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part III: MBO Goals Bonus Incentive
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MBO Goals Achieved: 1 goal 2 goals 3 goals 4 goals 5 goals 6 goals 7 goals 8 goals
Bonus as % of Base Salary: 4.0% 6.0% 8.0% 10.0% 12.0% 15.0% 18.0% 20.0%
- --------------------------------------------------------------------------------------------------------------------------
Total bonus earned: $ 7,000 $ 10,500 $14,000 $17,500 $21,000 $26,250 $31,500 $35,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
MBO Goal Subjects:
- ------------------
#1: Provide leadership as a member of the senior management team in guiding the
development and utilization of best practices to optimize the effective
operation and growth potential of the global organization.
#2: Oversee Corporate legal governance and insure compliance with regulatory
obligations.
#3: Development effective risk management strategies to support the successful
commercial operation of the business while avoiding and mitigating legal
exposures to the business.
#4: Assist in the development and management of employment and HR practices to
minimize employee legal issues and support a positive employee relations
climate in the company.
#5: Insure that the intellectual properties of the company are protected from
encroachment by competitors, and that the company's trademarks, licenses,
and strategic business differentiators are protected as needed to
establish a distinctive and where possible exclusive Corporate identity.
#6: Act as a principal in identifying, structuring, negotiating and executing
acquisitions, joint ventures and other business combination transactions to
advance the strategic goals of the company.
#7: Oversee the legal formation and efficient intra-company operation of
subsidiaries, joint venture partners and business alliances.
#8 Operate as a principal negotiator in the framing and execution of key
business contracts with customers, suppliers, vendors, landlords,
government agencies and employees to advance and protect the company's
business interests.
Note: The goal subjects identified above provide an initial framework for goal
discussions. These goals will be reviewed and refined on a participative basis
between you and the CEO Larry Tanning.
SUMMARY OF ANNUALIZED EARNINGS POTENTIAL FOR PAID COMPENSATION
--------------------------------------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
Compensation Plan: Summary of Earnings Potential for Incentive Plan Parts I, II & III
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bonus as % of Base: 16.0% 26.0% 37.0% 46.0% 55.0% 69.0% 78.0% 87.0%
Total Bonus Value: $ 28,000 $ 45,500 $ 64,750 $ 80,500 $ 96,250 $120,750 $136,500 $152,250
- ---------------------------------------------------------------------------------------------------------------------------------
Total Base+Bonus Potential: $203,000 $220,500 $239,750 $255,500 $271,250 $295,750 $311,500 $327,250
- ----------------------------------------=========================================================================================
</TABLE>
Note: The compensation amounts identified above will be prorated in 1999 since
bonus payment calculations (percentage of base salary) will use actual base
salary payments (June 30 through December 31) for the 1999 performance year
period.
OTHER EMPLOYMENT PROVISIONS
---------------------------
Severance: Tanning will provide for twelve months of base salary pay
---------
continuation (currently $175,000 annually) and benefits coverage if you are
terminated without cause or constructively terminated. Constructive
termination shall mean : (A) a reduction in your base salary which is not
offset in equivalent value in alternative forms of compensation and benefits
and agreed upon in writing by you, (B) a material decrease in your benefit
package which is imposed only upon you and not others in a similar position
with Tanning, (C) a significant reduction in your job responsibilities, or (D)
a loss of company officer status. Termination for cause shall mean
termination upon written notice that you have (i) acted or failed to act in
such a fashion as to constitute dishonesty, fraud, or other serious misconduct
deemed by Tanning to have a material adverse effect upon the operation of
Tanning's business, or (ii) willfully failed to follow the lawful
instructions of your superiors. You will also receive payment for any accrued
but unused vacation time you have accumulated for prior year allocations to a
maximum of 30 days, plus earned but unused vacation allocations for the
current year.
. Stock Options. Amount and terms of stock option grants made in connection
-------------
with your employment shall be as established in your stock option agreement
document, which is to be executed in connection herewith, and is agreed to
be an integral component of your employment terms.
. Post Termination Stock Exercise. Tanning will provide you with a 3 year
---------------------------------
exercise period for your vested stock upon separation of employment. You
may continue to hold your vested stock options for a period not to exceed
three years, with the three year exercise period commencing effective on
your last day of employment with the company.
. Vacation. You will be provided with 4 (four) weeks of paid vacation per
--------
year. Such vacation to be taken with due consideration to the business
needs of Tanning. One week of unused vacation may be carried over (accrued)
into the following year. No more than 30 unused vacation days shall ever be
accrued.
. Tanning Technology Benefit Plans Summary
----------------------------------------
3
<PAGE>
. You will be provided with a $1,000,000 Business, Travel Accident insurance
policy with you designating the beneficiary as part of your insurance
enrollment process. This policy also provides protection while you are
commuting between home and work.
. You will participate in all Tanning benefit programs, including
comprehensive family medical and dental insurance, life and disability
insurance plans, 401(K) plan and Stock Purchase Plan.
. Tanning also observes 12 company paid holidays per year.
Note: While it is expected that the benefits described in the above "Benefit
Plans Summary" will not be subject to frequent change, the company reserves the
right, at its sole discretion, to terminate or change this plan at any time (so
long as such termination or change affects all similarly situated employees).
. Relationship with Fried, Frank. We agree and acknowledge that you may
------------------------------
continue to be a partner at Fried, Frank, Harris, Shriver & Jacobson, it
being understood that any activities or responsibilities on behalf of Fried
Frank will be satisfied in a manner that does not unreasonably interfere
with your duties and responsibilities with Tanning.
To accept our Proposal of Employment, please sign and return both copies of this
Employment Agreement letter.
TANNING TECHNOLOGY CORPORATION Acknowledgement of Understanding
and Acceptance of Terms
BY:
---------------------------------- --------------------------------
Henry Skelsey Fred Fogel
Executive V.P. & Chief Financial Officer
Date: Date:
-------------------- --------------------
CC: Larry Tanning, Mark Tanning
4
<PAGE>
Exhibit 10.29
EXCISE TAX AGREEMENT
THIS AGREEMENT, entered into this ___ day of July, 1999 by and between
TANNING TECHNOLOGY CORPORATION, a Delaware corporation doing business at 4600
South Ulster St., Suite 380, Denver, Colorado 80237 (hereafter referred to as
the "Corporation") and __________ (hereafter referred to as "Employee"), is made
upon the following terms and conditions:
RECITALS
WHEREAS, the Corporation and the Employee have entered into an Employment
Agreement dated as of _____ __, 19__ (the "Employment Agreement").
NOW, THEREFORE, in consideration of the mutual premises and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
1. Gross-Up Payment. In the event it shall be determined that any
----------------
payment or distribution of any type to or for the benefit of the Employee, by
the Corporation, any affiliate of the Corporation, any person who acquires
ownership or effective control of the Corporation or ownership of a substantial
portion of the Corporation's assets (within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder) or any affiliate of such person, whether paid or payable or
distributed or distributable pursuant to the terms of the Employment Agreement
or otherwise (the "Total Payments"), is or will be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments. For purposes of determining the amount of the Gross-Up
Payment, the Employee shall be deemed to pay federal, state and local income
taxes and employment taxes at the highest marginal rate of federal, state and
local income taxation and employment taxation in the calendar year in which the
Gross-Up Payment is to be made, net of the maximum reduction in federal income
taxes that may be obtained from the deduction of such state and local taxes.
2. Determination By Accountant. All mathematical determinations, and
---------------------------
all determinations as to whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code), that are required to
be
<PAGE>
made hereunder, including determinations as to whether a Gross-Up Payment is
required, the amount of such Gross-Up Payment and amounts relevant to the last
sentence of this Section 2, shall be made by an independent accounting firm
selected by the Employee from among the five (5) largest accounting firms in the
United States (the "Accounting Firm"), which shall provide its determination
(the "Determination"), together with detailed supporting calculations regarding
the amount of any Gross-Up Payment and any other relevant matter, both to the
Corporation and the Employee by no later than ten (10) days following a written
request by the Corporation or the Employee (if the Employee reasonably believes
that any of the Total Payments may be subject to the Excise Tax). If the
Accounting Firm determines that no Excise Tax is payable by the Employee, it
shall furnish the Employee and the Corporation with an opinion reasonably
acceptable to the Employee and the Corporation that no Excise Tax is payable
(including the reasons therefor) and that the Employee has substantial authority
not to report any Excise Tax on his federal income tax return. If a Gross-Up
Payment is determined to be payable, it shall be paid to the Employee within ten
(10) days after the Determination (and all accompanying calculations and other
material supporting the Determination) is delivered to the Corporation by the
Accounting Firm. Any determination by the Accounting Firm shall be binding upon
the Corporation and the Employee, absent manifest error. As a result of
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments not made by the Corporation should have been made
("Underpayment"), or that Gross-Up Payments will have been made by the
Corporation which should not have been made ("Overpayments"). In either such
event, the Accounting Firm shall determine the amount of the Underpayment or
Overpayment that has occurred. In the case of an Underpayment, the amount of
such Underpayment (together with any interest and penalties payable by the
Employee as a result of such Underpayment) shall be promptly paid by the
Corporation to or for the benefit of the Employee. In the case of an
Overpayment, the Employee shall, at the direction and expense of the
Corporation, take such steps as are reasonably necessary (including, if
reasonable, the filing of returns and claims for refund), and otherwise
reasonably cooperate with the Corporation to correct such Overpayment, provided,
however, that (i) the Employee shall not in any event be obligated to return to
the Corporation an amount greater than the net after-tax portion of the
Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (ii) this provision shall be interpreted in a
manner consistent with the intent of Section 1, which is to make the Employee
whole, on an after-tax basis, from the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in the Employee
repaying to the Corporation an amount which is less than the Overpayment. The
fees and expenses of the Accounting Firm shall be paid by the Corporation.
3. Assignment. This Agreement and the duties, obligations and
----------
benefits hereunder shall bind and benefit the parties hereto and to the extent
necessary to
-2-
<PAGE>
carry out its intentions, the legal and personal representatives of the parties.
This Agreement may not be assigned without the written permission of the parties
except that the Corporation may assign this Agreement to any successor of the
Corporation by reason of reorganization, merger, consolidation, or the partial
or complete sale of the Corporation's business and/or assets.
4. Entire Agreement and Amendment. This Agreement may only be altered
------------------------------
or amended by a writing signed by the Employee and an authorized officer of the
Corporation.
5. Waiver. Neither the delay nor failure by the Corporation or
------
Employee to exercise any right under this Agreement, nor partial or single
exercise of any such right, shall constitute a waiver of that or any other
right.
6. Governing Law, Interpretation and Venue. This Agreement shall be
---------------------------------------
interpreted and enforced under the laws of the state of Colorado, without regard
to the principles of conflicts of law thereof. In the event that any one or
more provision in this Agreement shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such provision had never been contained
herein.
7. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above (July ___, 1999).
TANNING TECHNOLOGY EMPLOYEE
CORPORATION
By:
-------------------------------- -------------------------------
Printed Name:
----------------------
Title:
-----------------------------
4600 South Ulster St., Suite 380
Denver, CO 80237
303-220-9944
-4-
<PAGE>
Exhibit 10.30
TANNING TECHNOLOGY CORPORATION
1997 STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 Purpose. The purpose of this Tanning Technology Corporation 1997
-------
Stock Option Plan (the "Plan") is to provide for certain key employees,
officers, independent contractors with and/or directors of Tanning Technology
Corporation, a Delaware corporation (the "Company"), and its subsidiaries and
affiliates, an incentive (i) to join and/or remain in the service of the Company
and its subsidiaries and affiliates, (ii) to maintain and enhance the long-term
performance and profitability of the Company and its subsidiaries and affiliates
and (iii) to acquire a proprietary interest in the success of the Company and
its subsidiaries and affiliates.
1.2 Definition of Certain Terms.
---------------------------
(a) "Agreement" means an agreement issued pursuant to Section
2.1.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed to administer the
Plan in accordance with Section 1.3.
(e) "Company" means Tanning Technology Corporation, a Delaware
corporation.
(f) "Common Stock" means the shares of Class C common stock, par
value $.01 per share, of the Company and any other shares into which such common
stock shall thereafter be exchanged by reason of a recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like.
(g) "Optionee" means an employee, officer, independent contractor
with and/or director of the Company or any of its subsidiaries or affiliates who
has been awarded any Option under this Plan.
<PAGE>
(h) "Option" means a "nonqualified" stock option, as described in
Section 1.5, granted under the Plan.
(i) The terms "parent corporation" and "subsidiary corporation"
as used herein shall have the meaning given those terms in Code section 425(e)
and (f), respectively. A corporation shall be deemed a parent or a subsidiary
only for such periods during which the requisite ownership relationship is
maintained.
(j) "Plan" means this Tanning Technology Corporation Stock Option
Plan.
(k) "Termination With Cause," with respect to any Optionee, means
termination by the Company or any of its subsidiaries or affiliates of such
Optionee's employment for: (i) misappropriation of corporate funds, (ii)
conviction of a felony or a crime involving moral turpitude, (iii) failure to
comply with directions of the Chief Executive Officer or other superiors of the
Optionee or the Board of Directors of the Company or any of its subsidiaries or
affiliates, (iv) gross negligence and willful misconduct, or (v) any other
behavior identified in the Optionee's employment agreement (if any) which gives
rise to termination for cause.
(l) Permitted Transferee" means, with respect to any person, such
person's immediate family, trusts solely or primarily for the benefit of such
person or such person's family members, and partnerships, limited liability
companies or other corporations in which such person or such person's family
members and/or such trusts are the majority partners or shareholders as the case
may be. For this purpose, "immediate family" of a person means the person's
spouse, parents, children, stepchildren and grandchildren.
1.3 Administration.
--------------
(a) Subject to Section 1.3(e), the Plan shall be administered by
a committee of the Board which shall consist of at least two directors and which
shall have the
-2-
<PAGE>
power of the Board to authorize awards under the Plan. The members of the
Committee shall be appointed by, and may be changed from time to time in the
discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of
the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Agreement executed pursuant to Section 2.1 in
accordance with the terms thereof, (iii) to prescribe, amend and rescind rules
and regulations relating to the Plan, (iv) to make all determinations necessary
or advisable in administering the Plan, (v) to correct any defect, supply any
omission and reconcile any inconsistency in the Plan, and (vi) to grant Options
on such terms, not inconsistent with the Plan, as it shall determine.
(c) The determination of the Committee on all matters relating to
the Plan or any Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
(e) Notwithstanding anything to the contrary contained herein:
(i) until the Board shall appoint the members of the Committee, the Plan shall
be administered by the Board; and (ii) the Board may, in its sole discretion, at
any time and from time to time, resolve to administer the Plan. In either of the
foregoing events, the term "Committee" as used herein shall be deemed to mean
the Board.
1.4 Persons Eligible for Awards. Awards under the Plan may be made
---------------------------
from time to time to such key employees, officers, independent contractors with
and/or directors of the Company or its subsidiaries and/or affiliates as the
Committee shall in its sole discretion select.
1.5 Types of Awards Under the Plan. Awards may be made under the
------------------------------
Plan in the form of stock options, which shall be "nonqualified" stock options
subject to the provisions of section 83 of the Code, all as more fully set forth
in Article 2.
1.6 Shares Available for Awards.
---------------------------
(a) Subject to Section 3.4 (relating to adjustments upon changes
in capitalization), the maximum number of shares of Class C Common Stock with
respect to which
-3-
<PAGE>
Options may be awarded under the Plan shall be equal to 1,509,288 shares. Shares
of Common Stock covered by Options granted under the Plan which expire or
terminate for any reason shall again become available for award under the Plan.
(b) Shares that are issued upon the exercise of Options awarded
under the Plan shall be authorized and unissued or treasury shares of Common
Stock.
(c) Without limiting the generality of the preceding provisions
of this Section 1.6, the Committee may, but solely with the Optionee's consent,
agree to cancel any award of Options under the Plan and issue new Options in
substitution therefor, provided that the Options as so substituted shall satisfy
all of the requirements of the Plan as of the date such new Options are awarded.
ARTICLE 2
STOCK OPTIONS
2.1 Agreements Evidencing Stock Options
-----------------------------------
(a) Options awarded under the Plan shall be evidenced by
Agreements which shall not be inconsistent with the terms and provisions of the
Plan, and which shall contain such provisions as the Committee may in its sole
discretion deem necessary or desirable. Without limiting the generality of the
foregoing, the Committee may in any Agreement impose such restrictions or
conditions upon the exercise of an Option or upon the sale or other disposition
of the shares of Common Stock issuable upon exercise of an Option as the
Committee may in its sole discretion determine. By accepting an award pursuant
to the Plan each Optionee shall thereby agree that each such award and shares of
Common Stock acquired upon exercise of an Option shall be subject to all of the
terms and provisions of the Plan, including, but not limited to, the provisions
of Section 1.3(d).
(b) Each Agreement shall set forth the number of shares of Common
Stock subject to the Option granted thereby.
(c) Each Agreement relating to Options shall set forth the per
share amount payable by the Optionee to the Company upon exercise of the Option
evidenced
-4-
<PAGE>
thereby, which shall not be less than the fair market value of the underlying
shares of Common Stock at the time of grant, except as otherwise determined by
the Committee.
2.2 Term of Options.
---------------
Each Agreement shall set forth the period during which the Option
evidenced thereby shall be exercisable, whether in whole or in part, such
periods to be determined by the Committee in its discretion.
2.3 Exercise of Options. Subject to the provisions of this Article
-------------------
2, each Option granted under the Plan shall be exercisable as follows:
(a) Unless the applicable Agreement expressly provides otherwise,
Options awarded to Optionees under the terms of the Plan will be exercisable
only in accordance with the following vesting schedule:
Cumulative
Percentage of
Applicable Date Total Shares
--------------- ------------
On the first anniversary of the date of
the applicable Agreement 25%
On the second anniversary of the date of
the Agreement 50%
On the third anniversary of the date of
the Agreement 75%
On the fourth anniversary of the date of
the Agreement 100%
The Committee may modify this vesting schedule in any manner that it deems
appropriate in any Agreement, and may provide different vesting schedules in
different Agreements in its sole discretion. Except as the Committee may
otherwise provide, in the event that Optionee's employment, Board membership, or
independent contractor relationship with the Company is terminated for any
reason prior to the date on which the Optionee's right to exercise the Options
has fully vested pursuant to this Section 2.3(a), the Options will immediately
cease to be exercisable with respect to any and all shares which have not vested
as of the date of such termination.
-5-
<PAGE>
(b) Unless the applicable Agreement otherwise provides, an Option
granted under the Plan may be exercised from time to time as to all or part of
the shares as to which such Option shall then be exercisable.
(c) An Option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such manner as the
Committee shall in its sole discretion prescribe, and a copy of such form shall
be included with the Agreement.
(d) Any written notice of exercise of an Option shall be
accompanied by payment of the exercise price for the shares being purchased.
Such payment shall be made by check payable to the Company (or the equivalent
thereof acceptable to the Committee). As soon as practicable after receipt of
such payment, the Company shall deliver to the Optionee a certificate or
certificates for the shares of Common Stock so purchased.
2.4 Termination of Options.
----------------------
(a) Notwithstanding anything to the contrary in this Plan, except
as the Agreement may otherwise provide or as set forth in Section 2.4(b),
Section 2.4(c) or Section 2.4(d), Options granted to an Optionee (and already
vested but not yet exercised) shall terminate on the date which is 90 days
after; 1) termination of his employment (for employee Optionees) with the
Company for any reason (other than death or disability in which case the Options
shall terminate on the date which is 180 days after the date of such
termination), 2) termination of services on the Board (for non-employee Board
members) for any reason (other than death or disability in which case the
Options shall terminate on the date which is 180 days after the date of such
termination), 3) termination of services as an independent contractor or the
reduction of such services below levels specified in the independent
contractor's Option Agreement.
(b) In the event of a Termination With Cause of an Optionee by
the Company, the Committee may determine within a period of sixty (60) days from
the date of Termination With Cause, in its sole and absolute discretion, to
terminate any or all Options granted to an Optionee so that such Options are
expired and no longer exercisable, and
-6-
<PAGE>
Optionee's rights under this Plan and the related Stock Option Agreement(s)
shall immediately expire upon such determination. The Committee shall notify
Optionee in writing of its determination by the end of such sixty (60) day
period, and the Committee's failure to so notify Optionee shall permit Optionee
to exercise all Options which were exercisable by Optionee on the date of his or
her Termination With Cause. Such written notice, if given, shall indicate the
number of option shares, if less than all of Optionee's vested Options at the
date of Termination With Cause, which may be exercised by Optionee. During the
period prior to such determination, no Options held by Optionee may be
exercised. If the Committee determines that Optionee may exercise some or all of
his or her Options, Optionee shall have ninety (90) days from the date of such
notice to exercise some or all of such Options.
(c) If at the time in question the Common Stock is not publicly
traded on a national securities exchange or over-the-counter market, in the
event that an Optionee's employment, Board membership, or independent contractor
relationship with the Company is Terminated for any reason, the Company at its
election, on giving ten days written notice to Optionee, may (i) repurchase any
and all shares of Common Stock then owned by Optionee which were previously
acquired by Optionee through exercise of Options granted under this Plan and
(ii) cancel any unexpired Options which have vested under the terms of the Plan
but have not been exercised [provided however, that if such termination was a
Termination with Cause, Section 2.4(b) shall govern rather than this Section
2.4(c)(ii)], subject in each case to payment of the purchase price described
below. The purchase price payable by the Company to the Optionee on exercise of
its right to repurchase under (i) above will be the fair market value of the
Common Stock held by the Optionee which is being repurchased, determined as of
the date of the repurchase. The purchase price payable by the Company to
Optionee on exercise of the right to cancel unexpired vested but unexercised
Options under (ii) above will be the fair market value of the Options in
question determined as of the date of the cancellations. In either of the above
cases, the fair market value will be determined by the Board in its reasonable
and absolute discretion.
-7-
<PAGE>
(d) In the event of a Non-Control Transaction (as hereinafter
defined), (A) all outstanding Options shall remain outstanding and subject to
the terms and conditions of the Plan, including the vesting schedule contained
in Section 2.3(a), and (B) each Optionee shall be entitled to receive in respect
of each share of Common Stock subject to the Option, upon exercise of such
Option after the vesting thereof, the same amount and kind of stock, securities,
cash, property or other consideration that each holder of a share of Common
Stock was entitled to receive (the "Consideration") in the Non-Control
Transaction in respect of a share. In the event of a Transaction (as
hereinafter defined), each outstanding Option shall vest and be fully
exercisable, and, as of the date of the occurrence of the Transaction (the
"Transaction Date"), the Company shall have the right, among other rights, to
(i) cancel any or all Options which have not been exercised as of the
Transaction Date, (ii) require that each outstanding option be converted in
connection with such Transaction into the Consideration payable in connection
with such Transaction, less the exercise price of such Option, and/or (iii) in
the event the provisions of Section 2.4(a) are applicable, treat the Options as
described in Section 2.4(a) except that each outstanding Option shall vest and
be fully exercisable.
"Transaction" means (i) the approval by stockholders of the
liquidation or dissolution of the Company, (ii) a sale or other disposition of
51% or more of the outstanding interests or voting stock, respectively, of the
Company, (iii) the merger or consolidation of the Company with or into any
entity, or (iv) a sale or other disposition of substantially all of the assets
of the Company; provided, however, that the term "Transaction" shall exclude
-----------------
each transaction which is a "Non-Control Transaction." "Non-Control
Transaction" means (i) a merger or consolidation following which those persons
who owned directly or indirectly a majority of the outstanding interests or
shares of voting stock immediately prior to such merger or consolidation will
own directly or indirectly a majority of the outstanding interests or shares of
voting stock of the surviving corporation, (ii) a sale or other disposition of
interests or capital stock, respectively, of the Company following which those
persons who owned directly or indirectly a majority of the outstanding interests
or shares of voting stock immediately prior to such sale will own directly or
-8-
<PAGE>
indirectly a majority of the outstanding interests or shares of voting stock of
the purchasing entity, (iii) a sale or other disposition of substantially all of
the assets of the Company to an affiliate, or (iv) an initial public offering of
the Company.
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<PAGE>
ARTICLE 3
MISCELLANEOUS
3.1 Amendment of the Plan;
Modification of Awards.
----------------------
(a) The Board may, without stockholder approval, from time to
time suspend or discontinue the Plan or revise or amend it in any respect
whatsoever, except that no such suspension, discontinuance, revision or
amendment shall adversely alter or impair any rights or obligations under any
award theretofore made under the Plan without the consent of the person to whom
such award was made; and further provided that the Board may, in its discretion,
require stockholder approval of any changes or amendments to the Plan which the
Board, in its discretion, believes is necessary or appropriate for any reason.
(b) With the consent of the Optionee and subject to the terms and
conditions of the Plan (including Section 3.1(a)), the Committee may amend
outstanding Agreements with such Optionee, for example, to (i) accelerate the
time or times at which an Option may be exercised or (ii) extend the scheduled
expiration date of the Option.
3.2 Non-Transferability. No Option shall be transferable
-------------------
by the Optionee other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order (within the meaning of Rule 16a-12
promulgated under the Securities Exchange Act of 1934, as amended), and an
Option shall be exercisable during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. Notwithstanding the
foregoing, the Committee may permit at the time of grant of an Option or
thereafter, that the Option may be transferred to Permitted Transferees of the
Optionee, and for purposes of this Plan, a Permitted Transferee of an Optionee
shall be deemed to be the Optionee. The terms of an Option shall be final,
binding and conclusive upon the transferees, beneficiaries, executors,
administrators, heirs and successors of the Optionee.
3.3 Withholding of Taxes. The Company shall be entitled to withhold
--------------------
an amount sufficient to satisfy any federal, state and other governmental tax
requirements related to
-10-
<PAGE>
an Option. Whenever, under the Plan, shares of Common Stock are to be delivered
upon exercise of an Option, the Company shall be entitled to require as a
condition of delivery that the Optionee remit an amount sufficient to satisfy
all federal, state and other governmental tax withholding requirements related
thereto.
3.4 Adjustments Upon Changes in Capitalization. If and to the extent
------------------------------------------
specified by the Committee, in its sole discretion, the exercise price for
Options and the number of shares of Common Stock which may be issued pursuant to
the exercise of Options granted under the Plan may be appropriately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from the subdivision or combination of shares of Common Stock or other
capital adjustments, or the payment of a stock dividend after the effective date
of this Plan; provided, however, that any Options to purchase fractional shares
of Common Stock resulting from any such adjustment shall be eliminated.
Adjustments under this Section 3.4 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
3.5 Right of Discharge Reserved. Nothing in this Plan or in any
---------------------------
Agreement shall confer upon any employee or other person the right to continue
in the employment or service of the Company or any of its subsidiaries or
affiliates or affect any right which the Company or any of its subsidiaries or
affiliates may have to terminate the employment or service of such employee or
other person.
3.6 No Rights as a Stockholder. No Optionee or other person holding
--------------------------
an Option shall have any of the rights of a stockholder of the Company with
respect to shares subject to an Option until the issuance of a stock certificate
to him for such shares. Except as otherwise provided in Section 3.4, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities or other property)
for which the record date is prior to the date such stock certificate is issued.
3.7 Nature of Payments.
------------------
-11-
<PAGE>
(a) Any and all payments of shares of Common Stock or cash
hereunder shall be granted, transferred or paid in consideration of services
performed by the Optionee for the Company or any of its subsidiaries or
affiliates.
(b) All such grants, issuances and payments shall constitute a
special incentive payment to the Optionee and shall not, unless otherwise
determined by the Committee, be taken into account in computing the amount of
salary or compensation of the Optionee for the purposes of determining any
pension, retirement, death or other benefits under (i) any pension, retirement,
life insurance or other benefit plan of the Company or any of its subsidiaries
or affiliates or (ii) any agreement between the Company or any of its
subsidiaries or affiliates and the Optionee.
3.8 Non-Uniform Determinations.
--------------------------
The Committee's determinations under the Plan need not be uniform
and may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Agreements, as to
(i) the persons to receive awards under the Plan, and (ii) the terms and
provisions of awards under the Plan.
3.9 Other Payments or Awards. Nothing contained in the Plan shall be
------------------------
deemed in any way to limit or restrict the Company or any of its subsidiaries or
affiliates or the Committee from making any award or payment to any person under
any other plan, arrangement or understanding, whether now existing or hereafter
in effect.
3.10 Restrictions.
------------
(a) If the Committee shall at any time determine that any
Consent (as hereinafter defined) is necessary or desirable as a condition of, or
in connection with, the granting of any award under the Plan, the issuance or
purchase of shares or the exercise of other rights hereunder or the taking of
any other action hereunder (each such action being hereinafter
-12-
<PAGE>
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, if (i) the Committee is entitled under the Plan to
make any payment in cash, Common Stock or both, and (ii) the Committee
determines that a Consent is necessary or desirable as a condition of, or in
connection with, payment in any one or more of such forms, the Committee shall
be entitled to determine not to make any payment whatsoever until such Consent
shall have been obtained in the manner aforesaid.
(b) The term "Consent" as used herein with respect to any Plan Action
means (i) any and all listings, registrations, qualifications or similar
requirements in respect thereof upon any securities exchange or under any
federal, state or local law, rule or regulation, (ii) any and all written
agreements and representations by the grantee with respect to the disposition of
shares, or with respect to any other matter, which the Committee shall deem
necessary or desirable to comply with the terms of any such listing,
registration, qualification or similar requirement or to obtain an exemption
from the requirement that any such listing, qualification or registration be
made and (iii) any and all consents, clearances and approvals in respect of a
Plan Action by any governmental or other regulatory bodies, or by the Company's
stockholders.
3.11 Section Headings. The section headings contained herein are for
----------------
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.12 Effective Date and Term of Plan.
-------------------------------
(a) This Plan shall be deemed adopted and become effective upon
the approval thereof by the Board.
(b) The Plan shall terminate 10 years after the date on which
it becomes effective, and no awards shall thereafter be made under the Plan.
Notwithstanding the foregoing, all awards made under the Plan prior to the date
on which the Plan terminates shall
-13-
<PAGE>
remain in effect until such awards have been satisfied or terminated in
accordance with the terms and provisions of the Plan.
-14-
<PAGE>
Exhibit 10.31
TANNING TECHNOLOGY CORPORATION
1998 STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 Purpose. The purpose of this Tanning Technology Corporation 1998
-------
Stock Option Plan (the "Plan") is to provide for certain key employees,
officers, independent contractors (including, but not limited to, individuals,
corporations, limited liability companies, partnerships, limited partnerships
and other similar entities) with and/or directors of Tanning Technology
Corporation, a Delaware corporation (the Company), and its subsidiaries and
affiliates, an incentive (i) to join and/or remain in the service of the Company
and its subsidiaries and affiliates, (ii) to maintain and enhance the long-term
performance and profitability of the Company and its subsidiaries and affiliates
and (iii) to acquire a proprietary interest in the success of the Company and
its subsidiaries and affiliates.
1.2 Definition of Certain Terms.
---------------------------
(a) "Agreement" means an agreement issued pursuant to Section
2.1.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed to administer the
Plan in accordance with Section 1.3.
(e) "Company" means Tanning Technology Corporation, a Delaware
corporation.
(f) "Common Stock" means the shares of Class C Common Stock, par
value $.01 per share, of the Company and any other shares into which such common
stock shall thereafter be exchanged by reason of a recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like.
(g) "Optionee" means an employee, officer, independent contractor
with and/or director of the Company or any of its subsidiaries or affiliates who
has been awarded any Option under this Plan.
(h) "Option" means a nonqualified stock option, as described in
Section 1.5, granted under the Plan.
<PAGE>
(i) The terms "parent corporation" and "subsidiary corporation"
as used herein shall have the meaning given those terms in Code Sections 425(e)
and (f), respectively. A corporation shall be deemed a parent or a subsidiary
only for such periods during which the requisite ownership relationship is
maintained.
(j) "Plan" means this Tanning Technology Corporation 1998 Stock
Option Plan.
(k) "Termination With Cause," with respect to any Optionee, means
termination by the Company or any of its subsidiaries or affiliates of
such Optionee's employment or service as a director or independent contractor,
for: (i) misappropriation of corporate funds, (ii) conviction of a felony or a
crime involving moral turpitude, (iii) failure to comply with directions of the
Chief Executive Officer or other superiors of the Optionee or the Board of
Directors of the Company or any of its subsidiaries or affiliates, (iv) gross
negligence and willful misconduct, or (v) any other behavior identified in the
Optionee's employment or independent contractor agreement (if any) which gives
rise to termination for cause.
(l) Permitted Transferee" means, with respect to any person, such
person's immediate family, trusts solely or primarily for the benefit of such
person or such person's family members, and partnerships, limited liability
companies or other corporations in which such person or such person's family
members and/or such trusts are the majority partners or shareholders as the case
may be. For this purpose, "immediate family" of a person means the person's
spouse, parents, children, stepchildren and grandchildren.
1.3 Administration.
--------------
(a) Subject to Section 1.3(e), the Plan shall be administered by
a committee of the Board which shall consist of at least two directors and which
shall have the power of the Board to authorize awards under the Plan. The
members of the Committee shall be appointed by, and may be changed from time to
time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of
the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any
-2-
<PAGE>
Agreement executed pursuant to Section 2.1 in accordance with the terms thereof,
(iii) to prescribe, amend and rescind rules and regulations relating to the
Plan, (iv) to make all determinations necessary or advisable in administering
the Plan, (v) to correct any defect, supply any omission and reconcile any
inconsistency in the Plan, and (vi) to grant Options on such terms, not
inconsistent with the Plan, as it shall determine.
(c) The determination of the Committee on all matters relating to
the Plan or any Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
(e) Notwithstanding anything to the contrary contained herein:
(i) until the Board shall appoint the members of the Committee, the Plan shall
be administered by the Board; (ii) the Board may, in its sole discretion, at any
time and from time to time, resolve to administer the Plan; and (iii) the
Committee may delegate to one or more executive officers of the Company the
authority to make grants consistent with the terms of this Plan to non-executive
employees of the Company. In either of the foregoing events, the term Committee
as used herein shall be deemed to mean the Board.
1.4 Persons Eligible for Awards. Awards under the Plan may be made
---------------------------
from time to time to such key employees, officers, independent contractors with
and/or directors of the Company or its subsidiaries and/or affiliates as the
Committee shall in its sole discretion select.
1.5 Types of Awards Under the Plan. Awards may be made under the
------------------------------
Plan in the form of stock options, which shall be "nonqualified" stock options
subject to the provisions of section 83 of the Code, all as more fully set forth
in Article 2.
1.6 Shares Available for Awards.
---------------------------
(a) Subject to Section 3.4 (relating to adjustments upon changes
in capitalization), the maximum number of shares of Class C Common Stock with
respect to which Options may be awarded under the Plan shall be equal to
19,028,250 shares. Shares of Common Stock covered by Options granted under the
Plan which expire or terminate for any reason shall again become available for
award under the Plan.
-3-
<PAGE>
(b) Shares that are issued upon the exercise of Options awarded
under the Plan shall be authorized and unissued or treasury shares of Common
Stock.
(c) Without limiting the generality of the preceding provisions
of this Section 1.6, the Committee may, but solely with the Optionee's consent,
agree to cancel any award of Options under the Plan and issue new Options in
substitution therefor, provided that the Options as so substituted shall satisfy
all of the requirements of the Plan as of the date such new Options are awarded.
ARTICLE 2
STOCK OPTIONS
2.1 Agreements Evidencing Stock Options
-----------------------------------
(a) Options awarded under the Plan shall be evidenced by
Agreements which shall not be inconsistent with the terms and provisions of the
Plan, and which shall contain such provisions as the Committee may in its sole
discretion deem necessary or desirable. Without limiting the generality of the
foregoing, the Committee may in any Agreement impose such restrictions or
conditions upon the exercise of an Option or upon the sale or other disposition
of the shares of Common Stock issuable upon exercise of an Option as the
Committee may in its sole discretion determine. By accepting an award pursuant
to the Plan each Optionee shall thereby agree that each such award and shares of
Common Stock acquired upon exercise of an Option shall be subject to all of the
terms and provisions of the Plan, including, but not limited to, the provisions
of Section 1.3(d).
(b) Each Agreement shall set forth the number of shares of Common
Stock subject to the Option granted thereby.
(c) Each Agreement relating to Options shall set forth the per
share amount payable by the Optionee to the Company upon exercise of the Option
evidenced thereby, which shall not be less than the fair market value of the
underlying shares of Common Stock at the time of grant, except as otherwise
expressly determined by the Committee.
2.2 Term of Options.
---------------
Each Agreement shall set forth the period during which the Option
evidenced thereby shall be exercisable, whether in whole or in part, such
periods to be determined by the Committee in its discretion.
-4-
<PAGE>
2.3 Exercise of Options. Subject to the provisions of this Article
-------------------
2, each Option granted under the Plan shall be exercisable as follows:
(a) Unless the applicable Agreement expressly provides otherwise,
Options awarded to Optionees under the terms of the Plan will be exercisable
only in accordance with the following vesting schedule:
Cumulative
Percentage of
Applicable Date Total Shares
--------------- -------------
On the first anniversary of the
date of the applicable Agreement 25%
On the second anniversary of the
date of the Agreement 50%
On the third anniversary of the
date of the Agreement 75%
On the fourth anniversary of the
date of the Agreement 100%
The Committee may modify this vesting schedule in any manner that it deems
appropriate in any Agreement, and may provide different vesting schedules in
different Agreements in its sole discretion. Except as the Committee may
otherwise provide, in the event that Optionee's employment, Board membership, or
independent contractor relationship with the Company is terminated for any
reason prior to the date on which the Optionee's right to exercise the Options
has fully vested pursuant to this Section 2.3(a), the Options will immediately
cease to be exercisable with respect to any and all shares which have not vested
as of the date of such termination.
(b) Unless the applicable Agreement otherwise expressly provides, an
Option granted under the Plan may be exercised from time to time as to all or
part of the shares as to which such Option shall then be exercisable.
(c) An Option shall be exercisable by the filing of a written notice
of exercise with the Company, on such form and in such manner as the Committee
shall in its sole discretion prescribe, and a copy of such form shall be
included with the Agreement.
(d) Any written notice of exercise of an Option shall be accompanied
by payment of the exercise price for the shares being purchased. Such payment
shall be made by
-5-
<PAGE>
check payable to the Company (or the equivalent thereof acceptable to the
Committee). As soon as practicable after receipt of such payment, the Company
shall deliver to the Optionee a certificate or certificates for the shares of
Common Stock so purchased.
2.4 Termination of Options.
----------------------
(a) Notwithstanding anything to the contrary in this Plan, except
as the Agreement may otherwise provide or as set forth in Section 2.4(b),
Section 2.4(c) or Section 2.4(d), Options granted to an Optionee shall cease
vesting as of the date of termination of employment, of services on the Board or
of services as an independent contractor, and shall expire and terminate on the
date which is 90 days after:
(1) termination of his employment (for employee Optionees)
with the Company for any reason (other than death or
disability in which case the Options shall terminate on the
date which is 180 days after the date of such termination),
(2) termination of services on the Board (for non-employee
Board members) for any reason (other than death or
disability in which case the Options shall terminate on the
date which is 180 days after the date of such termination),
or
(3) termination of services as an independent contractor or
the reduction of such services below levels specified in the
Optionee's independent contractor agreement.
(b) In the event of a Termination With Cause of an Optionee by the
Company, the Committee may determine within a period of sixty (60) days from the
date of Termination With Cause, in its sole and absolute discretion, to
terminate any or all Options granted to an Optionee so that such Options are
expired and no longer exercisable, and Optionee's rights under this Plan and the
related Stock Option Agreement(s) shall immediately expire upon such
determination. The Committee shall notify Optionee in writing of its
determination by the end of such sixty (60) day period, and the Committee's
failure to so notify Optionee shall permit Optionee to exercise all Options
which were exercisable by Optionee on the date of his or her Termination With
Cause. Such written notice, if given, shall indicate the number of option
shares, if less than all of Optionee's vested Options at the
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<PAGE>
date of Termination With Cause, which may be exercised by Optionee. During the
period prior to such determination, no Options held by Optionee may be
exercised. If the Committee determines that Optionee may exercise some or all of
his or her Options, Optionee shall have ninety (90) days from the date of such
notice to exercise some or all of such Options.
(c) If at the time in question the Common Stock is not publicly traded
on a national securities exchange or over-the-counter market, in the event that
an Optionee's employment, Board membership, or independent contractor
relationship with the Company is Terminated for any reason, the Company at its
election, on giving ten days written notice to Optionee, may (i) repurchase any
and all shares of Common Stock then owned by Optionee which were previously
acquired by Optionee through exercise of Options granted under this Plan and
(ii) cancel any unexpired Options which have vested under the terms of the Plan
but have not been exercised (provided however, that if such termination was a
Termination with Cause, Section 2.4(b) shall govern rather than this Section
2.4(c)(ii)), subject in each case to payment of the purchase price described
below. The purchase price payable by the Company to the Optionee on exercise of
its right to repurchase under (i) above will be the fair market value of the
Common Stock held by the Optionee which is being repurchased, determined as of
the date of the repurchase. The purchase price payable by the Company to
Optionee on exercise of the right to cancel unexpired vested but unexercised
Options under (ii) above will be the fair market value of the Options in
question determined as of the date of the cancellations, taking into account the
fair market value of the Common Stock and the exercise price of the Options. In
either of the above cases, the fair market value will be determined by the Board
in its reasonable and absolute discretion.
(d) In the event of a Non-Control Transaction (as hereinafter
defined), (A) all outstanding Options shall remain outstanding and subject to
the terms and conditions of the Plan, including the vesting schedule contained
in Section 2.3(a), and (B) each Optionee shall be entitled to receive in respect
of each share of Common Stock subject to the Option, upon exercise of such
Option after the vesting thereof, the same amount and kind of stock, securities,
cash, property or other consideration that each holder of a share of Common
Stock was entitled to receive (the "Consideration") in the Non-Control
Transaction in respect of a share of Common Stock (assuming that the Non-Control
Transaction did, in fact, result in the
-7-
<PAGE>
exchange of shares of Common Stock for such other Consideration). In the event
of a Transaction (as hereinafter defined), each outstanding Option shall vest
and be fully exercisable as of the time immediately prior to the occurrence of
the Transaction, and as of the date and time of the Transaction (the
"Transaction Date"), the Company shall have the right, among other rights, to
(i) cancel any or all Options which have not been exercised as of the
Transaction Date, (ii) require that each outstanding option be converted in
connection with such Transaction into the Consideration payable in connection
with such Transaction, less the exercise price of such Option, and/or (iii) in
the event the provisions of Section 2.4(a) are applicable, treat the Options as
described in Section 2.4(a) except that each outstanding Option shall vest and
be fully exercisable. If more than one form of Consideration is included in the
Transaction, the various components thereof shall be appropriately pro rated to
reflect the deduction of the exercise price of the Option.
"Transaction" means (i) the approval by stockholders of the
liquidation or dissolution of the Company; (ii) a sale or other disposition of
greater than 50% of the outstanding interests or voting stock, respectively, of
the Company; (iii) any transaction or series of related transactions as a result
of which any person or "group" of persons (as such expression is used under the
Securities Exchange Act of 1934, as amended, and the rules thereunder) other
than AEA Tanning Investors, Inc., TTC Investors II LLC or any of their members
or affiliates (or their successors) (a) becomes the owner of greater than 50% of
the issued and outstanding Common Stock of the Company, or (b) has the power to
elect a majority of the Board of Directors of the Company; (iv) the merger or
consolidation of the Company with or into any entity; or (v) a sale or other
disposition of substantially all of the assets of the Company; provided,
---------
however, that the term "Transaction" shall exclude each transaction which is a
- -------
"Non-Control Transaction." "Non-Control Transaction" means (i) a merger or
consolidation of the Company following which those persons who owned
directly or indirectly a majority of the outstanding interests or shares of
voting stock of the Company immediately prior to such merger or consolidation
will own directly or indirectly a majority of the outstanding interests or
shares of voting stock of the surviving corporation; (ii) a sale or other
disposition of interests or capital stock, respectively, of the Company
following which those persons who owned directly or indirectly a majority of the
outstanding interests or shares of voting stock
-8-
<PAGE>
immediately prior to such sale will own directly or indirectly a majority of the
outstanding interests or shares of voting stock of the purchasing entity; (iii)
a sale or other disposition of substantially all of the assets of the Company to
an affiliate; or (iv) an initial public offering of the Company.
ARTICLE 3
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards.
----------------------------------------------
(a) The Board may, without stockholder approval, from time to
time suspend or discontinue the Plan or revise or amend it in any respect
whatsoever, except that no such suspension, discontinuance, revision or
amendment shall adversely alter or impair any rights or obligations under any
award theretofore made under the Plan without the consent of the person to whom
such award was made, except to the extent expressly provided for in this Plan;
and further provided that the Board may, in its discretion, require stockholder
approval of any changes or amendments to the Plan which the Board, in its
discretion, believes is necessary or appropriate for any reason.
(b) With the consent of the Optionee and subject to the terms and
conditions of the Plan (including Section 3.1(a)), the Committee may amend
outstanding Agreements with such Optionee, for example, to (i) accelerate the
time or times at which an Option may be exercised or (ii) extend the scheduled
expiration date of the Option.
3.2 Non-Transferability. No Option shall be transferable by the
-------------------
Optionee other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order (within the meaning of Rule 16a-12
promulgated under the Securities Exchange Act of 1934, as amended), and an
Option shall be exercisable during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. Notwithstanding the
foregoing, the Committee may permit at the time of grant of an Option or
thereafter, that the Option may be transferred to Permitted Transferees of the
Optionee, and for purposes of this Plan, a Permitted Transferee of an Optionee
shall be deemed to be the Optionee. The terms of an Option shall be final,
binding and conclusive upon the transferees, beneficiaries, executors,
-9-
<PAGE>
administrators, heirs and successors of the Optionee.
3.3 Withholding of Taxes. The Company shall be entitled to withhold
--------------------
an amount sufficient to satisfy any federal, state and other governmental tax
requirements related to an Option. Whenever, under the Plan, shares of Common
Stock are to be delivered upon exercise of an Option, the Company shall be
entitled to require as a condition of delivery that the Optionee remit an amount
sufficient to satisfy all federal, state and other governmental tax withholding
requirements related thereto.
3.4 Adjustments Upon Changes in Capitalization. If and to the extent
------------------------------------------
specified by the Committee, in its sole discretion, the exercise price for
Options and the number of shares of Common Stock which may be issued pursuant to
the exercise of Options granted under the Plan may be appropriately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from the subdivision or combination of shares of Common Stock or other
capital adjustments, or the payment of a stock dividend after the effective date
of this Plan; provided, however, that any Options to purchase fractional shares
of Common Stock resulting from any such adjustment shall be eliminated.
Adjustments under this Section 3.4 shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
3.5 Right of Discharge Reserved. Nothing in this Plan or in any
---------------------------
Agreement shall confer upon any employee or other person the right to continue
in the employment or service of the Company or any of its subsidiaries or
affiliates or affect any right which the Company or any of its subsidiaries or
affiliates may have to terminate the employment or service of such employee or
other person.
3.6 No Rights as a Stockholder. No Optionee or other person holding
--------------------------
an Option shall have any of the rights of a stockholder of the Company with
respect to shares subject to an Option until the issuance of a stock certificate
to him or her for such shares. Except as otherwise provided in Section 3.4, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities or other property)
for which the record date is prior to the date such stock certificate is issued.
-10-
<PAGE>
3.7 Nature of Payments.
------------------
(a) Any and all payments of shares of Common Stock or cash
hereunder shall be granted, transferred or paid in consideration of services
performed by the Optionee for the Company or any of its subsidiaries or
affiliates.
(b) All such grants, issuances and payments shall constitute a
special incentive payment to the Optionee and shall not, unless otherwise
determined by the Committee, be taken into account in computing the amount of
salary or compensation of the Optionee for the purposes of determining any
pension, retirement, death or other benefits under (i) any pension,
retirement, life insurance or other benefit plan of the Company or any of its
subsidiaries or affiliates or (ii) any agreement between the Company or any of
its subsidiaries or affiliates and the Optionee.
3.8 Non-Uniform Determinations.
--------------------------
The Committee's determinations under the Plan need not be uniform
and may be made by it selectively among persons or entities who receive, or are
eligible to receive, awards under the Plan (whether or not such persons or
entities are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make non-
uniform and selective determinations, and to enter into non-uniform and
selective Agreements, as to (i) the persons or entities to receive awards under
the Plan, and (ii) the terms and provisions of awards under the Plan.
3.9 Other Payments or Awards. Nothing contained in the Plan shall be
------------------------
deemed in any way to limit or restrict the Company or any of its subsidiaries or
affiliates or the Committee from making any award or payment to any person under
any other plan, arrangement or understanding, whether now existing or hereafter
in effect.
3.10 Restrictions.
------------
(a) If the Committee shall at any time determine that any Consent
(as hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or the exercise of other rights hereunder or the taking of
any other action hereunder (each such action being hereinafter referred to as a
"Plan Action"), then such Plan Action shall not be taken, in whole or in part,
unless and until such Consent shall have been effected or obtained to the full
-11-
<PAGE>
satisfaction of the Committee. Without limiting the generality of the foregoing,
if (i) the Committee is entitled under the Plan to make any payment in cash,
Common Stock or both, and (ii) the Committee determines that a Consent is
necessary or desirable as a condition of, or in connection with, payment in any
one or more of such forms, the Committee shall be entitled to determine not to
make any payment whatsoever until such Consent shall have been obtained in the
manner aforesaid.
(b) The term "Consent" as used herein with respect to any Plan
Action means (i) any and all listings, registrations, qualifications or similar
requirements in respect thereof upon any securities exchange or under any
federal, state or local law, rule or regulation, (ii) any and all written
agreements and representations by the grantee with respect to the disposition of
shares, or with respect to any other matter, which the Committee shall deem
necessary or desirable to comply with the terms of any such listing,
registration, qualification or similar requirement or to obtain an exemption
from the requirement that any such listing, qualification or registration be
made and (iii) any and all consents, clearances and approvals in respect of a
Plan Action by any governmental or other regulatory bodies, or by the Company's
stockholders.
3.11 Section Headings. The section headings contained herein are for
----------------
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.12 Effective Date and Term of Plan.
-------------------------------
(a) This Plan shall be deemed adopted and become effective upon
the approval thereof by the Board.
(b) The Plan shall terminate 10 years after the date on which it
becomes effective, and no awards shall thereafter be made under the Plan.
Notwithstanding the foregoing, all awards made under the Plan prior to the date
on which the Plan terminates shall remain in effect until such awards have been
satisfied or terminated in accordance with the terms and provisions of the Plan.
Adopted: July 24, 1998 (Board and Stockholders)
-12-
<PAGE>
Exhibit 10.32
TANNING TECHNOLOGY CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Tanning Technology Corporation 1999 Employee
-------
Stock Purchase Plan (the "Plan") is to facilitate capital accumulation by
Eligible Employees of Common Stock of the Company and thereby to provide
employee identification with and commitment to the goals of the Company. The
Company intends that the Plan qualify as an "employee stock purchase plan"
under Section 423 of the Code. The provisions of the Plan shall be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. Definitions. Whenever used in this Plan:
-----------
A. "Board of Directors" means the Board of Directors of Tanning Technology
Corporation.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Committee" means the Compensation Committee of the Board of Directors of
Tanning Technology Corporation.
D. "Common Stock" means the common stock, par value $.01 per share, of Tanning
Technology Corporation.
E. "Company" means Tanning Technology Corporation, and any subsidiary thereof
which becomes a participating employer in the Plan pursuant to Paragraph 14.
F. "Compensation" means the aggregate of the gross wages, including cash bonus,
paid to an Eligible Employee during a Purchase Period.
G. "Date of Offering" means the Pricing Date and thereafter each January 1st
and July 1st; provided, however, that in the case of an Eligible Employee
-------- -------
who commences employment at least four months before the expiration of a
Purchase Period, such Eligible Employee's initial "Date of Offering" shall
be the first business day of the next month following commencement of
employment.
H. "Eligible Employee" means any person who is a full-time employee scheduled
to work at least 20 hours per week; provided, however, that "Eligible
-------- -------
Employee" shall not include any person who immediately prior to the offering
on a Date of Offering would be deemed for purposes of Code (S) 423(b)(3) to
own stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company.
I. "Market Price" means the average of the highest and lowest sales prices for
Common Stock (as reported in the applicable exchange listing published in
The Wall Street Journal) on a given day or, if no sales of Common Stock were
made on that day, on the next preceding day on which sales were made and
prices reported.
<PAGE>
If the Common Stock of the Company is not admitted to trading on a national
exchange on the dates for which closing prices of the Common Stock are to be
determined or if there have been no prior sales on an exchange, then
reference shall be made to the fair market value of the Common Stock on that
date, as determined on such basis as shall be established or specified by
the Committee and/or the Board of Directors; provided, however, that in the
-------- -------
case of the first day of the initial Purchase Period, "Market Price" means
the price at which shares of the Common Stock will be offered pursuant to a
registration statement declared effective by the Securities and Exchange
Commission.
J. "Offering Price" means not lower than eighty-five percent (85%) of the
Market Price of Common Stock on the first and last day of a Purchase Period
as determined by the Board.
K. "Plan" means the Tanning Technology Corporation 1999 Employee Stock Purchase
Plan.
L. "Pricing Date" means the date on which the Company and the underwriters
agree on the price at which shares of the Common Stock will be offered
pursuant to a registration statement declared effective by the Securities
and Exchange Commission.
M. "Purchase Period" means the period from the Pricing Date to December 31st,
1999 and thereafter each six-month period commencing on January 1st and
ending on June 30th , and each six-month period commencing on July 1st and
ending on December 31st, during and with respect to which periods payments
by payroll deduction or otherwise may be made by Eligible Employees
accepting an option under an offering hereunder for the period then ending;
provided, however, that in the case of an Eligible Employee who commences
-------- -------
employment during any such period and at least four months before the
expiration of such period, that employee's initial "Purchase Period" shall
commence on the first business day of the next month following commencement
of employment.
3. Scope of the Plan. Options to purchase shares of Common Stock may be
-----------------
granted by the Company to Eligible Employees during the no more than ten
year period commencing on the date of adoption of the Plan, as hereinafter
provided, but not more than 1,000,000 shares of Common Stock (subject to
adjustment as provided in Paragraph 15), shall be purchased pursuant to such
options. All options granted pursuant to this Plan shall be subject to the
same terms, conditions, rights and privileges. The shares of Common Stock
delivered by the Company pursuant to this Plan may be treasury shares
(except with respect to shares delivered to Eligible Employees employed by
Tanning Technology Europe Limited and Tanning Technology Denmark Aps), newly
issued shares, or both.
4. Offerings. Subject to the terms and conditions of this Plan, the Board of
---------
Directors through the Committee shall make an offering on the Pricing Date
to Eligible Employees to purchase Common Stock under this Plan on December
31st, 1999, and thereafter an offering shall commence as of each subsequent
Date of Offering to
2
<PAGE>
Eligible Employees to purchase Common Stock under this Plan on the last day
of each subsequent Purchase Period. The terms and conditions for each such
offering shall specify such information as the Committee may deem
appropriate, including (i) the aggregate number of shares of Common Stock
available for purchase under the Plan with respect to that offering, (ii)
the purchase price of those shares, and (iii) the number of shares of Common
Stock available for purchase under the Plan by an individual with respect to
that offering.
5. Amount of Common Stock Each Eligible Employee May Purchase.
----------------------------------------------------------
A. Subject to the provisions of this Plan, for each Purchase Period each
Eligible Employee shall be offered an option to purchase a number of whole
shares of Common Stock. Subject to the provisions of this Plan, the maximum
number of shares of Common Stock that an Eligible Employee shall be offered
an option to purchase is 1,000 during the initial Purchase Period. The
Committee shall establish such a maximum for each subsequent Purchase Period
prior to the commencement thereof. The aggregate amount which will be used
to purchase shares will be designated by the Eligible Employee from one
percent (1%) to fifteen percent (15%) (in whole percentage points) of his or
her Compensation during a Purchase Period plus such additional employee
contributions as may be permitted by the Committee. In the event such
amounts would involve the purchase of a fractional share, the number of
shares which may be purchased shall be increased to the next whole number.
B. Anything herein to the contrary notwithstanding, if any Eligible Employee
offered an option to purchase shares of Common Stock hereunder would be
deemed for the purposes of Code (S)(S) 423(b)(3) and 424(d) to own stock
(including the maximum number of shares of Common Stock covered by the
option determined pursuant to the foregoing formula) possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company, the maximum number of shares of Common Stock covered
by the option shall be reduced to that number of whole shares which, when
added to the stock which such person is so deemed to own (excluding the
maximum number of shares of Common Stock covered by the option determined
pursuant to the foregoing formula), is less than such five percent (5%).
C. Anything herein to the contrary notwithstanding, no Eligible Employee may be
granted an option under this Plan which (within the meaning of the
limitation provided by Code (S) 423(b)(8)) would permit his or her rights to
purchase stock under all qualified employee stock purchase plans of the
Company to accrue at a rate in excess of $25,000 of fair market value of the
Common Stock (as of the time of grant) for each calendar year for which such
option is outstanding at any time. If such be the case with respect to an
option under this Plan determined pursuant to the foregoing formula, such
option shall be reduced to cover only the greatest number of whole shares an
option for which may be granted within the limitation provided by Code (S)
423(b)(8).
3
<PAGE>
D. If Eligible Employees elect, in any one offering, to accept options to an
extent which would result (if options were granted on that basis) in the
granting of options for that offering to purchase more than the aggregate
number of shares of Common Stock that may be specified by the Board of
Directors for that offering, the Committee shall adjust such options on a
pro rata basis, in accordance with the number of shares of Common Stock
actually subscribed for by each such Eligible Employee, so that the
aggregate number of shares subject to purchase under that offering does not
exceed such specified number of shares.
6. Method of Participation.
-----------------------
A. The Committee shall give notice to Eligible Employees of each offering of
options to purchase shares of Common Stock pursuant to Paragraph 4 of this
Plan and the terms and conditions for each offering, including the purchase
price of the option to be offered to each Eligible Employee and such other
information as the Committee may determine. Such notice is subject to
revision by the Company at any time prior to the Date of Offering, which is
the date of grant of the option.
B. Each Eligible Employee who, in accordance with Paragraph 4 above, desires to
accept all or any part of the option to purchase shares of Common Stock
under an offering shall signify his or her election to do so, as specified
in the notice of offering provided to Eligible Employees. If an Eligible
Employee commences employment during a Purchase Period and at least four
months before the expiration of such period, he may commence participation
in the Plan on the first business day of the month next following
commencement of employment. The notice of election, or a cancellation or any
revision of such notice of election, shall be in writing in the form and
manner prescribed by the Committee and shall be signed by the Eligible
Employee. Subject to Paragraph 5, each such Eligible Employee also shall
instruct the Company, in the form and manner prescribed by the Committee, to
make payroll deductions to cover the aggregate purchase price of those
shares of Common Stock in respect of which he or she has elected to accept
an option. Such election and authorization shall continue in effect, unless
and until such Eligible Employee withdraws from this Plan, modifies his or
her authorization and designation, or terminates his or her employment with
the Company, as hereinafter provided.
C. Any Eligible Employee who shall not make a timely election as provided in
Paragraph 6B, shall be deemed to have elected not to accept any part of such
option.
7. Methods of Payment.
------------------
A. The purchase price of the shares of Common Stock as to which each Eligible
Employee has elected to accept the option offered to him or her under the
terms of an offering shall be deducted from the Eligible Employee's
Compensation through payroll deductions, in substantially equal
installments. Such payroll deduction
4
<PAGE>
periods shall commence with the first applicable payroll period beginning in
the Purchase Period and shall continue until the last payroll period which
ends during the Purchase Period. The Eligible Employee's selection of a
payment method with respect to any offering shall be made by the filing of
an appropriate written and signed notice to such effect with the Committee.
B. The Committee may provide that in the event the payroll deductions during a
Purchase Period credited to the account of an Eligible Employee
participating in this Plan are, because of leave of absence, temporary lay-
off, temporary disability or any other reason (other than reduction as
provided in Paragraph 8, withdrawal as provided in Paragraph 9 or
termination of employment as provided in Paragraph 10), not sufficient to
permit the purchase of the total number of shares of Common Stock for which
he or she has accepted an option, the Eligible Employee may prior to
conclusion of the Purchase Period make a payment to the Company in one or
more forms of all or any portion of the shortfall amount. To the extent of
any remaining shortfall, the number of shares of Common Stock subject to
purchase under the Eligible Employee's option shall be reduced automatically
to that number of whole shares which his or her account, at the conclusion
of the Purchase Period, is sufficient to purchase. The cash balance, if any,
shall be refunded to the Eligible Employee without interest.
8. Right to Reduce or Stop Deductions. An Eligible Employee who has accepted
----------------------------------
an option to purchase shares of Common Stock may, at any time prior to his
or her last regular payroll deduction thereunder, direct the Company to (i)
reduce his or her payroll deduction, or (ii) make no further deductions.
Upon either of such actions, payroll deductions with respect to such option
shall be reduced or discontinued. If the employee has directed that payroll
deductions be reduced or discontinued, any sum previously deducted in
respect of the offering shall be retained by the Company until the end of
the Purchase Period, and shall be applied, along with any additional
deductions at the reduced rate, to the exercise of the employee's option as
provided in Paragraph 11.
Any Eligible Employee who stops payroll deductions may not thereafter resume
payroll deductions for the Purchase Period, and any Eligible Employee who
decreases payroll deductions may not thereafter further decrease or increase
such contributions, except that he or she may stop such contributions during
the Purchase Period. Notification of an Eligible Employee's election to
reduce or terminate deductions, to cancel an option or otherwise withdraw
funds shall be made by the filing of an appropriate written and signed
notice to such effect with the Committee.
9. Right to Withdraw. In addition to the reduction or cessation of
-----------------
contributions provided for in Paragraph 8, any Eligible Employee may direct
the Company to cancel the entire option on or prior to the date that is
three business days before the last day of the Purchase Period and request
return of any portion of his or her account. If the employee has so
directed, the Company shall stop automatically any payroll deduction for the
employee and shall, as soon as practicable, refund without payment of
interest
5
<PAGE>
all requested amounts credited to the account of such employee with respect
to the applicable offering. Notification of an Eligible Employee's election
to cancel an option or otherwise withdraw funds shall be made by the filing
of an appropriate written and signed notice to such effect with the
Committee.
10. Termination of Employment.
-------------------------
In the event the employment of an Eligible Employee who has accepted an
option to purchase shares of Common Stock is terminated prior to conclusion
of the Purchase Period, because of death, permanent disability, or
retirement at or after age 65, the employee (or his or her legal
representative, if applicable) may either:
1. cancel the option, in which event the Company shall, as soon as
practicable, refund without payment of interest all amounts credited to
his or her account under any offering in which he or she is
participating under this Plan; or
2. elect to receive at the conclusion of the Purchase Period that number of
whole shares of Common Stock (not to exceed the shares subject to the
option, as the same may be adjusted hereunder) for which payments by
payroll deduction were actually made are sufficient to purchase, plus
the cash balance credited to his or her account, if any.
For purposes of this paragraph 10, "permanent disability" shall mean
"disability" as defined under the Company's long term disability plan or
insurance policy as then in effect. In the absence of such plan or policy,
"permanent disability" shall mean the inability of an individual to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than 12 months. The Committee may request reasonable proof of
disability.
The election of an Eligible Employee (or his or her legal representative,
if applicable) pursuant to this Paragraph 10, shall be made within three
(3) months of the event causing the termination of employment, but not
later than the conclusion of the Purchase Period (except in the case of
death). Written and signed notification of the election shall be filed with
the Committee and, in the event no notification has been filed within the
prescribed period, the Company shall act in accordance with provision (1)
of this Paragraph 10.
In the event the employment of an Eligible Employee who has accepted an
option to purchase shares of Common Stock is terminated for any reason
other than those specified above in this Paragraph 10 the Company shall, as
soon as practicable, refund all amounts credited to his or her account
without interest under any offering in which he or she is participating
under this Plan and such former employee shall have no right to purchase
Common Stock under this Plan. Any Eligible Employee who is on a leave of
absence for longer than ninety (90) days and whose reemployment is not
guaranteed either by statute or by contract shall be
6
<PAGE>
deemed to have terminated employment for purposes of this Plan on the
ninety-first (91) day of such absence.
11. Exercise of Option and Purchase of Shares. Unless an Eligible Employee who
-----------------------------------------
has accepted an option under the offering has subsequently withdrawn from
the offering pursuant to Paragraph 9 or 10 hereof, his or her option shall
be deemed to have been exercised as of the last day of the applicable
Purchase Period and become on such date an irrevocable obligation to
purchase Common Stock in accordance with the provisions of this Plan. For
each Purchase Period, the number of shares of Common Stock so purchased by
each such Eligible Employee shall be determined by dividing the amount
accumulated in his or her account during the Purchase Period by the
Offering Price, rounded up to the nearest number of whole shares; provided,
--------
however, that in no event shall the number of shares so determined and
-------
purchased by an Eligible Employee exceed the total number of shares
originally covered by his or her option in accordance with Paragraph 5. As
soon as practicable thereafter, the Plan's recordkeeper shall establish an
internal account reflecting the ownership of the whole shares of Common
Stock, determined as aforesaid, purchased by each Eligible Employee.
Notwithstanding the foregoing, with an employee's written and signed
election, certificates for the number of whole shares of Common Stock
purchased by the employee shall be issued and delivered to him or her. Any
cash balance remaining in the account of an Eligible Employee shall be
refunded without payment of interest.
12. Rights as a Stockholder. An Eligible Employee who has accepted an option
-----------------------
to purchase shares of Common Stock under this Plan shall not be entitled to
any of the rights or privileges of a stockholder of the Company with
respect to such shares, including the right to receive any dividends which
may be declared by the Company, until such time as he or she actually has
paid the purchase price for such shares and certificates have been issued
to him or her in accordance with Paragraph 11 hereof.
13. Rights Not Transferable. An Eligible Employee's rights under this Plan and
-----------------------
options accepted by him or her hereunder are exercisable only by the
Eligible Employee during his or her lifetime, and may not be sold, pledged,
assigned or transferred in any manner other than by will or the laws of
descent and distribution. Any attempt to sell, pledge, assign or transfer
the same shall be void, and automatically shall cause the option held by
the Eligible Employee to be terminated. In such event, the Company shall
refund without payment of interest all remaining amounts credited to the
account of such Eligible Employee under this Plan.
14. Administration of the Plan. This Plan shall be administered by the
--------------------------
Committee, which is authorized to make such uniform rules as may be
necessary to carry out its provisions. The Committee shall determine any
questions arising in the administration, interpretation and application of
this Plan, and all such determinations shall be conclusive and binding on
all parties. In addition to the foregoing, the Committee is authorized to
1) impose transfer restrictions on Common Stock purchased under the Plan;
and 2) extend, cancel or otherwise revise any Purchase Period; provided,
--------
however, that such actions shall be made in a nondiscriminatory
-------
7
<PAGE>
manner and in compliance with Section 423 of the Code, and all applicable
securities laws and regulations. The Committee shall designate those
subsidiaries of the Company whose employees may participate in the Plan in
accordance with Section 423 of the Code.
If any option under this Plan shall be cancelled, lapse or terminate
unexercised, the number of shares of Common Stock covered thereby shall
again become available for sale under this Plan during subsequent Purchase
Periods.
15. Adjustment Upon Changes in Capitalization. In the event of any change in
-----------------------------------------
the Common Stock of the Company by reason of stock dividends, split-ups,
corporate separations, recapitalizations, mergers, consolidations,
combinations, exchanges of shares and the like, the aggregate number and
class of shares available under this Plan and the number, class and
Offering Price of shares under option but not yet purchased under this
Plan, shall be adjusted appropriately by the Committee.
16. Registration of Certificates. Stock certificates may be registered in the
----------------------------
name of the Eligible Employee, or, if he or she so designates, in the
Eligible Employee's name jointly with another individual, with right of
survivorship.
17. Amendment of Plan. The Board of Directors may at any time amend this Plan
-----------------
in any respect, which shall not adversely affect the rights of Eligible
Employees pursuant to options accepted under the Plan, except that, without
stockholder approval, no amendment shall be made (i) increasing the number
of shares to be reserved under this Plan, or (ii) changing the definition
of subsidiaries or employees eligible to participate in the Plan. The
Committee shall designate in writing the subsidiaries of the Company whose
employees are eligible to participate in the Plan.
18. Termination of the Plan. All rights of Eligible Employees in any offering
-----------------------
hereunder shall terminate at the earlier of the conclusion of the last
Purchase Period authorized herein on June 30, 2009 or:
A. On the day that Eligible Employees participating in offerings made
under this Plan become entitled to purchase a number of shares of
Common Stock equal to or greater than the number of shares remaining
available for purchase; or
B. At any time, at the discretion of the Board of Directors upon notice
to the employees.
Upon termination of this Plan, shares of Common Stock shall be issued to
Eligible Employees in accordance with Paragraph 11, and cash, if any,
remaining in the accounts of the Eligible Employees shall be refunded to them
without interest, as if the Plan were terminated at the end of a Purchase
Period.
19. Governmental Regulations and Listing. All rights granted or to be granted
------------------------------------
to Eligible Employees under this Plan are expressly subject to all applicable
laws and regulations and to the approval of all governmental authorities
required in connection with the
8
<PAGE>
authorization, issuance, sale or transfer of the shares of Common Stock reserved
for this Plan, including, where applicable and without limitation, there being a
current registration statement of the Company under the Securities Act of 1933
covering the shares of Common Stock purchasable under options on the last day of
the Purchase Period applicable to such options (and if such a registration
statement shall not be effective at such time as it is required to be, the term
of such options and the Purchase Period may, at the Company's sole discretion,
be extended as the Company deems appropriate) or there being an exemption from
registration available in the Company's sole judgment. If applicable, all such
rights hereunder are also similarly subject to effectiveness of an appropriate
listing application to the National Association of Securities Dealers, Inc. or
other national exchange, covering the shares of Common Stock under the Plan upon
official notice of issuance.
20. Miscellaneous.
-------------
A. This Plan shall be submitted for approval by the stockholders of the Company
prior to twelve (12) months following the adoption of the Plan by the Board
of Directors in accordance with standard corporate procedures. Exercise of
options accepted prior thereto shall be subject to the condition that prior
to such date this Plan shall be approved by such stockholders in the manner
contemplated by Code (S) 423(b)(2). If not so approved prior to such date,
this Plan shall terminate, all options hereunder shall be canceled and be of
no further force or effect, and the Company shall, as soon as practicable,
refund to all Eligible Employees, without interest, all sums credited to
their respective accounts.
B. This Plan shall not be deemed to constitute a contract of employment between
the Company and any Eligible Employee, nor shall it interfere with the right
of the Company to terminate any Eligible Employee's employment and treat him
or her without regard to the effect which such treatment might have upon him
or her under this Plan.
C. This Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the State of Colorado, and in accordance with
the applicable provisions of Code (S)(S) 421 and 423 and all related Code
sections applicable to a qualified "employee stock purchase plan."
D. Wherever appropriate as used herein, the masculine gender may be read as the
feminine gender, the feminine gender may be read as the masculine gender,
the singular may be read as the plural and the plural may be read as the
singular.
E. If any one or more of the terms, conditions or provisions or any part hereof
contained in this Plan shall for any reason or to any extent be held
invalid, illegal or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect the remainder of such terms, conditions or provisions, or
any other provision of this Plan, and this Plan shall be construed as if the
invalid, illegal or unenforceable term, condition or
9
<PAGE>
provision had never been contained herein, and each term, condition or
provision shall be valid and enforced to the fullest extent permitted by
law.
F. Shares of Common Stock issued pursuant to this Plan shall be subject to such
restrictions that the Board of Directors may, in its discretion, determine
to be appropriate and may include restrictions on the transfer of Common
Stock.
0246817.02
10
<PAGE>
EXHIBIT 10.33
Tanning Technology Corporation
1999 STOCK OPTION PLAN
<PAGE>
Tanning Technology Corporation
1999 STOCK OPTION PLAN
1. Purpose.
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The purpose of this Plan is to strengthen Tanning Technology
Corporation, a Delaware corporation (the "Company"), by providing an incentive
to its employees, officers, consultants and directors and thereby encourage them
to devote their abilities and industry to the success of the Company's business
enterprise. It is intended that this purpose be achieved by extending to
employees (including future employees), officers, consultants and directors of
the Company and its Subsidiaries ("Eligible Individuals") an added long-term
incentive for high levels of performance and extraordinary efforts through the
grant of Incentive Stock Options and Nonqualified Stock Options (as each such
term is herein defined).
2. Definitions.
-----------
For purposes of the Plan:
2.1 "Agreement" means the written agreement between the Company and
an Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Cause" means, except as otherwise provided in an Agreement:
(a) in the case of an Optionee whose employment with the Company or a
Subsidiary is subject to the terms of an employment agreement between such
Optionee and the Company or Subsidiary, which employment agreement includes a
definition of "Cause", the term "Cause" shall have the meaning set forth in such
employment agreement during the period that such employment agreement remains in
effect; and
(b) in all other cases, (i) intentional failure to perform reasonably
assigned duties, (ii) dishonesty or willful misconduct in the performance of
duties, (iii) involvement in a transaction in connection with the performance of
duties to the Company or any of its Subsidiaries which transaction is adverse to
the interests of the Company or any of its Subsidiaries and which is engaged in
for personal profit or
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<PAGE>
(iv) willful violation of any law, rule or regulation in connection with the
performance of duties (other than traffic violations or similar offenses).
2.4 "Change in Capitalization" means any increase or reduction in the
number of Shares, any change (including, but not limited to, in the case of a
spin-off, dividend or other distribution in respect of Shares, a change in
value) in the Shares or any exchange of Shares for a different number or kind of
shares or other securities of the Company or another corporation, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization, spin-
off, split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, change in corporate
structure or otherwise.
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to perform
the functions set forth herein.
2.7 "Company" means Tanning Technology Corporation, a Delaware
corporation.
2.8 "Disability" means, except as otherwise provided in an Agreement:
(a) in the case of an Optionee whose employment with the Company or a
Subsidiary is subject to the terms of an employment agreement between such
Optionee and the Company or Subsidiary, which employment agreement includes a
definition of "Disability", the term "Disability" shall have the meaning set
forth in such employment agreement during the period that such employment
agreement remains in effect; and
(b) in all other cases, the term "Disability" as used in the Plan or
any Agreement shall mean a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period of
one hundred eighty (180) consecutive days.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" on any date means the closing sales prices
of the Shares on such date on the principal national securities exchange on
which such Shares are listed or admitted to trading, or, if such Shares are not
so listed or admitted to
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<PAGE>
trading, the average of the per Share closing bid price and per Share closing
asked price on such date as quoted on the National Association of Securities
Dealers Automated Quotation System or such other market in which such prices are
regularly quoted, or, if there have been no published bid or asked quotations
with respect to Shares on such date, or if such prices are not regularly quoted,
the Fair Market Value shall be the value established by the Committee in good
faith and, in the case of an Incentive Stock Option, in accordance with Section
422 of the Code; provided, however, on the effective date of the initial public
offering of the Shares, "Fair Market Value" shall mean the price at which the
Shares are offered to the public.
2.11 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
2.12 "Nonemployee Director" means a director of the Company who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.13 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.14 "Option" means a Nonqualified Stock Option or an Incentive Stock
Option.
2.15 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.16 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.17 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
2.18 "Performance-Based Compensation" means any Option that is
intended to constitute "performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder.
2.19 "Plan" means this Tanning Technology Corporation 1999 Stock
Option Plan, as amended from time to time.
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<PAGE>
2.20 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.21 "Shares" means shares of the common stock, par value $0.01 per
share, of the Company.
2.22 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
2.23 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes an Option in a transaction to which Section 424(a) of the Code
applies.
2.24 "Ten-Percent Stockholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
3. Administration.
--------------
3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall consist of no fewer than two individuals, each of
whom is a Nonemployee Director and, after the expiration of the "Reliance
Period" as defined in the regulations promulgated under Section 162(m) of the
Code, an Outside Director. The Committee shall keep minutes of its meetings. A
quorum shall consist of not fewer than two (2) members of the Committee and a
majority of a quorum may authorize any action. Any decision or determination
reduced to writing and signed by a majority of all of the members of the
Committee shall be as fully effective as if made by a majority vote at a meeting
duly called and held.
3.2 No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with respect
to the Plan or any transaction hereunder. The Company hereby agrees to
indemnify each member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in connection with
defending against, responding to, negotiating for the settlement of or otherwise
dealing with any claim, cause of action or dispute of any kind arising in
connection with any actions in administering the Plan or in authorizing or
denying authorization to any transaction hereunder.
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<PAGE>
3.3 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options shall be
granted under the Plan and the number of such Options to be granted and to
prescribe the terms and conditions (which need not be identical) of each such
Option, including the exercise price per Share subject to each Option, and make
any amendment or modification to any Agreement consistent with the terms of the
Plan. The Committee may delegate to one or more executive officers of the
Company the authority set forth within this Section 3.3(a) with respect to
grants to non-officer employees or consultants;
(b) to construe and interpret the Plan and any Agreements granted
hereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any defect
or supplying any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem necessary or
advisable, including so that the Plan complies with Rule 16b-3 under the
Exchange Act, the Code to the extent applicable and other applicable law, and
otherwise to make the Plan fully effective. All decisions and determinations by
the Committee in the exercise of this power shall be final, binding and
conclusive upon the Company, its Subsidiaries, the Optionees, and all other
persons having any interest therein;
(c) to determine the duration and purposes for leaves of absence which
may be granted to an Optionee on an individual basis without constituting a
termination of employment or service for purposes of the Plan;
(d) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such acts as it
deems necessary or advisable to promote the best interests of the Company with
respect to the Plan.
4. Stock Subject to the Plan; Grant Limitations.
--------------------------------------------
4.1 The maximum number of Shares that may be made the subject of
Options granted under the Plan is 5,000,000. The maximum number of Shares that
may be the subject of Options granted to any Eligible Individual during any
calendar year is 1,000,000. The maximum number of Incentive Stock Options that
may be granted to an Eligible Individual is 1,000,000. Upon a Change in
Capitalization, the maximum number of Shares referred to in the first three
sentences of this Section 4.1 shall be adjusted in number and kind pursuant to
Section 8. The Company shall reserve for the purposes of
-5-
<PAGE>
the Plan, out of its authorized but unissued Shares or out of Shares held in the
Company's treasury, or partly out of each, such number of Shares as shall be
determined by the Board.
4.2 Upon the granting of an Option, the number of Shares available
under Section 4.1 for the granting of further Options shall be reduced by the
number of Shares in respect of which the Option is granted; provided, however,
that if any Option is exercised by tendering Shares, either actually or by
attestation, to the Company as full or partial payment of the exercise price,
the maximum number of Shares available under Section 4.1 shall be increased by
the number of Shares so tendered.
4.3 Whenever any outstanding Option or portion thereof expires, is
canceled, is settled in cash (including the settlement of tax withholding
obligations using Shares) or is otherwise terminated for any reason without
having been exercised or payment having been made in respect of the entire
Option, the Shares allocable to the expired, canceled, settled or otherwise
terminated portion of the Option may again be the subject of Options granted
hereunder.
5. Option Grants for Eligible Individuals.
--------------------------------------
5.1 Authority of Committee. Subject to the provisions of the Plan,
----------------------
the Committee shall have full and final authority to select those Eligible
Individuals who will receive Options, and the terms and conditions of the grant
to such Eligible Individuals shall be set forth in an Agreement.
5.2 Exercise Price. The purchase price or the manner in which the
--------------
exercise price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; provided, however,
that the exercise price per Share under each Incentive Stock Option shall not be
less than 100% of the Fair Market Value of a Share on the date the Option is
granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent
Stockholder).
5.3 Maximum Duration. Options granted hereunder shall be for such
----------------
term as the Committee shall determine, provided that an Incentive Stock Option
shall not be exercisable after the expiration of ten (10) years from the date it
is granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder). The Committee may, subsequent to the granting of any
Option, extend the term thereof, but in no event shall the term of an Incentive
Stock Option as so extended exceed the maximum term provided for in the
preceding sentence.
5.4 Vesting. Each Option shall become exercisable in such
-------
installments (which need not be equal) and at such times as may be designated by
the Committee and
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<PAGE>
set forth in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.
5.5 Deferred Delivery of Option Shares. The Committee may, in its
----------------------------------
discretion, permit Optionees to elect to defer the issuance of Shares upon the
exercise of one or more Nonqualified Stock Options granted pursuant to the Plan.
The terms and conditions of such deferral shall be determined at the time of the
grant of the Option or thereafter.
5.6 Limitations on Incentive Stock Options. To the extent that the
---------------------------------------
aggregate Fair Market Value (determined as of the date of the grant) of Shares
with respect to which Incentive Stock Options granted under the Plan and
"incentive stock options" (within the meaning of Section 422 of the Code)
granted under all other plans of the Company or its Subsidiaries (in either case
determined without regard to this Section 5.6) are exercisable by an Optionee
for the first time during any calendar year exceeds $100,000, such Incentive
Stock Options shall be treated as Nonqualified Stock Options. In applying the
limitation in the preceding sentence in the case of multiple Option grants,
Options which were intended to be Incentive Stock Options shall be treated as
Nonqualified Stock Options according to the order in which they were granted
such that the most recently granted Options are first treated as Nonqualified
Stock Options.
6. Terms and Conditions Applicable to All Options.
----------------------------------------------
6.1 Non-Transferability. Except as otherwise determined by the
-------------------
Committee at the time of grant or thereafter, no Option shall be transferable by
the Optionee other than by will or by the laws of descent and distribution or,
in the case of an Option other than an Incentive Stock Option, pursuant to a
domestic relations order (within the meaning of Rule 16a-12 promulgated under
the Exchange Act), and an Option shall be exercisable during the lifetime of
such Optionee only by the Optionee or his or her guardian or legal
representative. The terms of an Option shall be final, binding and conclusive
upon the transferees, beneficiaries, executors, administrators, heirs and
successors of the Optionee.
6.2 Method of Exercise. The exercise of an Option shall be made only
------------------
by a written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number of
Shares to be exercised and, to the extent applicable, accompanied by payment
therefor and otherwise in accordance with the Agreement pursuant to which the
Option was granted. The exercise price for any Shares purchased pursuant to the
exercise of an Option shall be paid, as
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<PAGE>
determined by the Committee in its discretion, in either of the following forms
(or any combination thereof): (a) cash or (b) the transfer, either actually or
by attestation, to the Company of Shares upon such terms and conditions as
determined by the Committee. In addition, Options may be exercised through a
registered broker-dealer pursuant to such cashless exercise procedures which
are, from time to time, deemed acceptable by the Committee. Any Shares
transferred to the Company (or withheld upon exercise) as payment of the
exercise price under an Option shall be valued at their Fair Market Value on the
date of exercise of such Option. If requested by the Committee, the Optionee
shall deliver the Agreement evidencing the Option to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such
Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall
be issued upon exercise of an Option and the number of Shares that may be
purchased upon exercise shall be rounded to the nearest number of whole Shares.
6.3 Rights of Optionees. No Optionee shall be deemed for any purpose
-------------------
to be the owner of any Shares subject to any Option unless and until (a) the
Option shall have been exercised (including payment of the Withholding Taxes)
pursuant to the terms thereof, (b) the Company shall have issued and delivered
Shares to the Optionee, and (c) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to such
Shares, subject to such terms and conditions as may be set forth in the
applicable Agreement.
6.4 Effect of Certain Transactions.
------------------------------
(a) In the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent option substituted by the
Successor Corporation; provided, however, that, unless otherwise determined by
the Committee, such Options shall remain subject to all of the conditions,
restrictions and performance criteria which were applicable to such Options
prior to such assumption or substitution. In the event that the Successor
Corporation refuses to or does not assume the Option or substitute an equivalent
option therefor, the Optionee shall have the right to exercise the Option as to
all of the Shares subject to the Option as described below, including Shares as
to which it would not otherwise be exercisable (a "Transaction Acceleration").
(b) Notwithstanding anything to the contrary contained in Section
6.4(a), in the event of a Transaction Acceleration, or in the event that the
Committee determines to accelerate the exercisability of any Options in
connection with any transaction involving the Company or its capital stock
pursuant to Section 5.4, the Committee may, in its sole discretion, authorize
the redemption of the unexercised
-8-
<PAGE>
portion of the Option for a consideration per share of Common Stock equal to the
excess of (i) the consideration payable per share of Common Stock in connection
with such transaction, over (ii) the purchase price per Share subject to the
Option.
(c) If an Option is exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Secretary shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days (or such other period as shall be determined by the Committee) from the
date of such notice, and the Option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger or sale of assets, the option confers the right
to purchase or receive upon exercise, for each Share subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares).
7. Effect of a Termination of Employment.
-------------------------------------
The Agreement evidencing the grant of each Option shall set forth the
terms and conditions applicable to such Option upon a termination or change in
the status of the employment of the Optionee by the Company or a Subsidiary
(including a termination for Cause or by reason of Disability or change by
reason of the sale of a Subsidiary), which shall be as the Committee may, in its
discretion, determine at the time the Option is granted or thereafter.
8. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Shares or other stock or securities with respect to which
Options (including Incentive Stock Options) may be granted under the Plan, (ii)
the maximum number and class of Shares or other stock or securities with respect
to which Options may be granted to any Eligible Individual during any calendar
year, and (iii) the number and class of Shares or other stock or securities
which are subject to outstanding Options granted under the Plan and the exercise
price therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments in the
exercise price) shall be made in such manner as not to constitute a modification
as defined by
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<PAGE>
Section 424(h)(3) of the Code and only to the extent otherwise permitted by
Sections 422 and 424 of the Code.
(c) Except as the Committee may determine, if, by reason of a Change
in Capitalization, an Optionee shall be entitled to exercise an Option with
respect to new, additional or different shares of stock or securities, such new,
additional or different shares shall thereupon be subject to all of the
conditions, restrictions and performance criteria which were applicable to the
Shares subject to the Option prior to such Change in Capitalization.
9. Effect of Liquidation.
---------------------
Except as otherwise provided in an Agreement, in the event of the
liquidation or dissolution of the Company (a "Liquidation"), the Plan and the
Options issued hereunder shall continue in effect in accordance with their
respective terms, except that following a Liquidation each Optionee shall be
entitled to receive in respect of each Share subject to an outstanding Option,
upon exercise of such Option, the same number and kind of stock, securities,
cash, property or other consideration that each holder of a Share was entitled
to receive in the Liquidation in respect of a Share; provided, however, that
such stock, securities, cash, property, or other consideration shall remain
subject to all of the conditions, restrictions and performance criteria which
were applicable to the Option prior to such Liquidation.
10. Interpretation.
--------------
(a) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the provisions
of the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such rule shall be inoperative and shall not affect the
validity of the Plan.
(b) Unless otherwise expressly stated in the relevant Agreement, after
the expiration of the Reliance Period, each Option granted under the Plan is
intended to be Performance-Based Compensation. The Committee shall not be
entitled to exercise any discretion otherwise authorized hereunder with respect
to such Options if the ability to exercise such discretion or the exercise of
such discretion itself would cause the compensation attributable to such Options
to fail to qualify as Performance-Based Compensation.
11. Pooling Transactions.
--------------------
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<PAGE>
Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a transaction which is intended to constitute a
Pooling Transaction, the Committee shall take such actions, if any, as are
specifically recommended by an independent accounting firm retained by the
Company to the extent reasonably necessary in order to assure that the Pooling
Transaction will qualify as such, including but not limited to (a) deferring the
vesting, exercise, payment, settlement or lapsing of restrictions with respect
to any Option, (b) providing that the payment or settlement in respect of any
Option be made in the form of cash, Shares or securities of a successor or
acquirer of the Company, or a combination of the foregoing, and (c) providing
for the extension of the term of any Option to the extent necessary to
accommodate the foregoing, but not beyond the maximum term permitted for any
Option.
12. Termination and Amendment of the Plan or Modification of Options.
----------------------------------------------------------------
12.1 Plan Amendment or Termination. The Plan shall terminate on the
------------------------------
day preceding the tenth anniversary of the date of its adoption by the Board and
no Option may be granted thereafter. The Board may sooner terminate the Plan
and the Board may at any time and from time to time amend, modify or suspend the
Plan; provided, however, that:
(a) no such amendment, modification, suspension or termination shall
impair or adversely alter any Options theretofore granted under the Plan, except
with the consent of the Optionee, nor shall any amendment, modification,
suspension or termination deprive any Optionee of any Shares which he or she may
have acquired through or as a result of the Plan; and
(b) to the extent necessary under any applicable law, regulation or
exchange requirement, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law, regulation or
exchange requirement.
12.2 Modification of Options. No modification of an Option shall
-----------------------
adversely alter or impair any rights or obligations under the Option without the
consent of the Optionee.
13. Non-Exclusivity of the Plan.
---------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options other
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<PAGE>
than under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
14. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(a) give any person any right to be granted an Option other than
at the sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(c) limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any person at any time; or
(d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
15. Regulations and Other Approvals; Governing Law.
----------------------------------------------
15.1 Except as to matters of federal law, the Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
laws principles thereof.
15.2 The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
15.3 The Board may make such changes to the Plan and any Agreement as
may be necessary or appropriate to comply with the rules and regulations of any
government authority, or to obtain for Eligible Individuals granted Incentive
Stock Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
15.4 Each Option is subject to the requirement that, if at any time
the Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is
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<PAGE>
necessary or desirable as a condition of, or in connection with, the grant of an
Option or the issuance of Shares, no Options shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions as
acceptable to the Committee.
15.5 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to an Option granted under the Plan, as a condition precedent to receipt of such
Shares, to represent and warrant to the Company in writing that the Shares
acquired by such individual are acquired without a view to any distribution
thereof and will not be sold or transferred other than pursuant to an effective
registration thereof under the Securities Act or pursuant to an exemption
applicable under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
16. Miscellaneous.
-------------
16.1 Multiple Agreements. The terms of each Option may differ from
-------------------
other Options granted under the Plan at the same time, or at some other time.
The Committee may also grant more than one Option to a given Eligible Individual
during the term of the Plan, either in addition to, or in substitution for, one
or more Options previously granted to that Eligible Individual.
16.2 Withholding of Taxes.
--------------------
(a) At such times as an Optionee recognizes taxable income in
connection with the receipt of Shares hereunder (a "Taxable Event"), the
Optionee shall pay to the Company an amount equal to the federal, state and
local income taxes and other amounts as may be required by law to be withheld by
the Company in connection with the Taxable Event (the "Withholding Taxes") prior
to the issuance of such Shares. The Company shall have the right to deduct from
any payment of cash to an Optionee an amount equal to the Withholding Taxes in
satisfaction of the obligation to pay Withholding Taxes. The Committee may
provide in the Agreement, at the time of grant or at any time thereafter, that
the Optionee, in satisfaction of the obligation to pay Withholding Taxes, may
elect to have withheld a portion of the Shares then issuable to him or her
having an aggregate Fair Market Value equal to the Withholding Taxes.
-13-
<PAGE>
(b) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the
grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal executive
office.
16.3 Effective Date. The effective date of the Plan shall be the
--------------
date it is approved by the Board, subject only to the approval by the
affirmative vote of the holders of a majority of the securities of the Company
within twelve (12) months of the adoption of the Plan by the Board.
-14-
<PAGE>
EXHIBIT 10.34
AMENDED SEPARATION AGREEMENT AND RELEASE
This Agreement is entered into effective May 14, 1999, by and between Tom
Stack ("Stack") and Tanning Technology Corporation, a Colorado corporation
("Tanning"), with offices at 4600 S. Ulster Street, Suite 380, Denver, Colorado
80237.
Whereas, Stack and Tanning have entered into a Separation Agreement and
Release dated as of May 14, 1999 (the "Previous Agreement"); and
Whereas, the parties now wish to substitute this Agreement for the Previous
Agreement, with the intent that the Previous Agreement will be void ab initio,
and this Agreement will be the sole agreement between the parties with respect
to the subject matter herein.
Now therefore, in consideration of the covenants set forth herein, the
parties agree as follows:
1. Resignation by Stack. Stack hereby resigns his employment with Tanning
--------------------
as of Friday, May 14, 1999. He freely and knowingly grants this Release
effective May 14, 1999.
2. Compensation. In consideration of this Release, Tanning agrees to the
------------
following provisions:
A. Pay Continuation. Stack will continue to receive a semi-monthly
pay rate of Nine Thousand Dollars ($9,000.00), less state and federal taxes and
other legal standard deductions through Monday, January 31, 2000 (the "Pay
Continuation Period"). The pay continuation terms also include a one-time lump
sum payment of Ten Thousand Dollars ($10,000.00), less state and federal taxes
and other legal standard deductions payable immediately.
B. Expenses to San Francisco Bay area. Tanning agrees to pay, on a
pretax basis, Stack's moving expenses for household goods from Denver, Colorado
to the San Francisco Bay metropolitan area if Stack chooses to relocate back
within the 12-month period ending May 15, 2000. In the event Stack accepts a
position that includes relocation expenses, Tanning will only cover move
expenses that exceed amounts covered by a subsequent employer.
C. Vesting Credit Continuation. Tanning will continue to allow Stack
to earn vesting credit for his existing stock options on 175,000 shares both
during and after the Pay Continuation Period on the condition that Stack fully
complies with the terms of this Agreement, including but not limited to the non-
disparagement requirements set forth in Section 8 below and the non-solicitation
requirements set forth in Section 9 below. Vesting credit eligibility will
continue through 11/17/01, at which time Stack will have completed the vesting
requirements for 175,000 shares. All other options as granted in Stack's 1999
Sales Management Compensation Plan held by Stack are immediately forfeited.
D. Stock Option Continuance. Subject to Sections 5 & 8, Tanning will
postpone the 90-day vested stock option post-termination exercise provision
relating to employment termination. Stack may continue to hold his vested stock
options (175,000 shares vested effective 11/17/01) for a period not to exceed
one year. For the period 11/17/01 through 11/17/02 vested options will remain
exercisable as set forth in the company's stock option plan. Unexercised options
expire on 11/17/02.
E. Vacation Accrual. Any accrued and unused vacation as of May 14,
1999, will be paid to Stack at the end of the Pay Continuation Period (by
December 31st) in one lump sum, less state and federal taxes and other legal
standard deductions. Tanning agrees to pay Stack for 11 days of accrued vacation
at a daily rate of $461.54 per day (annual salary divided by 260 days). Tanning
agrees to provide payment for Stack's vacation accrual in the amount of Five
Thousand, Seventy-Seven dollars ($5,077.00) on or before December 31, 1999
(based on the 15-day annual vacation allowance specified in Stack's employment
agreement, this balance represents 5 days of unused 1998 vacation, and 6 days of
unused 1999 vacation.)
<PAGE>
F. Outplacement Expense Reimbursement. Tanning will reimburse Stack
for up to $2,000 of outplacement expenses upon Stack's submission of related
receipts.
G. Benefits Coverage. Group life, medical and dental insurance
benefits will continue to be provided to Stack through Monday, January 31, 2000.
At the end of the Pay Continuation Period, Stack understands that COBRA
continuation rights will be available to him for an additional 18-month period
pursuant to federal law. Stack agrees to notify Tanning within 60 days of the
end of the Pay Continuation Period in order to exercise his right to continue
COBRA benefit coverage. Stack agrees to pay the monthly premiums due pursuant to
the standard COBRA policies of Tanning. Tanning's obligations under this
paragraph G. cease when Stack becomes eligible to participate in a subsequent
Tanning's medical plan.
H. Work Expectations During the Pay Continuation Period. During the
Pay Continuation Period Stack agrees to work such hours and on such projects,
including providing information on work done and client contacts made during his
employment with Tanning, as are reasonable and agreed upon between Tanning and
Stack. In no cases will Stack's work activities with Tanning jeapordize full-
time employment positions with another company accepted by Stack. The intent is
to part company on a friendly and dignified basis following the Pay Continuation
Period. At the end of the Pay Continuation Period (January 30, 2000), Stack will
be released from any additional obligations to provide services to Tanning other
than what is mutually agreed to in writing between himself and Tanning. Stack
will return his company issued computer equipment, pager, cellular telephone,
credit card, Metropoint facilities access cards, any Tanning files, and any and
all other Tanning property in his possession, on Friday, May 14, 1999. Stack
also agrees to be strictly governed by the non-disclosure contained in his
Employment Agreement.
I. Tanning agrees to reimburse Stack for expenses incurred in direct
support of his job responsibilities. Given that Stack is released from day-to-
day job responsibilities effective Friday, May 14, 1999 it is expected that
business expenses incurred will end effective May 14.
J. General Communications. Stack agrees to not transmit internal
communication messages regarding his employment status. Tanning agrees to
characterize his work period at Tanning as helpful and related to the
development of a sales function at Tanning.
K. No Waiver. No vesting credits under Tanning's 401(k) Plan will
accrue after the Pay Continuation Period ends on January 31, 2000. Stack
understands that he is not waiving any rights to vested employee benefits
extended under such Plan.
3. Release. In consideration for the promises, agreements and covenants
-------
contained herein, Stack hereby fully releases, acquits and fully and forever
discharges Tanning and its predecessors, successors, assigns, agents, officers,
employees, directors, shareholders, legal representatives, and affiliated
companies from any and all liability, claims, charges, demands, attorneys' fees,
costs, suits in equity or causes of action, of whatever kind and nature, whether
known or unknown, which have or could be asserted against Tanning arising out of
or in any way relating to his employment with and/or termination of employment
from Tanning and/or any other occurrence whatsoever arising on or before the
date this agreement is executed, including but not limited to:
A. Alleged violations of any statute or regulation, including but not
limited to the Civil Rights Act of 1991, Title VII of the Civil Rights Act of
1964, The Employee Retirement Income Security Act, Title 42 U.S. Section 1985,
the Colorado Civil Rights Act, the Americans with Disabilities Act, the Age
Discrimination in Employment Act, 29 U.S.C. (S)62 1, et seq. and/or any other
------
federal, state or local statute, ordinance, or regulation dealing in any way
with employment or employment discrimination.
B. Any breach of an expressed or implied employment contract under
the common law of the State of Colorado, or any other state, or on the basis of
any claim of defamation, wrongful discharge and/or any other common law,
statute, and/or tort (including any claim for pain and suffering or emotional
distress) and/or any other claim whatsoever arising out of or in any way
relating to his employment and/or termination of
2
<PAGE>
employment from Tanning and/or any other occurrence prior to the date of this
Agreement and through and including the Pay Continuation Period, but excluding
claims for breach of this Agreement.
4. Authority. Stack warrants that he is legally competent to execute this
---------
Release and accept full responsibility therefor.
5. Confidentiality. Stack acknowledges that he has signed an Employment,
---------------
Confidentiality, and Non-Competition Agreement and Employee Appendix, with
Tanning dated November 17, 1997 (collectively, the "Employment Agreement") and
that the terms and conditions of the Employment Agreement remain in effect and
will continue to be binding on Stack. Stack agrees that all information, facts
or occurrences relating to: (1) all negotiations leading to this Agreement; (2)
the existence and contents of this Agreement; and (3) all formulas, processes,
customer lists, computer user identifiers and passwords, and all purchasing,
engineering, accounting, marketing and other information, not generally known
and proprietary to Tanning, relating to research, development. manufacturing,
marketing or sale of Tanning's products shall be and are hereby deemed to be
Tanning Trade Secrets and/or Confidential Information under the Employment
Agreement.
6. Reasonable Terms. Stack acknowledges that the provisions of this
----------------
Agreement are reasonable and necessary for the protection of Tanning and that
his violation of this Agreement will cause Tanning irreparable harm for which it
will be entitled to temporary and permanent injunctive relief, money damages
insofar as they can be determined and all related costs and reasonable
attorneys' fees. This Agreement may be pleaded as a full and complete defense to
any action, suit or other proceeding which may be instituted, prosecuted or
attempted for, upon, or in respect of any of the claims released hereby.
7. Full Release, Denial of Liability. Stack understands that this Release
---------------------------------
is a compromise and final settlement of disputed claims and fully discharges
Tanning from any further obligation. Stack agrees that Tanning's payment of the
settlement amount shall not be construed to be an admission by Tanning of any
liability whatsoever in connection with his employment by Tanning or any other
transaction between the parties hereto, and he understands that Tanning
expressly denies any liability. Stack agrees that the amount of Tanning's
payment to him is reasonable and fair for this Release.
8. Non-Disparagement. In consideration of this Release, Stack agrees to
-----------------
refrain from making statements, publicly or otherwise, orally or in writing
which are defamatory or adverse to the interests of Tanning, its employees or
contractors, products, work methods, employment practices, business practices or
business relationships. Stack agrees that he shall not in any way assist or
encourage any individual or group of individuals to bring or pursue a lawsuit,
charge, complaint, or grievance, or in making any other demands against Tanning.
In addition to the other rights and remedies of Tanning, in the event a
disparaging act is committed by Stack as defined above, the opportunity for
additional vesting credit for unvested options will terminate immediately and
all vested options will be subject to a 60 day exercise requirement commencing
effective on the date the breach occurs.
9. Non-Solicitation of Clients & Employees. Stack shall not (1) during the
---------------------------------------
period that he is subject to the restrictions set forth in 8 above, hire or
solicit the employment or services of any person who is an employee or
consultant of Tanning or its successors or assigns, or (2) for a 12 month period
commencing May 15, 1999 and continuing through May 14, 2000 directly or
indirectly solicit business competitive with Tanning's then current business
from any customer or client which is currently under contract with Tanning. The
above shall not prohibit the Stack from using the services of any such person in
a way that clearly does not compete with the business of Tanning. In addition
to the other rights and remedies of Tanning, in the event that Stack breaches
the covenants of this section as defined above, the opportunity for additional
vesting credit for unvested options will terminate immediately and all vested
options will be subject to a 60 day exercise requirement commencing effective on
the date the breach occurs. The time periods set forth above shall be extended
for any period of time that Stack is found to be in violation of any provision
of this Section.
10. Amendments. This Agreement may not be amended or modified in any
----------
respect except by a written instrument duly executed by all of the parties to
this Agreement.
3
<PAGE>
11. Construction. This Agreement has been and shall be construed to have
------------
been drafted by all the parties to it so that the rule of construing ambiguities
against the drafter shall have no force or effect.
12. Severability. If any portion or term of this Agreement is held
------------
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall not be affected and shall remain fully in force and enforceable.
13. Acknowledgement and Receipt and Consult Counsel. Stack acknowledges
-----------------------------------------------
that he has been encouraged by Tanning to seek the advice of legal counsel and
that he has done so or determined not to do so of his own accord. Stack
acknowledges that he understands the legal significance and effect of this
Agreement and represents that the terms of this Agreement are fully understood
and accepted by him.
14. Binding Date of Agreement. Stack acknowledges that he may revoke this
-------------------------
Agreement within seven (7) days after the execution hereof by delivering written
notice of his desire to revoke, along with a check representing any payments
made to him for the Pay Continuation Period, to Tanning's Vice President of
Human Resources, 4600 South Ulster Street, Suite 380, Denver, Colorado 80237.
15. Governing Law. Stack agrees with Tanning that this Agreement shall be
-------------
governed by and interpreted in accordance with the laws of the State of
Colorado.
16. Entire Agreement. This Release, and the Employment Agreement between
----------------
Stack and Tanning collectively represent the entire agreement between Stack or
anyone who has or obtains any legal rights or claims through his and Tanning
with respect to the subject matter covered herein. They replace any other oral
or written agreements, representations, promises or discussions between Stack
and Tanning including the agreement dated February 1, 1999. In the event of a
conflict between the provisions of this Agreement and the provisions of the
Employment Agreement, the provisions of this Agreement shall control.
STACK ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, UNDERSTANDS ITS TERMS,
AND IS VOLUNTARILY ENTERING INTO IT WITH THE INTENTION OF RELINQUISHING ALL
KNOWN AND UNKNOWN CLAIMS AND RIGHTS.
TANNING TECHNOLOGY CORPORATION
By: /s/ Mark Tanning
--------------------------
Its: VP of HR & ADMIN
--------------------------
Date: 6-17-99
--------------------------
Address: 4600 South Ulster Street, Suite 380
Denver, Colorado, 80237
EMPLOYEE:
/s/ Thomas J. Stack
- ----------------------------------
Tom Stack
Date: 6-17-99
--------------------------
4
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated February 26,
1999, except for Note 4 as to which the date is May 17, 1999, in Amendment No.
2 to the Registration Statement No. 333-78657 and related Prospectus of Tanning
Technology Corporation.
/s/ Ernst & Young LLP
Denver, Colorado
July 6, 1999
<PAGE>
Exhibit 23.3
CONSENT
The undersigned, Michael E. Shanahan, has agreed to become a director of
Tanning Technology Corporation (the "Company") upon completion of the Company's
initial public offering, as described in the Registration Statement on Form S-1,
File No. 333-78657, as amended (the "Registration Statement"). The undersigned
hereby consents to being named as a director designee in the Registration
Statement.
Dated: July 15, 1999 /s/ Michael E. Shanahan
-----------------------
Michael E. Shanahan
