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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 4/24/02  Tanning Technology Corp           DEF 14A     5/21/02    1:30                                     Merrill Corp/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     Definitive Proxy Solicitation Material              HTML    279K 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.      )

   
TANNING TECHNOLOGY CORPORATION

4600 South Syracuse Street, Suite 1200
Denver, Colorado 80237
Telephone 303.220.9944

April 24, 2002

Dear Stockholder:

        It is our pleasure to invite you to the Annual Meeting of Stockholders of Tanning Technology Corporation, a Delaware corporation, to be held on May 21, 2002 at 8:00 a.m. local time, at the Company's office at 4600 South Syracuse Street, Suite 1200, Denver, Colorado.

        Details of the business to be conducted and the matters to be considered at the Annual Meeting are given in the attached Notice of Annual Meeting and Proxy Statement.

        It is important that your shares be represented at the meeting, whether or not you are able to attend personally. You are therefore urged to complete, sign, date and return the enclosed proxy card promptly in the accompanying envelope, which requires no postage if mailed in the United States.

        You are, of course, welcome to attend the meeting and vote in person, even if you have previously returned your proxy card or voted by other means.

		Sincerely,
		Larry G. Tanning
		Chairman of the Board and Chief Executive Officer

TANNING TECHNOLOGY CORPORATION

   
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

        The Annual Meeting of Stockholders (the "Annual Meeting") of Tanning Technology Corporation (the "Company") will be held on May 21, 2002 at 8:00 a.m. local time, at the Company's office at 4600 South Syracuse Street, Suite 1200, Denver, Colorado.

        The Annual Meeting will be conducted:

1.

To consider and act on the following proposals, which are described in the accompanying Proxy Statement:

2.

To transact such other business as may properly come before the Annual Meeting.

        Stockholders of record at the close of business on April 15, 2002 will be entitled to notice of and to vote at the Annual Meeting.

		By Order of the Board of Directors,
		Frederick H. Fogel
		Secretary

April 24, 2002

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR IF INSTRUCTIONS THEREFOR ARE INCLUDED IN THIS PACKAGE, BY TELEPHONE OR ON THE INTERNET.

TANNING TECHNOLOGY CORPORATION
4600 South Syracuse Street, Suite 1200
Denver, Colorado 80237

   
PROXY STATEMENT

        This Proxy Statement (the "Proxy Statement") is being furnished to the stockholders of Tanning Technology Corporation, a Delaware corporation ("We," "Tanning" or the "Company"), in connection with the solicitation of proxies by the board of directors of the Company for use at the Annual Meeting of Stockholders (the "Annual Meeting") of the Company to be held on May 21, 2002 at 8:00 a.m. local time, at the Company's office at 4600 South Syracuse Street, Suite 1200, Denver, Colorado, and any adjournment or postponement thereof.

        At the Annual Meeting, stockholders will be asked to consider and vote upon the following proposals:

        The board of directors of the Company recommends a vote FOR approval of each of the proposals.

        The board of directors of the Company has fixed the close of business on April 15, 2002 (the "Annual Meeting Record Date") as the record date for determining the holders of outstanding shares of common stock, par value $0.01 per share (the "Common Stock"), entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment thereof. On that date, there were 21,144,109 shares of Common Stock outstanding and entitled to vote at the Annual Meeting, each entitled to one vote on all matters to be acted upon. The Notice of Annual Meeting of Stockholders, this Proxy Statement and the form of proxy card are first being mailed to each stockholder entitled to vote at the Annual Meeting on or about April 24, 2002.

   
VOTING AND REVOCATION OF PROXIES

Voting

        Only holders of record of shares of Common Stock as of the close of business on the Annual Meeting Record Date will be entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. The presence, either in person or by properly executed proxy, of the holders of a majority of the outstanding shares of Common Stock is necessary to constitute a quorum at the Annual Meeting and to permit action to be taken by the stockholders at the Annual Meeting.

        The affirmative vote of a plurality of the shares of Common Stock entitled to vote thereon, present in person or represented by proxy, at the Annual Meeting is required to elect the directors nominated pursuant to Proposal One. The affirmative vote of a majority of the shares of Common Stock entitled to vote thereon, present in person or represented by proxy, at the Annual Meeting is required to approve each of Proposal Two and Proposal Three.

        For purposes of determining the number of votes cast with respect to any voting matter, only those cast "for" or "against" are included; abstentions and broker non-votes are excluded. For purposes of determining whether the affirmative vote of the holders of a majority of the shares entitled to vote on   a proposal and present at the Annual Meeting has been obtained, abstentions will be included in, and broker non-votes will be excluded from, the number of shares present and entitled to vote. Accordingly, abstentions will have the effect of a vote "against" the matter (other than the election of directors) and broker non-votes will have the effect of reducing the number of affirmative votes required to achieve the majority vote.

        All shares of Common Stock that are represented at the Annual Meeting by properly executed proxies received prior to or at the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with the instructions indicated in such proxies. If no instructions are indicated for a particular proposal on a proxy, such proxy will be voted in accordance with the board of directors' recommendations as set forth herein with respect to such proposal(s).

        In the event that a quorum is not present at the time the Annual Meeting is convened, or if for any other reason the Company believes that additional time should be allowed for the solicitation of proxies, the stockholders entitled to vote at the Annual Meeting, present in person or represented by proxy, will have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting. If the Company proposes to adjourn the Annual Meeting by a vote of the stockholders, the persons named in the enclosed form of proxy will vote all shares of Common Stock for which they have voting authority in favor of such adjournment.

How to Vote

        In addition to voting in person at the meeting, stockholders of record can vote by proxy by mailing their signed proxy cards.

        If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the holder of record that you must follow in order for your shares to be voted. Certain of these institutions may offer telephone and/or Internet voting.

Revocation of Proxies

        Any stockholder who executes and returns a proxy may revoke it at any time prior to the voting of the proxies by giving written notice of revocation to the Secretary of the Company or by executing a later-dated proxy. In addition, voting by mail, telephone or Internet will not prevent you from voting in person at the Annual Meeting should you be present and wish to do so.

   
PROPOSAL ONE: ELECTION OF DIRECTORS

        Two directors are to be elected. The Company's board of directors currently consists of eight directors divided into three classes, Class I, Class II and Class III, with members of each class holding office for staggered three-year terms and until their successors have been duly elected and qualified. There are currently: three Class I directors, whose terms expire at the 2003 annual meeting of stockholders; three Class II directors, whose terms expire at the 2004 annual meeting of stockholders; and two Class III directors, whose terms expire at the Annual Meeting (in all cases subject to the election and qualification of their successors and to their earlier death, resignation or removal).

        If any one or more of the nominees is unable to serve for any reason or withdraws from nomination, proxies will be voted for the substitute nominee or nominees, if any, proposed by the board of directors. The board of directors has no knowledge that any nominee will or may be unable to serve or will or may withdraw from nomination.

        The board of directors has nominated Larry G. Tanning and Henry F. Skelsey for election as Class III directors at the Annual Meeting for three-year terms expiring at the 2005 annual meeting of stockholders. Each nominee has agreed to be named in this Proxy Statement and to serve if elected.   Biographical data on these nominees and the other members of the board of directors is presented under the caption "Directors and executive officers" in this Proxy Statement.

        The board of directors recommends a vote FOR Larry G. Tanning and Henry F. Skelsey for election as directors to serve in the class with terms expiring in 2005.

   
MANAGEMENT OF THE COMPANY

Directors and executive officers

        The following table contains information regarding our executive officers and directors.

        Larry G. Tanning, a co-founder of Tanning, has been our Chairman of the Board and Chief Executive Officer since January 1997. Mr. Tanning is a member of our management Executive Committee. He also served as our President from January 1997 until November 2001, and 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 an M.S. equivalent degree in business management with the American Management Association in New York, New York.

        Gregory A. Conley has been a director and our President and Chief Operating Officer since November 2001. Mr. Conley is a member of our management Executive Committee. From December 1999 until September 2001, Mr. Conley was the Global General Manager of e-markets at IBM Corporation, a computer hardware, software and services provider. From May 1995 until December 1999, Mr. Conley served as General Manager of IBM's travel and transportation industry business. From 1989 to 1995, Mr. Conley worked at Galileo International, an electronic distribution services provider for the travel industry, and its Covia subsidiary, a developer of message-oriented middleware, reaching the position of President and CEO of Galileo. From 1984 to 1989, Mr. Conley was a corporate attorney at Covington & Burling, a Washington, D.C. law firm. Mr. Conley holds a B.S.E.E. from Purdue University and a J.D. from Georgetown University.

        Henry F. Skelsey has been our Executive Vice President and Chief Financial Officer since September 1998. Mr. Skelsey is a member of our management Executive Committee. 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., an investment firm and the parent of AEA Tanning   Investors Inc., which is a beneficial owner of our Common Stock. From 1984 until 1988 Mr. Skelsey was employed by Lehman Brothers, an investment bank, where he last served as Vice President, Merchant Banking. Mr. Skelsey has an M.B.A. degree from the Darden School at the University of Virginia and a B.S. degree in economics and finance from George Mason University.

        Frederick H. Fogel has been our Executive Vice President, Business Affairs and General Counsel since October 2001. Mr. Fogel is a member of our management Executive Committee. He served as our Senior Vice President, Business Affairs and General Counsel from February 2000 until October 2001, and joined us as Vice President, Business Affairs and General Counsel in July 1999. 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 continues to be a partner at this law firm. Mr. Fogel has a J.D. and an A.B. degree in philosophy from Harvard University.

        Mark S. Teflian has been our Vice President, Strategic Business Development and Solutions since July 2001. Mr. Teflian was the founder and President of TimeØ/PerotSystems, a leading builder of Digital Marketplaces, from May 1997 until January 2001. From May 1996 until May 1997, Mr. Teflian was a Senior Vice President and Chief Technology Officer at Nets Inc., a manufacturing products e-commerce provider. He served as President of Covia Technologies from March 1991 until December 1995, and as Senior Vice President and Chief Information Officer of Covia Partnership/Galileo International from January 1988 until March 1991. From March 1987 until January 1988 Mr. Teflian served as Vice President of Distributed Systems and Strategic Technology at United Airlines.

        Louis A. D'Alessandro has been Vice President, Sales since January 2002. He served as Vice President, North American Financial Services from November 2000 until January 2002. Mr. D'Alessandro was a Client Partner for the Company from May 1999 until October 2000, and Vice President of Technical Services from October 1997 until May 1999. He served as Vice President of Technology Implementation at Fidelity Investments, a financial services provider, from September 1996 until September 1997. He was also Regional Consulting Manager at Informix Software, Inc., a provider of enterprise database-powered solutions, from January 1996 until August 1996 and National Director of Systems Engineering at Pyramid Technology Corporation, a technology services provider, from October 1988 until December 1995. Mr. D'Alessandro has a B.S. degree and an M.S. degree in Computer Science from the City University of New York.

        AVR Venkatesa has been Vice President, Tanning India since January 2002. He was our Vice President, Tanning International from December 2000 until January 2002, and served as the Chief Operating Officer of Tanning Technology India Private Limited, our majority-owned subsidiary in Hyderabad, India, from June 2000 until December 2000. He served as a Client Partner from July 1999 until June 2000 and Director, Service Delivery East from July 1998 until July 1999. Mr. Venkatesa served as the Manager of Systems Development at Time Customer Service, Inc., a subsidiary of Time Warner, Inc., a media conglomerate, from September 1989 until July 1998. Mr. Venkatesa has a B.E. degree in Chemical Engineering from Manipal Institute of Technology, India, and an M.S. degree in Management Information Systems from Texas A&M University.

        John C. Dodd has been a director since July 2001. Mr. Dodd has been the Chief Information Officer of Kaiser Permanente, a managed care provider, since January 2002. He served as President and Chief Executive Officer of Latis Networks, a provider of network solutions, from May until December 2001. Mr. Dodd was Executive Vice President and Chief Information Officer of Qwest Communications from November 1999 until April 2001 and Chief Information Officer of Ameritech from September 1994 until November 1999. Each of these companies are communications service providers. He served in various executive positions at American Express from March 1981 until August 1994. Mr. Dodd has a B.A. degree in sociology from Ohio State University.  

        Dan J. Hesser has been a director since November 1999. Mr. Hesser most recently served as Chairman, President and Chief Executive Officer of INVESCO Funds, a mutual fund management company, where he was employed for 37 years.

        Christopher P. Mahan has been a director since our incorporation in January 1997. Mr. Mahan has been a Director 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 several private companies. 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 served as Vice President—Strategic Sales of Sun Microsystems Inc., a computer hardware, software and services provider, from November 1998 until November 2000. 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 also serves on the board of directors of Persistence Software, Inc. Mr. Roebuck has an A.B. degree in business administration from Cornell University.

        Michael E. Shanahan has been a director since July 1999. Mr. Shanahan has been the Vice President of Football Operations for the Denver Broncos, a National Football League franchise, since 1998. He has been the head coach of the Broncos since January 1995. Mr. Shanahan has a B.A. degree and an M.A. degree from Eastern Illinois University.

Board of directors

        Our board of directors is currently composed of eight directors.

        Our certificate of incorporation divides the board of directors into three classes: Class I, whose terms will expire at the annual meeting of stockholders to be held in 2003, Class II, whose terms will expire at the annual meeting of stockholders to be held in 2004, and Class III, whose terms will expire at the Annual Meeting. Our Class I directors are Gregory A. Conley, Dan J. Hesser and Michael E. Shanahan. Our Class II directors are John C. Dodd, Christopher P. Mahan and Joseph P. Roebuck. Our Class III directors are Larry G. Tanning and Henry F. Skelsey. At each annual meeting of stockholders, 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 provides 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.

        Holders of approximately 43.6% of the outstanding shares of our Common Stock 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 are able to significantly influence the election of their nominees. See "Certain Relationships and Transactions with Related Parties—Stock Purchase Agreements, Shareholder Agreement and Registration Rights Agreement."

Committees of the board of directors and meetings

        The board of directors held five meetings in 2001 and acted four times during 2001 by unanimous written consent of the directors. Other than Mr. Shanahan, no director attended fewer than 75% of the aggregate of such meetings of the Board and of the committees of the board of directors on which he served. Our committees consist of an audit committee and a compensation committee.  

        The audit committee reviews with our auditors 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. The audit committee also reviews the independence of our auditors, including whether the provision of the non-audit professional services rendered by them is compatible with maintaining their independence, and together with the board of directors recommends the annual appointment of our auditors. The audit committee reviews the annual consolidated financial statements of the Company and the related audit report as prepared by the auditors, together with any significant audit findings. From January until May of 2001, our audit committee was composed of Dan J. Hesser and Christopher P. Mahan. Since May 24, 2001, its members were and continue to be Dan J. Hesser, Christopher P. Mahan and Joseph P. Roebuck. The audit committee held six meetings during 2001 and acted one time during 2001 by unanimous written consent of its members.

        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 2001, our compensation committee was and continues to be composed of Christopher P. Mahan, Joseph P. Roebuck and Michael E. Shanahan. The compensation committee held three meetings during 2001, and acted two times during 2001 by unanimous written consent of its members.

Compensation of directors

        Directors who are also our employees receive no additional compensation for their services as directors. Directors who are not our employees do not receive a fee for attendance in person at meetings of our board of directors or committees of our board of directors, but they are entitled to 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. have received, and any such new directors will be eligible to receive, options to purchase our Common Stock in connection with their appointment to our board of directors and service thereon.

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 dated July 22, 1999 with Larry G. Tanning, providing for his employment with us. 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, if any, for the fiscal year immediately preceding the fiscal year of termination to the extent not already paid 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 certain other key 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 dated September 14, 2001 with Gregory A. Conley, providing for his employment as our President and Chief Operating Officer for a term of three years. Pursuant to the agreement, Mr. Conley is entitled to an annual salary of $300,000, a guaranteed minimum bonus of $170,000 per year and an additional performance-based bonus opportunity of $330,000 per year. In addition, subject to his continued employment with Tanning, Mr. Conley is entitled to payments totaling $1,449,659 in respect of benefits from his prior employer foregone when Mr. Conley joined Tanning, such amount to be paid on various dates from November 2001 to November 2002.

        If we terminate Mr. Conley's employment without cause (as defined in the employment agreement), we are required to pay Mr. Conley (1) the greater of his guaranteed minimum bonus at the time of termination and the amount of bonus actually paid for the prior fiscal year, prorated based on days elapsed in the fiscal year of termination, and (2) during a period of twelve months following termination, an amount equal to his annual salary at the time of termination. In addition, Mr. Conley (and certain other key 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. Conley is also subject to customary non-competition, non-solicitation and non- disclosure covenants.

        We have entered into an employment agreement dated as of April 5, 2002 with Louis A. D'Alessandro providing for his employment with us. If we terminate Mr. D'Alessandro's employment without cause (as defined in the employment agreement), we are required to continue to pay Mr. D'Alessandro his salary during a period of six months following termination. The employment agreement contains customary non-competition, non-solicitation and non-disclosure covenants.

        In connection with his separation from the Company, we have entered into a separation agreement with Stephen W. Mahoney dated January 15, 2002. Pursuant to the agreement, Mr. Mahoney is entitled to receive in the aggregate approximately $109,000 as severance and as consideration for providing the Company a release of claims.

   
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES

Stock Purchase Agreements, Shareholder Agreement and Registration Rights Agreement

        Tanning and Gregory A. Conley, a director of Tanning and our President and Chief Operating Officer, are parties to a stock purchase agreement dated September 14, 2001. Under this agreement, Gregory A. Conley agreed to purchase, on various dates from November 2001 to November 2002, a total of 176,788 shares of the Company's Common Stock at a per share price of $4.10, for an aggregate purchase price of $724,831. This obligation to purchase Common Stock is not contingent upon future employment of Mr. Conley.

        Tanning and Bipin Agarwal, a significant beneficial owner of Tanning Common Stock and former director and executive officer, are parties to a letter agreement dated January 25, 2002, regarding the transfer of Tanning shares owned by him. Pursuant to this agreement, Mr. Agarwal transferred 151,874 shares of Tanning Common Stock to the Company to fully repay all amounts outstanding, together with accrued interest (such amounts totaling $282,486), under his Promissory Note to the Company dated July 30, 1999, as amended July 31, 2001.

        Larry G. Tanning, Bipin Agarwal, Toni Hippeli and entities controlled by them, together with the TTC Investors Group, which is comprised of the entities controlled by AEA Investors Inc. that hold our Common Stock, entered into an amended and restated shareholder agreement dated as of July 20, 1999, which originally provided, 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.

        Because each of Toni Hippeli and Bipin Agarwal, together with entities controlled by them, owns less than 10% of the outstanding Common Stock of Tanning, their rights and obligations under the shareholder agreement have terminated.

        The original parties to the shareholder agreement and affiliated entities, together with Mr. Skelsey and Stephen Brobst, 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, or, under certain circumstances, by the persons who were members of the limited liability companies comprising the TTC Investors Group;



•

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;



•

the Company 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 such 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.

Certain business relationships

        John C. Dodd, who has been one of our directors since July 2001, was Executive Vice President and Chief Information Officer of Qwest Communications from November 1999 until April 2001. Qwest Communications paid a total of $8,897,177 to the Company in respect of services performed and expenses incurred in 2001. Mr. Dodd is currently Chief Information Officer of Kaiser Permanente. In April 2002 the Company began providing IT services for Kaiser.  

Loans to our directors and officers

        In connection with a significant reduction in the compensation of Mr. Tanning pursuant to his revised employment agreement, on August 2, 1999 we extended a loan in the amount of $250,000 to Larry G. Tanning. The loan bore interest at 5.25% per annum through August 1, 2001, and currently bears interest at 3.90% per annum and compounds annually. The principal and all accrued interest on the loan, as amended, are repayable on August 2, 2002.

        On July 30, 1999, we extended a loan to Bipin Agarwal in the amount of $250,000. The loan bore interest at 5.36% per annum through July 30, 2001, 4.03% per annum thereafter, and was repaid in full in February 2002.

        On Ocober 1, 1999, we extended a loan to Louis A. D'Alessandro in the amount of $110,000. The loan bears interest at 6.02% per annum and is compounded annually. All outstanding principal and unpaid interest on the loan is repayable on October 1, 2004.

Agreements with family members of our directors, officers and significant shareholders

        We have employed Adesh Gupta, a brother-in-law of Bipin Agarwal, as our Director of Technology Management since January 2002, as Regional Service Delivery Director for the Central Region from October 2000 until January 2002, as a Practice Leader from January 1997 until September 2000, and as a Consultant from October 1994 until January 1997. In addition to being one of our directors and an Executive Vice President until January 2002, Mr. Agarwal controls WinSoft Corporation, which is a significant stockholder of Tanning. In 2001, Mr. Gupta received approximately $192,785 in salary and bonus.

        On April 7, 1997, we granted Mr. Gupta an option to acquire 327,389 shares of our Common Stock at a purchase price of $2.90 per share. All of these options were fully vested as of 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 purchase price of $3.82 per share. These options vest over a four-year period. On July 20, 1999, we granted Mr. Gupta an additional option to acquire 3,785 shares of our Common Stock at a purchase price of $10.00 per share. These options vest over a five-year period. On July 22, 1999, we granted Mr. Gupta an additional option to acquire 2,435 shares of our Common Stock at a purchase price of $15.00 per share. These options also vest over a five-year period. On November 22, 2000, we granted Mr. Gupta an additional option to acquire 10,000 shares of our Common Stock at a purchase price of $4.00 per share. These options vest over a four-year period. On July 26, 2001, we granted Mr. Gupta an additional option to acquire 8,000 shares of our Common Stock at a purchase price of $3.70 per share. These options vest over a four-year period.

        We have employed Mark W. Tanning, brother of Larry G. Tanning, on a full-time basis from January 1997 until January 2001, and on a part-time basis thereafter.

        On April 7, 1997, we granted Mark W. Tanning an option to acquire 49,108 shares of our Common Stock at a purchase price of $2.90 per share. All of these options were fully vested as of April 7, 2000. On June 9, 1998, we granted Mark W. Tanning an additional option to acquire 49,108 shares of our Common Stock at a purchase price of $3.82 per share. All of these options were fully vested as of June 9, 2001. On December 1, 1998, we granted him an additional option to acquire 108,038 shares of our Common Stock at a purchase price of $3.82 per share. These options vest over a five-year period. On November 1, 1999, we granted him an additional option to acquire 6,250 shares of our Common Stock at a purchase price of $35.00. These options were fully vested as of December 31, 2000.

        On November 12, 1999, we extended a loan to Mark W. Tanning in the amount of $100,000. The loan bears interest at 6.02% per annum and compounds annually. All outstanding principal and unpaid interest on the loan is repayable on December 31, 2002.  

        We entered into an agreement as of December 31, 2000 with Mark W. Tanning providing for his separation from the Company. Under the agreement, Mark W. Tanning received an $85,000 lump sum payment, together with bi-weekly payments of $8,000 from January 2001 through July 2001, and is entitled to receive bi-weekly payments of $293 from August 2001 through December 2002 as salary and as consideration for providing the Company a release of claims.

   
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and executive officers and holders of more than 10% of the Common Stock to file with the Securities and Exchange Commission (the "Commission") reports of ownership and changes in ownership of Common Stock and other equity securities of the Company on Forms 3, 4 and 5. Based solely upon a review of the forms received by the Company, or written representations of reporting persons and a review of those forms, the Company believes that, during the years ended December 31, 2000 and 2001, its officers and directors and holders of more than 10% of the Common Stock complied with all applicable Section 16(a) filing requirements, except that the following Forms were filed subsequent to the applicable filing deadline: one Form 4 reflecting an option exercise by Mr. D'Alessandro in July 2000 and one Form 5 reflecting two option grants to Mr. D'Alessandro in 2000; Forms 5 reflecting one option grant to Mr. Fogel in each of 1999 and 2000; one Form 3 reflecting Mr. Mahoney's initial beneficial ownership in January 2001; and one Form 5 reflecting an option grant to Mr. Sleeper in 2000.

   
EXECUTIVE COMPENSATION

        The table below summarizes information concerning the compensation paid by us during 2001, 2000 and 1999 to our chief executive officer and our four other most highly compensated executive officers who held their offices on December 31, 2001 (collectively defined as the "Named Executive Officers"):

Summary compensation table

(1)

Amounts for 2001 reflect (i) the matching contribution under our Section 401(k) plan in the amount of $3,400 for 2001 on behalf of each of Messrs. D'Alessandro and Agarwal, and (ii) payment by the Company in 2001 of certain group term life insurance premiums of $1,189, $63, $347, $756 and $715 on behalf of Messrs. Tanning, Conley, Mahoney, D'Alessandro and Agarwal, respectively.

(2)

Mr. Conley's employment with the Company began in November 2001.

(3)

Mr. Mahoney's employment with the Company terminated in January 2002.

(4)

Includes commissions earned by Mr. D'Alessandro in 2001.

(5)

Mr. Agarwal's employment with the Company terminated in January 2002.

 

Option grants in fiscal year 2001

        The following table sets forth information regarding stock options granted during 2001 to the Named Executive Officers.

(1)

The 5% and 10% assumed annual rates of stock price appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future Common Stock prices.

(2)

One-fifth of the shares subject to the option vested on November 1, 2001. One-fifth of the shares subject to the option vest on November 1, 2002. The remaining shares will vest prorata on a monthly basis from December 1, 2002 until November 1, 2005.

(3)

One-fourth of the shares subject to the option vested on January 22, 2002 and will be cancelled if unexercised on April 30, 2002; the remainder of the option has been cancelled in connection with Mr. Mahoney's separation from the Company.

Aggregated option exercises in fiscal year 2001 and fiscal year-end option values

        The following table sets forth information concerning the value realized upon the exercise of stock options during 2001 by Named Executive Officers and the value of unexercised in-the-money options held by Named Executive Officers as of December 31, 2001. No Named Executive Officer exercised options in fiscal year 2001.

(1)

Fair market value of the Common Stock underlying the options on December 31, 2001 minus the aggregate exercise price of the options.

   
REPORT OF THE COMPENSATION COMMITTEE
ON THE COMPENSATION OF EXECUTIVE OFFICERS

General

        The Compensation Committee reviews and approves the compensation and benefits for the Company's employees, directors and consultants, administers its employee benefit plans, authorizes and ratifies stock option grants and other incentive arrangements and authorizes employment and related agreements.

Compensation Policy

        The objectives of the Company's executive officer compensation program are: (i) to attract qualified executive officers, (ii) to reward, motivate and retain the Company's executive officers and (iii) to align the interests of its executive officers with those of the Company's stockholders by linking the executives' annual cash and long-term compensation to the Company's performance.

        The Company's executive officer compensation program generally consists of three basic components: base salary, annual cash incentive-based compensation, and long-term compensation in the form of stock options.

Base Salary

        The base salary for each of the Company's executive officers, including the Chief Executive Officer, is determined by subjectively evaluating the responsibilities and strategic value of the executive's position, and the experience and performance of the individual. While no specific formula is used to set salaries, the Company considers the levels of base salary offered by other companies in the information technology services industry and in other technology companies with whom the Company competes for executive talent.

Annual Cash Incentive Compensation

        Certain of the Company's executive officers are eligible for an annual cash bonus based on the level of achievement of certain pre-established Company and individual performance goals, which vary based on the executive's position. The level of bonus opportunity is determined based upon subjective factors similar to those considered in determining salary levels. In 2001 no performance-based bonuses were paid to our executive officers.

Stock Option Plans

        Long-term incentive compensation is provided to employees in the form of stock options. The Company grants options to a broad base of its employees. Stock options are generally granted to an executive at the time the executive joins the Company and periodically thereafter at the discretion of the Committee. The Committee determines the timing of stock option awards and the size of each option award based on subjective factors similar to those used to determine salary levels and on the amount and timing of any previous option awards.

        Stock options are granted with an exercise price equal to the fair market value of the Company's Common Stock on the date of the option award. Because of this, the value of the options is wholly dependent upon an increase in the Company's stock price. Options generally become exercisable over time based on continuous employment with the Company.  

CEO Compensation

        Larry G. Tanning, the Company's Chief Executive Officer, Chairman of the Board and co-founder of the Company, became a party to an employment agreement with the Company in July of 1999. Prior to July 1999, Mr. Tanning's base salary was $480,000. Pursuant to his employment agreement his base salary was reduced to $295,291. Mr. Tanning was eligible for a performance-based bonus equal to an amount up to 88% of his base salary, based on the level of attainment of certain revenue, earnings and stock appreciation targets and certain subjective individualized goals. Mr. Tanning agreed to waive the contractual bonus opportunity provided in his employment agreement for 1999, and to accept a reduced base salary of $206,500. That base salary has remained in effect for 2000 and 2001. Based on the Company's performance, no bonus was accrued for Mr. Tanning in 2001. No options were granted to Mr. Tanning in 2001.

Section 162(m)

        Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for annual compensation in excess of $1 million paid to their chief executive officers and to certain other highly compensated executive officers. The Code excludes from the $1 million cap compensation that is based on the attainment of pre-established, objective performance goals, if certain other requirements are met. The Committee considers the deductibility of executive compensation as one factor to be considered in the context of its overall compensation objectives.

   
REPORT OF THE AUDIT COMMITTEE

        The Audit Committee of the board of directors is providing this report to enable stockholders to understand how it monitors and oversees the Company's financial reporting process. The Audit Committee operates pursuant to an Audit Committee Charter that is reviewed annually by the Audit Committee and updated as appropriate. From January until May of 2001, our audit committee was composed of Dan J. Hesser and Christopher P. Mahan. Since May 24, 2001, its members were and continue to be Dan J. Hesser, Christopher P. Mahan and Joseph P. Roebuck. Mr. Hesser and Mr. Roebuck are independent under the applicable rules of the National Association of Securities Dealers ("NASD"). To the extent that AEA Tanning Investors Inc., which owns approximately 26% of the outstanding Common Stock of the Company, is deemed an affiliate of the Company, Mr. Mahan, who is a director of AEA Tanning Investors Inc. and is employed by its parent, would not qualify as independent under the applicable NASD rules. However, the NASD rules permit the company to appoint one non-independent director to the Audit Committee if the Company's board of directors, under exceptional and limited circumstances, determines that membership on the Committee by a non-independent director is required by the best interests of the Company and its stockholders. The board of directors believes that Mr. Mahan's extensive background in financial, business, accounting and financial oversight matters allows him to provide valuable advice and counsel to the Audit Committee. The board of directors therefore has determined that Mr. Mahan's service on the Audit Committee is in the best interests of the Company and its stockholders.

        This report confirms that the Audit Committee has: (i) reviewed and discussed the audited financial statements for the year ended December 31, 2001 with management and the Company's independent public accountants; (ii) discussed with the Company's independent public accountants the matters required to be reviewed pursuant to the Statement on Auditing Standards No. 61 (Communications with Audit Committees); (iii) reviewed the written disclosures and the letter from the Company's independent public accountants required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees); and (iv) discussed with the Company's independent public accountants their independence from the Company.

        Based upon the review and discussions referred to in the previous paragraph, the Audit Committee approved the inclusion of the audited financial statements for the year ended December 31, 2001 in the Company's Annual Report on Form 10-K for filing with the Securities and Exchange Commission.

   
PERFORMANCE GRAPH

        The following graph compares the cumulative total stockholder return on the Company's Common Stock between July 23, 1999, the first day of public trading of the Company's Common Stock, and December 31, 2001 with the cumulative total return of (i) the Nasdaq National Market Index, and (ii) an SIC Code Index that includes organizations in the Company's Standard Industrial Classification (SIC) code number 7373—Computer Integrated System Design. The graph assumes an investment of $100.00 on July 23, 1999 in the Company's Common Stock and each of the foregoing indices and assumes reinvestment of dividends, if any. The comparisons in this table are set forth in response to the Securities and Exchange Commission disclosure requirements, and therefore are not intended to forecast or be indicative of future performance of the Common Stock.

   
BENEFICIAL OWNERSHIP OF COMMON STOCK

        The following table presents information regarding the beneficial ownership of our Common Stock as of April 15, 2002 by all directors and the persons listed in the Summary Compensation Table as well as by directors and executive officers of the Company as a group and, to the best knowledge of the Company's management, beneficial owners of 5% or more of the outstanding Common Stock.

        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 the Annual Meeting Record Date 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.

*

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 April 15, 2002 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 April 15, 2002 and that are not included in the total number of shares beneficially owned.

(3)

AEA Tanning Investors Inc. is the managing member of TTC Investors I LLC, which holds 984,237 shares of our Common Stock, TTC Investors II LLC, TTC Investors IA LLC, which holds 108,986 shares of our Common Stock, and TTC Investors IIA LLC, which holds 460,524 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 of these companies is c/o AEA Investors Inc., Park Avenue Tower, 65 East 55th Street, New York, New York 10022.

(4)

Includes 3,186,351 shares of our Common Stock that Mr. Tanning may be deemed to beneficially own because he indirectly controls Tanning Family Partnership, L.L.L.P., as to which Mr. Tanning disclaims beneficial ownership. Excludes approximately 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. The address for Mr. Tanning and Tanning Family Partnership L.L.L.P. is c/o Tanning Technology Corporation, 4600 South Syracuse Street, Suite 1200, Denver, Colorado 80237.

(5)

The address for Mr. Brobst is c/o Tanning Technology Corporation, 4600 South Syracuse Street, Suite 1200, Denver, Colorado 80237.

(6)

Mr. Agarwal's employment with the Company and service on our board of directors terminated in January 2002. The information relating to his beneficial ownership of our Common Stock is provided to the best of the Company's knowledge.

(7)

Includes 1,749,417 shares that Mr. Agarwal is deemed to beneficially own as the controlling investor of WinSoft Corporation. Excludes 1,183 shares of our Common Stock held by Mr. Agarwal's wife, Shashi Agarwal, as to which Mr. Agarwal disclaims beneficial ownership. The address for Mr. Agarwal and WinSoft Corporation is 4 Red Hawk Run, Cherry Hills Village, CO 80110.

(8)

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.

(9)

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.

(10)

J.P. Morgan Chase & Co. has sole voting power for 1,187,789 of these shares and sole investment power for all. The address for J.P. Morgan Chase & Co is 270 Park Avenue, New York, New York 10017.

(11)

Mr. Mahoney's employment with the Company terminated in January 2002. The information relating to his beneficial ownership of our Common Stock is provided to the best of the Company's knowledge.

(12)

Mr. Mahan's total excludes 5,696,769 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.

(13)

See footnotes 4, 8, 9 and 12 above.