Exhibit 2.1
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
BY AND AMONG
EDT LEARNING, INC.
A DELAWARE CORPORATION,
TW ACQUISITION SUBSIDIARY, INC.
A DELAWARE CORPORATION,
THOUGHTWARE TECHNOLOGIES, INC.
A TENNESSEE CORPORATION,
AND THE SERIES B PREFERRED STOCKHOLDER OF THOUGHTWARE TECHNOLOGIES, INC.
TABLE OF CONTENTS
ARTICLE I. THE MERGER..........................................................2
1.1 THE MERGER...........................................................2
1.2 THE CLOSING..........................................................2
1.3 EFFECTIVE TIME.......................................................2
1.4 CERTIFICATE OF INCORPORATION.........................................2
1.5 BYLAWS...............................................................2
1.6 DIRECTORS AND OFFICERS...............................................3
1.7 MERGER CONSIDERATION; CONVERSION.....................................3
1.8 EXCHANGE OF CERTIFICATES REPRESENTING SHARES.........................5
1.9 DISSENTERS' RIGHTS...................................................6
1.10 FINANCIAL AND ACCOUNTING TREATMENT...................................6
1.11 WAIVER OF DIVIDEND...................................................7
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THOUGHTWARE......................7
2.1 ORGANIZATION, STANDING AND AUTHORITY OF THOUGHTWARE..................7
2.2 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS...............7
2.3 LICENSES AND AUTHORIZATIONS..........................................8
2.4 LEASE AGREEMENTS AND TERMINATED LEASES...............................8
2.5 FINANCIAL STATEMENTS.................................................8
2.6 ABSENCE OF CHANGES...................................................9
2.7 LITIGATION AND CLAIMS...............................................10
2.8 NO UNDISCLOSED LIABILITIES..........................................10
2.9 NO VIOLATION OF LAW, GENERALLY......................................10
2.10 PROPERTIES..........................................................10
2.11 INDEBTEDNESS........................................................11
2.12 EMPLOYEE CONTRACTS, UNION AGREEMENTS AND BENEFIT PLANS..............11
2.13 LABOR RELATIONS.....................................................12
2.14 CONTRACTS AND COMMITMENTS...........................................13
2.15 ENVIRONMENTAL PROTECTION............................................13
2.16 FILING OF REPORTS...................................................14
2.17 INSURANCE POLICIES..................................................14
2.18 ACCOUNTS RECEIVABLE.................................................14
2.19 ACCOUNTS PAYABLE....................................................14
2.20 INSPECTIONS AND INVESTIGATIONS......................................14
2.21 AGREEMENTS IN FULL FORCE AND EFFECT.................................15
2.22 TAXES...............................................................15
2.23 CAPITALIZATION; TITLE TO SHARES.....................................15
2.24 CORPORATE DOCUMENTS.................................................16
2.25 STATEMENTS TRUE AND CORRECT.........................................16
2.26 WEBSITE CONTENT.....................................................16
2.27 INTELLECTUAL PROPERTY...............................................16
2.28 KNOWLEDGE OF THOUGHTWARE............................................17
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EDT AND
ACQUISITION SUBSIDIARY.........................................18
3.1 ORGANIZATION, STANDING AND AUTHORITY OF EDT.........................18
3.2 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS RELATING
TO THE OBLIGATIONS OF EDT AND ACQUISITION SUBSIDIARY..............18
3.3 EDT STOCK ISSUED IN THE MERGER......................................19
3.4 SEC DOCUMENTS AND REPORTS...........................................19
3.5 FINANCIAL STATEMENTS................................................20
3.6 LITIGATION AND CLAIMS...............................................20
3.7 NO UNDISCLOSED LIABILITIES..........................................20
3.8 NO VIOLATION OF LAW.................................................21
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3.9 FILING OF REPORTS...................................................21
3.10 CAPITALIZATION; TITLE TO SHARES.....................................21
3.11 STATEMENTS TRUE AND CORRECT.........................................21
3.12 ACQUISITION SUBSIDIARY..............................................22
3.13 COMMON STOCK OF ACQUISITION SUBSIDIARY..............................22
3.14 KNOWLEDGE OF EDT....................................................22
ARTICLE IV. ADDITIONAL AGREEMENTS.............................................22
4.1 ACCESS AND INSPECTION...............................................22
4.2 COOPERATION IN MEETING FILING REQUIREMENTS..........................23
4.3 POST CLOSING AUDIT OF THOUGHTWARE...................................23
4.4 PUBLIC DISCLOSURE...................................................23
4.5 FURTHER ASSURANCES..................................................23
4.6 NO SHOP AND BREAK UP FEE............................................23
4.7 THOUGHTWARE STOCK OPTION PLAN.......................................24
4.8 SALE OF SHARES PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT.......24
4.9 PIGGYBACK REGISTRATION RIGHTS.......................................24
4.10 LEGAL AND AUDIT FEES OF THOUGHTWARE.................................26
4.11 RISK OF LOSS........................................................26
ARTICLE V. CONDUCT OF BUSINESS OF THOUGHTWARE PENDING CLOSING................26
5.1 DISPOSITION OF ASSETS...............................................26
5.2 ACCOUNTS PAYABLE AND ACCOUNTS RECEIVABLE............................26
5.3 SALE OF SHARES......................................................27
5.4 ISSUANCE OF SHARES..................................................27
5.5 CONTRACTS...........................................................27
5.6 CONDITION OF ASSETS.................................................27
5.7 NO TRANSFERS, LIENS OR ENCUMBRANCES.................................27
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF EDT AND ACQUISITION SUBSIDIARY.......27
6.1 NECESSARY APPROVALS.................................................27
6.2 REPRESENTATIONS AND WARRANTIES......................................27
6.3 PERFORMANCE; COVENANTS; DELIVERIES AT CLOSING.......................28
6.4 EDT DUE DILIGENCE...................................................29
6.5 ABSENCE OF MATERIAL ADVERSE EFFECT..................................29
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF THOUGHTWARE.........................29
7.1 REPRESENTATIONS AND WARRANTIES......................................30
7.2 PERFORMANCE; COVENANTS; DELIVERIES AT CLOSING.......................30
7.3 THOUGHTWARE DUE DILIGENCE...........................................30
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF EACH PARTY.........................31
8.1 CONSENT BY BANK ONE.................................................31
8.2 APPROVAL BY STOCKHOLDERS OF THOUGHTWARE.............................31
ARTICLE IX. INDEMNIFICATION...................................................31
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................31
9.2 INDEMNIFICATION OF EDT..............................................31
9.3 OFFSET AGAINST ESCROW STOCK.........................................32
9.4 MERGER CONSIDERATION ADJUSTMENT.....................................32
9.5 INDEMNIFICATION BY EDT AND ACQUISITION SUBSIDIARY...................33
9.6 THRESHOLD...........................................................33
9.7 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.................33
9.8 EFFECT OF INVESTIGATION.............................................34
9.9 SOLE REMEDY.........................................................34
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ARTICLE X. TERMINATION........................................................34
10.1 TERMINATION BY MUTUAL CONSENT.......................................34
10.2 TERMINATION BY EDT..................................................34
10.3 TERMINATION BY THOUGHTWARE..........................................35
10.4 EFFECT OF TERMINATION AND ABANDONMENT...............................35
10.5 EXTENSION; WAIVER...................................................35
ARTICLE XI. MISCELLANEOUS PROVISIONS..........................................36
11.1 NOTICES.............................................................36
11.2 SUCCESSORS AND ASSIGNS..............................................37
11.3 ENTIRE AGREEMENT....................................................37
11.4 GOVERNING LAW; SEVERABILITY.........................................37
11.5 NO BROKERS..........................................................38
11.6 SCHEDULES AND EXHIBITS..............................................38
11.7 WAIVERS.............................................................38
11.8 HEADINGS............................................................38
11.9 COUNTERPARTS........................................................38
11.10 CONFIDENTIALITY.....................................................38
11.11 EXPENSES............................................................38
11.12 NO THIRD PARTY BENEFICIARIES........................................39
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LIST OF EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Opinion of Counsel of ThoughtWare
Exhibit C Form of Lock Up Agreement
Exhibit D Opinion of Counsel of EDT
LIST OF SCHEDULES
Schedule 1.6 Directors and Officers of Acquisition Subsidiary
Schedule 2.1 Jurisdictions Qualified To Do Business
Schedule 2.2 Required Consents Relating to ThoughtWare's Obligations
Schedule 2.3 Licenses and Authorizations
Schedule 2.4(a) Lease and License Agreements
Schedule 2.4(b) Terminated Lease/License Agreements
Schedule 2.5 Financial Statements of ThoughtWare
Schedule 2.6 Absence of Changes
Schedule 2.7 Litigation and Claims
Schedule 2.8 Undisclosed Liabilities
Schedule 2.9 Violations of Law
Schedule 2.10(a) Properties
Schedule 2.10(b) Leased/Licensed Equipment
Schedule 2.10(c) Equipment, Utility and Other Deposits
Schedule 2.10(d) Exceptions to Title to Assets
Schedule 2.11 Indebtedness
Schedule 2.12(a) Employment Agreements, Employee Benefit Plans
Schedule 2.12(b) Unfunded Contributions
Schedule 2.12(c) Insurance Benefit Obligations
Schedule 2.13 Exceptions to Compliance with Employment and Labor Laws
Schedule 2.14 Contracts and Commitments
Schedule 2.15 Environmental Protection
Schedule 2.17(a) Insurance Policies
Schedule 2.17(b) Contested Insurance Claims
Schedule 2.18 Accounts Receivable
Schedule 2.19 Accounts Payable
Schedule 2.20 Inspections and Investigations
Schedule 2.21(a) Agreements in Full Force and Effect
Schedule 2.21(b) Agreements for Provision of Software Services
Schedule 2.22 Taxes
Schedule 2.23 Capitalization of ThoughtWare
Schedule 2.27(a) Intellectual Property
Schedule 2.27(b) Conflicting Rights of Third Parties
Schedule 2.27(c) Infringement Claims
Schedule 3.1 Organization, Standing and Authority of EDT
Schedule 3.2 Absence of Conflicting Agreements or Required Consents
Relating to EDT's Obligations
Schedule 3.5 Financial Statements of EDT
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Schedule 3.6 Litigation and Claims
Schedule 3.7 No Undisclosed Liabilities
Schedule 3.8 No Violation of Law
Schedule 5.3 Sale of Shares
Schedule 5.4 Issuance of Shares
Schedule 11.5 Brokers
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PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
THIS PLAN OF REORGANIZATION AND AGREEMENT OF MERGER (the "AGREEMENT") is
made and entered into this 11th day of January, 2002 (the "Execution Date"), by
and among EDT Learning, Inc., a Delaware corporation ("EDT"), TW Acquisition
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of EDT
("ACQUISITION Subsidiary"), ThoughtWare Technologies, Inc., a Tennessee
corporation ("THOUGHTWARE"), and ThoughtWare Paradigm Investors, a Delaware
general partnership (the "STOCKHOLDER").
R E C I T A L S:
A. ThoughtWare is in the business of developing and providing e-learning
Learning Management Systems and other e-Learning courseware and services for
certain corporate clients who desire to use ThoughtWare's systems and services
to provide online training and education to their employees and end-user
customers.
B. EDT is in the business of developing and providing e-Learning Learning
Management Systems and custom e-Learning content for corporate clients and who
desire to use EDT's systems and services; and, therefore the undersigned parties
believe that a merger by and between EDT and ThoughtWare is in the best
interests of the two organizations.
C. In furtherance of such acquisition, the Board of Directors of each of
EDT and Acquisition Subsidiary has approved this Agreement and the Merger in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL").
D. The Board of Directors of ThoughtWare has determined that the Merger is
in the best interest of ThoughtWare's stockholders and has resolved to recommend
that ThoughtWare's stockholders approve this Agreement upon the terms and
subject to the conditions set forth herein.
E. The parties hereto desire to make certain representations, warranties,
and agreements in connection with the Merger and also to prescribe various
conditions to the Merger.
F. In order to facilitate the consummation of the Merger, and in
satisfaction of certain obligations of ThoughtWare pursuant to the Termination
Agreements (hereinafter defined), EDT has agreed to issue shares of its common
stock to the Releasors (hereinafter defined) in consideration of the execution
of the Termination Agreements by the Releasors and the agreement of the
Releasors to deposit certain of such shares as Escrow Stock pursuant to the
Escrow Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby covenant and agree as
follows:
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ARTICLE I.
THE MERGER
1.1 THE MERGER.
Subject to the terms and conditions of this Agreement, at the Effective
Time (as defined in SECTION 1.3), ThoughtWare shall be merged with and into
Acquisition Subsidiary in accordance with this Agreement and the separate
corporate existence of ThoughtWare shall thereupon cease (the "MERGER").
Acquisition Subsidiary shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "SURVIVING CORPORATION") and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of Acquisition Subsidiary with all its rights, privileges,
powers, immunities, purposes and franchises shall continue unaffected by the
Merger. The Merger shall have the effects specified in the DGCL and the
Tennessee Business Corporation Act (the "TBCA"), as applicable.
1.2 THE CLOSING.
The closing of the Merger (the "CLOSING") shall take place: (i) at the
corporate offices of EDT, located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇ at 9:00 a.m. (local time) on the first business day following the
day on which the last to be fulfilled or waived of the conditions set forth
herein shall be fulfilled or waived in accordance herewith, but in no event
later than January 15, 2002; or, (ii) at such other time and place and/or on
such other date as ThoughtWare and EDT may agree. The date on which the Closing
occurs is hereafter referred to as the "CLOSING DATE."
1.3 EFFECTIVE TIME.
If all the conditions to the Merger set forth in herein shall have been
fulfilled or waived in accordance herewith and this Agreement shall not have
been terminated in accordance with ARTICLE X, the parties hereto shall, on the
Closing Date, cause a Certificate of Merger meeting the requirements of Section
252 of the DGCL and Articles of Merger meeting the requirements of Section
▇▇-▇▇-▇▇▇ of the TBCA to be properly executed and filed with the Secretary of
State of the State of Delaware and of the State of Tennessee, respectively, in
accordance with such sections. The Merger shall become effective at the time of
the filing of Certificate of Merger in accordance with the DGCL or at such later
time as the parties hereto have theretofore agreed upon and designated in such
filing as the effective time of the Merger (the "EFFECTIVE TIME").
1.4 CERTIFICATE OF INCORPORATION.
Effective at the Effective Time, the Certificate of Incorporation of
Acquisition Subsidiary shall be the Certificate of Incorporation of Surviving
Corporation.
1.5 BYLAWS.
The Bylaws of Acquisition Subsidiary in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with their terms and the DGCL.
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1.6 DIRECTORS AND OFFICERS.
(a) DIRECTORS. The persons identified on SCHEDULE 1.6 who are
directors of Acquisition Subsidiary immediately prior to the Effective Time
shall, from and after the Effective Time, be and become directors of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
(b) OFFICERS. The persons identified on SCHEDULE 1.6 who are officers
of Acquisition Subsidiary shall continue as officers of the Surviving
Corporation until their resignation or removal in accordance with the Surviving
Corporation's bylaws.
1.7 MERGER CONSIDERATION; CONVERSION.
At the Effective Time, by virtue of the Merger and without any action
on the part of EDT, Acquisition Subsidiary, or ThoughtWare:
(a) CONVERSION OF THOUGHTWARE STOCK.
(i) At the Effective Time, each share of common stock, no par
value of ThoughtWare (the "ThoughtWare Common Stock") and each share of Series A
Convertible Preferred Stock, par value $0.0001 per share of ThoughtWare (the
"Series A Preferred") issued and outstanding immediately prior to the Effective
Time shall be canceled and retired without payment of any consideration
therefore and shall cease to exist.
(ii) At the Effective Time, each share of Series B Convertible
Preferred Stock, par value $0.0001 per share of ThoughtWare (the "Series B
Preferred") issued and outstanding immediately prior to the Effective Time
(other than shares of Series B Preferred held by persons who object to the
Merger and comply with all provisions of the TBCA concerning the right of such
holders to dissent from the Merger and demand appraisal of their Series B
Preferred Shares), shall by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive 0.0294215
shares of the common stock, $0.001 par value of EDT ("EDT Stock"). The
ThoughtWare Common Stock, Series A Preferred and Series B Preferred are
sometimes collectively referred to in this Agreement as the "ThoughtWare Stock."
(b) ESCROW OF EDT STOCK. At the Effective Time, an aggregate of
465,000 shares of EDT Stock, consisting of (i) 316,200 shares of EDT Stock to be
issued upon the conversion of the Series B Preferred in connection with the
Merger and (ii) 55,800 shares of the shares of common stock of EDT to be issued
to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇) pursuant to the Severance Termination Agreement
and 93,000 shares of the shares of common stock to be issued to D&S Realty, LLC
("D&S" and, together with ▇▇▇▇▇▇▇, the "Releasors") pursuant to the Lease
Termination Agreement as contemplated in SECTIONS 6.3(G) AND (H), (collectively,
the "ESCROW STOCK") shall be delivered by EDT to the person named as escrow
agent (the "ESCROW AGENT") in, and to be held pursuant to the terms of the
Escrow Agreement, substantially in the form attached as EXHIBIT A hereto. As
provided in the Escrow Agreement, the Escrow Stock, or such number of shares
thereof, shall be subject to return to EDT, and released from the claims of the
Stockholder, the Releasors or any other party entitled thereto, to satisfy any
Damages to which EDT or any EDT Indemnified Person may be entitled pursuant to
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ARTICLE IX hereof. As more particularly set forth in the Escrow Agreement,
subject to any reduction or offset for such Damages, if any, then due, the
shares of Escrow Stock shall be released to the Stockholder and the Releasors as
follows: (i) on the date six (6) months after the Effective Time, fifty percent
(50%) of the Escrow Stock then remaining in escrow shall be released; and (ii)
on the date that is twelve (12) months after the Effective Time the balance of
the Escrow Stock then remaining in escrow shall be released.
(c) CAPITAL STOCK OF ACQUISITION SUBSIDIARY. At the Effective Time,
each share of common stock, par value 0.001 per share, of Acquisition Subsidiary
issued and outstanding immediately prior to the Effective Time shall, as a
result of the Merger, and without action on the part of the holder thereof, be
converted into and become one share of common stock of the Surviving Corporation
held by EDT with the same rights, powers and privileges as the shares so
converted and such shares in the aggregate shall constitute all of the issued
and outstanding shares of capital stock of the Surviving Corporation.
(d) CERTIFICATES; LEGENDS. As a result of the Merger and without any
action on the part of the stockholders of ThoughtWare, all ThoughtWare Stock
issued and outstanding shall cease to be outstanding, shall be canceled and
retired and shall cease to exist, and each holder of a certificate formerly
representing any shares of ThoughtWare Stock (a "CERTIFICATE") shall thereafter
cease to have any rights with respect to such shares of ThoughtWare stock,
except the right (in the case of holders of Series B Preferred only) to receive,
shares of EDT Stock in accordance with SECTION 1.7(A) upon the surrender of such
Certificate in accordance with the procedures set forth in SECTION 1.8 of this
Agreement. By executing this Agreement, the Stockholder acknowledges that the
shares of EDT Stock to be issued pursuant to this SECTION 1.7 shall not have
been registered and shall be characterized as "restricted securities" under the
federal securities laws, and, under such laws, such shares of EDT Stock may be
resold without registration under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), only in certain limited circumstances. Furthermore, the
Stockholder agrees to be bound by the provisions of a lock up agreement with EDT
providing for the contractual obligation not to sell or transfer the EDT Stock
received during the one (1) year period beginning with the Effective Time (the
"LockUp Agreement") Each certificate evidencing shares of EDT Stock to be issued
pursuant to this SECTION 1.7 shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
FURTHERMORE, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LOCK-UP AGREEMENT WITH THE COMPANY. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN
EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
AND ONLY IN COMPLIANCE WITH THE LOCK-UP AGREEMENT."
(e) TREASURY STOCK. At the Effective Time, each share of ThoughtWare
Stock held as treasury stock shall, as a result of the Merger and without any
action on the part of the holder thereof, shall cease to be outstanding and
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shall be canceled and retired without payment of any consideration therefore and
shall cease to exist.
(f) FRACTIONAL SHARES. No fractional shares of EDT Stock shall be
issued in connection with the Merger. In lieu thereof, the shares due shall be
rounded up to the nearest whole share.
1.8 EXCHANGE OF CERTIFICATES REPRESENTING SHARES.
(b) (a) At the Effective Time:
(i) the Stockholder shall deliver to EDT or to its transfer agent
all Certificates evidencing its shares held by the Stockholder for cancellation,
together with a letter of transmittal, duly executed and completed in accordance
with the instructions thereto, which shall specify that risk of loss and title
to the Certificate(s) shall pass to EDT upon such delivery;
(ii) the Stockholder, upon surrender of its Certificate(s) to EDT
or its transfer agent shall be entitled to receive in exchange therefor the
shares of EDT Stock it is entitled to receive pursuant to SECTION 1.7 of this
Agreement, after giving effect to any required tax withholdings and the deposit
of the Escrow Stock, and the Certificate(s) so surrendered shall forthwith be
canceled;
(iii) EDT shall deliver to its transfer agent a letter
instructing the transfer agent to issue and deliver to the Stockholder, upon
surrender of its Certificate(s), a stock certificate for shares of EDT pursuant
to SECTION 1.7(A)(I) hereof and shall deliver to the Escrow Agent the Escrow
Shares to be placed into escrow as provided for in the Escrow Agreement.
(b) There shall be no transfers or issuances of additional shares on
the stock transfer books of ThoughtWare of ThoughtWare Stock which were
outstanding immediately prior to the date hereof without EDT's prior written
consent.
(c) None of ThoughtWare, the Surviving Corporation, Acquisition
Subsidiary, EDT or any other person shall be liable to any former holder of
ThoughtWare Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(d) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, EDT will issue in
exchange for shares of ThoughtWare Stock evidenced by such lost, stolen or
destroyed Certificate the shares of EDT Stock issuable in respect thereof
pursuant to this Agreement.
(e) Notwithstanding the foregoing, no amounts shall be payable at the
Effective Time with respect to any Dissenting Shares (as defined in SECTION 1.9)
or any shares of ThoughtWare Stock with respect to which dissenters' rights have
not terminated. In the case of Dissenting Shares, payment shall be made in
accordance with SECTION 1.9 and the TBCA. In the case of any ThoughtWare Stock
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with respect to which dissenters' rights have not terminated as of the Effective
Time, if such shares of ThoughtWare Stock become Dissenting Shares, payment
shall be made in accordance with SECTION 1.9 and the TBCA, and if, instead, the
dissenters' rights with respect to such shares irrevocably terminate after the
Effective Time, such shares shall be entitled to receive the consideration
payable pursuant to SECTION 1.7 of this Agreement.
1.9 DISSENTERS' RIGHTS.
Shares of ThoughtWare Stock that have not been voted for approval of this
Agreement or consented thereto in writing and with respect to which a demand for
payment and appraisal have been properly made in accordance with the TBCA
("DISSENTING SHARES") shall not be converted into, and, except as hereinafter
provided, shall not be entitled to receive the shares of EDT Stock otherwise
issuable with respect to such shares of ThoughtWare Stock at or after the
Effective Time, but will be converted into the right to receive from the
Surviving Corporation such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to applicable law. If a holder of
Dissenting Shares (a "DISSENTING STOCKHOLDER") withdraws his or her demand for
such payment and appraisal or becomes ineligible for such payment and appraisal,
then, as of the Effective Time or the occurrence of such event of withdrawal or
ineligibility, whichever last occurs, such holder's Dissenting Shares will cease
to be Dissenting Shares and will be converted into, and entitled to receive,
shares of EDT Stock issuable in exchange therefore in accordance with this
Agreement. ThoughtWare will give EDT and Acquisition Subsidiary prompt notice of
any demand received by ThoughtWare from a Dissenting Stockholder for appraisal
of shares of ThoughtWare Stock, and EDT shall have the right to participate in
all negotiations and proceedings with respect to such demand. ThoughtWare agrees
that, except with the prior written consent of EDT, or as required under the
TBCA, it will not voluntarily make any payment with respect to, or settle or
offer or agree to settle, any such demand for appraisal. Each Dissenting
Stockholder who, pursuant to the provisions of the TBCA, becomes entitled to
payment of the value of the Dissenting Shares will receive payment thereof but
only after the value thereof has been agreed upon or finally determined pursuant
to such provisions. Any portion of the consideration payable pursuant to SECTION
1.7 of this Agreement that would otherwise have been payable with respect to
Dissenting Shares if such shares of ThoughtWare Stock were not Dissenting Shares
will be retained by EDT, with the number of shares retained determined using the
fixed value of $1.20 per share of EDT Stock. The Dissenting Shares due to be
retained by EDT shall reduce the total EDT Shares due hereunder.
1.10 FINANCIAL AND ACCOUNTING TREATMENT.
Notwithstanding the actual Execution Date of this Agreement or the
Effective Time of the Merger, the parties acknowledge and agree that for
financial and accounting purposes the effective date shall be January 1, 2002
because effective control of ThoughtWare was transferred to the Company on that
date without restrictions, except for restrictions required to protect
Stockholder.
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1.11 WAIVER OF DIVIDEND.
By execution of this Agreement Stockholder waives and relinquishes forever
any rights it may have had to any dividend resulting from its ownership of
Series A or Series B Preferred Stock.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THOUGHTWARE
As a material inducement to EDT and Acquisition Subsidiary to enter into
this Agreement, ThoughtWare represents and warrants to EDT and Acquisition
Subsidiary as follows:
2.1 ORGANIZATION, STANDING AND AUTHORITY OF THOUGHTWARE.
ThoughtWare is a corporation validly existing and in good standing under
the laws of the State of Tennessee. ThoughtWare is duly qualified to do business
and is in good standing in the jurisdictions listed on SCHEDULE 2.1, AND IN EACH
OTHER JURISDICTION in which the nature of its business or the ownership of its
assets or properties requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect (as hereinafter defined).
ThoughtWare has the full requisite power and authority to (a) own all its assets
and properties and to operate its business as conducted on the date hereof, (b)
execute and deliver this Agreement and each other document or instrument
contemplated hereby (collectively, the "TRANSACTION AGREEMENTS") and perform its
obligations hereunder and thereunder according to their respective terms, and
(c) carry on and operate its business as now being conducted through the
Effective Time. ThoughtWare is not a participant in any joint venture,
partnership, association or similar business arrangement with any other person
or party concerning the assets or business of ThoughtWare.
2.2 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS.
Except as set forth on SCHEDULE 2.2, the execution, delivery and
performance by ThoughtWare of the Transaction Agreements (with or without the
giving of notice, the lapse of time, or both): (a) do not require the consent of
any governmental or regulatory authority or any other third party; (b) will not
conflict with any provision of ThoughtWare's Charter, Bylaws or other
organizational documents; (c) will not conflict with, result in a material
breach of, or constitute a default under any law, ordinance, regulation, ruling,
judgment, order or injunction of any court or governmental instrumentality by
which ThoughtWare or its properties are bound; (d) will not conflict with,
constitute grounds for termination of, result in a material breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of any material agreement, instrument, license
or permit, to which ThoughtWare is a party or by which ThoughtWare or its
properties are bound; and (e) will not create any claim, lien, charge or
encumbrance upon any of the assets or properties of ThoughtWare.
7
2.3 LICENSES AND AUTHORIZATIONS.
ThoughtWare holds all material licenses, permits, certificates, approvals
and other rights and authorizations required by any federal, state or local law,
ordinance, regulation or ruling of any governmental regulatory authority
necessary to operate its business as it is currently being operated. A correct
and complete list of all such licenses, permits and other authorizations is set
forth in SCHEDULE 2.3 hereto.
2.4 LEASE AGREEMENTS AND TERMINATED LEASES.
(a) SCHEDULE 2.4(A) hereto contains a current list of all the lease
agreements and license and sublicense agreements to which ThoughtWare is a party
and pursuant to which ThoughtWare leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or tangible personal
property related to the operation of its business (the "LEASE AND LICENSE
AGREEMENTS"). ThoughtWare has delivered to EDT true and complete copies of all
of the Lease and License Agreements. Each of the Lease and License Agreements is
valid and effective in accordance with its terms, and there is not under any of
such Lease and License Agreements (a) any existing or claimed material default
by ThoughtWare or event of default or event which with notice or lapse of time,
or both, would constitute a default by ThoughtWare, or (b) any existing material
default known to ThoughtWare by any other party under any of the Lease and
License Agreements or any event of material default or event known to
ThoughtWare which with notice or lapse of time, or both, would constitute a
material default by any such other party.
(b) SCHEDULE 2.4(B) hereto contains a current list of all material
lease agreements, and license or sublicense agreements, to which ThoughtWare is,
or was, a party but which have been terminated (the "TERMINATED LEASE AND
LICENSE AGREEMENTS"). ThoughtWare has been released from any further obligation
or liability under each of the Terminated Lease and License Agreements (except
for any consideration payable with respect to such termination and release,
under such terminated lease (whether as lessor or lessee) or license (whether as
licensor or licensee) agreements. ThoughtWare has delivered to EDT true and
complete copies of all termination and release agreements related to the
Terminated Lease and License Agreements. ThoughtWare represents and warrants
that each of the Terminated Lease and License Agreements has been fully and
completely terminated without further liability to ThoughtWare or EDT, and
accordingly for each Terminated Lease and License Agreement and each other party
thereto there are no existing or claimed defaults or events of default which
with notice or lapse of time, or both, for which ThoughtWare or EDT would have
any further liability with respect thereto.
2.5 FINANCIAL STATEMENTS.
Attached hereto as SCHEDULE 2.5 are ThoughtWare's unaudited financial
statements at and for the fiscal year ending December 31, 2000 and unaudited
financial statements at and for the fiscal year ending December 31, 2001 (the
"FINANCIALS DATE") (the "Financial Statements"), reflecting the results of the
operations and financial condition of ThoughtWare at and for the periods then
ended which have been prepared in accordance with generally accepted accounting
principals ("GAAP") (using the accrual method of accounting) consistently
applied, except for the absence of notes and year end adjustments. The Financial
8
Statements: (i) fairly and accurately present the financial position of
ThoughtWare as of the dates indicated and present the results of ThoughtWare's
operations for the periods then ended; and (ii) are in accordance with the books
and records of ThoughtWare, as the case may be, which have been properly
maintained and are complete and correct in all material respects.
2.6 ABSENCE OF CHANGES.
Except as set forth on SCHEDULE 2.6 attached hereto, since the Financials
Date ThoughtWare has not:
(a) Suffered any change in its business operations or its ability to
perform its obligations hereunder or to consummate the transactions contemplated
hereby, which in either case would have a Material Adverse Effect;
(b) Paid, discharged or satisfied any material liability, other than
with respect to the Terminated Lease and License Agreements;
(c) Written off as uncollectible any material receivable;
(d) Canceled or compromised any material debt, or waived or permitted
to lapse any material claims or rights, or sold, transferred or otherwise
disposed of any of its properties or assets material to the conduct of its
business as now conducted;
(e) Entered into any transaction to acquire any assets or made any
capital expenditure or made any commitment to do the foregoing in excess of Five
Thousand Dollars ($5,000.00);
(f) Made any change to its method of accounting or accounting
practices;
(g) Incurred any liabilities or obligations (absolute, accrued or
contingent) or made any commitment to do the foregoing in excess of Five
Thousand Dollars ($5,000.00);
(h) Mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any lien, claim or encumbrance, except for
liens of current personal property taxes not yet due and payable;
(i) Sold or otherwise transferred any assets of ThoughtWare, or any
ownership interest in ThoughtWare;
(j) Increased any salaries, wages or any employee benefits for any
employee or made any commitment to do the foregoing;
(k) Hired or made any commitment to hire any person; or
(l) Agreed, whether in writing or otherwise, to take any action not
particularly described in this SECTION 2.6 which would have any Material Adverse
Effect on its business operations or suffered any Material Adverse Effect on its
9
ability to perform its obligations hereunder or to consummate the transactions
contemplated hereby.
As used in this Agreement, the terms "MATERIAL ADVERSE CHANGE" or "MATERIAL
ADVERSE EFFECT" shall mean any change, event or effect, as the case may be, that
is materially adverse to the business, tangible and intangible assets,
operations, properties (including intangible properties) condition (financial or
otherwise), results of operations, assets or liabilities of ThoughtWare, other
than changes or effects outside the control of ThoughtWare which are occurrences
relating to the economy in general and not specifically relating to ThoughtWare.
2.7 LITIGATION AND CLAIMS.
Except as expressly set forth in SCHEDULE 2.7 hereto, there are no claims,
lawsuits, counterclaims, proceedings, investigations pending, or, to the
knowledge of ThoughtWare (which for purposes of this Agreement shall mean the
conscious awareness of facts or other information), threatened against
ThoughtWare, or against any officer or management level employee of ThoughtWare
in such capacity, before any court arbitrator or governmental authority or
agency, and to ThoughtWare's knowledge, there is no basis for any such action by
any person or any state of facts or occurrence of any event, which is reasonably
expected to give rise to the foregoing. There are no unsatisfied judgments or
liens, assignments for the benefit of creditors, consent decrees or final
rulings against ThoughtWare, or by which ThoughtWare or its assets are subject.
There are no unsatisfied payroll liabilities, wages, taxes, severance, bonus or
other employee benefits claimed by any of ThoughtWare's employees or former
employees.
2.8 NO UNDISCLOSED LIABILITIES.
Except as reflected in the Financial Statements or as expressly set forth
on SCHEDULE 2.8, ThoughtWare has no liability or obligation whatsoever, whether
matured, unmatured, absolute, contingent or otherwise.
2.9 NO VIOLATION OF LAW, GENERALLY.
Except as expressly set forth in SCHEDULE 2.9 hereto, ThoughtWare has not
violated (by virtue of any action, omission to act, contract to which it is a
party or any occurrence or state of facts whatsoever) any applicable local,
state or federal law, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
it, or relating to its property or business, which violation has or is
reasonably likely to have a Material Adverse Effect on the business, assets or
financial position of ThoughtWare.
2.10 PROPERTIES.
(a) SCHEDULE 2.10(A) hereto sets forth a current and complete list and
description schedule of all of the assets owned by ThoughtWare as of the
Financials Date, the book value (net of depreciation or amortization) of which,
as properly reflected in ThoughtWare's books and records, on an individual
item-by-item basis (the "Tangible Assets").
(b) SCHEDULE 2.10(B) hereto sets forth a current list, complete in all
material respects, of all property, equipment and other assets leased,
subleased, or licensed or sublicensed by ThoughtWare including, without
10
limitation, all computer hardware and software other than off-the-shelf software
(collectively, the "LEASED EQUIPMENT").
(c) SCHEDULE 2.10(C) hereto sets forth a current list, complete in all
material respects, and description of all equipment, utility and other deposits
owned by ThoughtWare.
(d) ThoughtWare: (i) has good, valid and indefeasible title to all of
the Tangible Assets, Leased Equipment, personal and mixed, tangible and
intangible property, rights and assets which it purports to own and has
described in this SECTION 2.10, including all the personal property and assets
reflected, but not shown as leased or encumbered, in the Financial Statements
(except for inventory and assets sold in the ordinary course of business
consistent with past practice and supplies consumed in the ordinary course of
business consistent with past practice since the Financials Date); and (ii) owns
such rights and title, free of liens, restrictions, claims, charges, security
interests, or other encumbrances of any nature whatsoever, including any
mortgages, leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements.
(e) All of the Leased Equipment and Tangible Assets owned or leased by
ThoughtWare are in good operating condition and repair and will be in such
condition on the Closing Date, except for ordinary wear and tear.
(f) All of the durable and nondurable supplies owned by ThoughtWare
are of a quality and quantity usable in the ordinary and usual course of the
business of ThoughtWare.
(g) The Tangible Assets, Leased Equipment, rights and interests
transferred to and thereafter retained in the Surviving Corporation pursuant to
this Agreement are sufficient to enable the Surviving Corporation to continue to
operate the business of ThoughtWare after the Closing Date as it is currently
being operated by ThoughtWare.
2.11 INDEBTEDNESS.
SCHEDULE 2.11 sets forth a current and complete list and description of all
instruments or other documents relating to any direct or indirect indebtedness
for borrowed funds of ThoughtWare in excess of Five Thousand Dollars
($5,000.00), as well as indebtedness by way of lease purchase arrangements,
guarantees, and all conditional sales contracts, chattel mortgages and other
security arrangements with respect to personal property owned by ThoughtWare.
2.12 EMPLOYEE CONTRACTS, UNION AGREEMENTS AND BENEFIT PLANS.
(a) SCHEDULE 2.12(A) contains a complete and accurate list of the
following: (i) all employee benefit plans (the "EMPLOYEE BENEFIT PLANS") (within
the meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) sponsored or administered by ThoughtWare to which ThoughtWare
contributes or is required to contribute on behalf of ThoughtWare's current or
former employees; (ii) all compensation plans, funds, arrangements and practices
(the "COMPENSATION PLANS") sponsored by ThoughtWare for the benefit of its
current or former employees, including plans providing for bonuses, incentive
compensation, stock options, fringe benefits, and deferred compensation; and
(iii) all employment agreements, letter agreements, non-competition agreements,
work for hire agreements and other agreements affecting employment of current
11
and former employees of ThoughtWare (the "EMPLOYMENT AGREEMENTS"), consulting or
collective bargaining agreements to which ThoughtWare is a party with respect to
ThoughtWare's employees, including agreements pertaining to employee leasing,
services, non-competition, and other similar matters with current or former
employees.
(b) Each Employee Benefit Plan has been administered and maintained in
material compliance with all applicable laws, rules and regulations, and all
reports required by any governmental agency have been timely filed. No Employee
Benefit Plan or Compensation Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency. There is no proceeding, claim (other than routine
claims for benefits), lawsuit, or investigation pending or to the knowledge of
ThoughtWare, concerning or involving any Compensation Plan or Employee Benefit
Plan or Employment Agreement. There is no litigation involving, and there are no
proceedings before, the U.S. Department of Labor or any other commission or
administrative or regulatory authority pending against ThoughtWare or any ERISA
affiliate, or against any fiduciary of any Compensation Plan or Employee Benefit
Plan, relating to claims for benefits, breaches of duties or relating in any way
to the maintenance or operation of such plans; and to the knowledge of
ThoughtWare no such claim exists or has been threatened.
(c) ThoughtWare's Employee Benefit Plans, are intended by ThoughtWare
to satisfy the requirements of Code Section 401(a) providing for qualification
under the Internal Revenue Code, and have received favorable determination
letters, opinion letters, or ruling from the Internal Revenue Service, and
ThoughtWare's management believes that ThoughtWare is entitled to rely on that
favorable determination letter; and no proceedings exist or, to the knowledge of
ThoughtWare, have been threatened that could result in the revocation or
disqualification of the Employee Benefit Plan or Compensation Plan.
(d) Except as expressly set forth in SCHEDULE 2.12(D) hereto, all
contributions due to each Employee Benefit Plan and Compensation Plan have been
made in a timely manner and all liabilities of ThoughtWare with respect to the
Employee Benefit Plans and Compensation Plans are reflected in ThoughtWare's
balance sheet as of the Financials Date.
(e) Except as expressly set forth in SCHEDULE 2.12(E) hereto,
ThoughtWare has no obligation or commitment to provide medical, dental or life
insurance benefits to or on behalf of any of ThoughtWare's employees who may
retire or any of ThoughtWare's former employees who have retired from employment
with ThoughtWare, except as provided in Section 4980B of the Code with respect
to continuation coverage under COBRA.
(f) There are no restrictions on the rights of ThoughtWare to amend or
terminate any Employee Benefit Plan or Compensation Plan without incurring any
liability thereunder.
2.13 LABOR RELATIONS.
Except as listed on SCHEDULE 2.13, ThoughtWare is in material compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages and hours; and there are no, or to
ThoughtWare's knowledge any basis for any, charges, investigations,
12
administrative proceedings or formal complaints of discrimination (including
discrimination based upon sex, age, marital status, race, national origin, the
making of workers' compensation claims, sexual preference, handicap or veteran
status) pending or, to the knowledge of ThoughtWare, threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against ThoughtWare. There have been no governmental audits of the equal
employment opportunity practices of ThoughtWare and to ThoughtWare's knowledge,
no basis for any such audit exists.
2.14 CONTRACTS AND COMMITMENTS.
Except as expressly set forth in SCHEDULE 2.14:
(a) No contract or commitment of ThoughtWare continues for a period of
more than six (6) months from the date hereof or requires payments by
ThoughtWare after the Closing Date, in the aggregate, in excess of Five Thousand
Dollars ($5,000.00);
(b) There are no contracts or agreements (i) between ThoughtWare and
any of the directors, officers or stockholders of ThoughtWare, or (ii) between
ThoughtWare any person related by blood or marriage to any director, officer or
stockholder of ThoughtWare or any company or other organization in which anyone
related by blood or marriage to any director, officer or stockholder of
ThoughtWare has a direct or indirect financial interest;
(c) Neither ThoughtWare nor any officer or management level employee
of ThoughtWare is subject to any contracts or agreements containing covenants
prohibiting or limiting the freedom of ThoughtWare to compete in any line of
business or requiring ThoughtWare to share any profits; and
(d) Neither ThoughtWare nor any officer or director of ThoughtWare is
a party to or bound by any contract, agreement or other arrangement that has had
or may be reasonably expected in the future to have a Material Adverse Effect
upon the business, earnings or financial condition of ThoughtWare.
2.15 ENVIRONMENTAL PROTECTION.
ThoughtWare has obtained all material permits, licenses and other
authorizations and filed all notices which are required to be obtained or filed
by ThoughtWare for the operation of its business under federal, state and local
laws relating to pollution, protection of the environment or the generation or
disposal of waste. ThoughtWare is in compliance in all material respects with
all terms and conditions of such required permits, licenses and authorizations.
ThoughtWare is in compliance with all other applicable limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any law,
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder. Except as expressly disclosed on
SCHEDULE 2.15 hereto, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or statutory liability or, otherwise form the basis of any claim,
action, suit, proceeding, hearing or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
13
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste with respect to ThoughtWare.
2.16 FILING OF REPORTS.
All material returns, reports, plans and filings of any kind or nature
necessary to be filed by ThoughtWare with any governmental authority have been
properly completed and timely filed in compliance with all applicable laws and
regulations.
2.17 INSURANCE POLICIES.
(a) SCHEDULE 2.17(A) hereto sets forth a complete and accurate list
and description of all insurance policies in force naming ThoughtWare, or any
director, officer or employee thereof, as an insured or beneficiary or as a loss
payee for which ThoughtWare has paid or is obligated to pay all or any part of
the premiums including, without limitation, all general liability, malpractice,
fire, health, disability and life insurance policies. ThoughtWare has not
received notice of any pending or threatened termination or premium increase
(retroactive or otherwise) with respect thereto, and ThoughtWare is in
compliance with all conditions contained therein.
(b) Except as expressly set forth on SCHEDULE 2.17(B) hereto, there
are no pending claims against such insurance by ThoughtWare as to which insurers
are defending under reservation of rights or have denied liability, and except
as set forth on SCHEDULE 2.17(B) hereto, to the knowledge of ThoughtWare, there
exists no material claim under such insurance that has not been properly filed
or reported by ThoughtWare.
2.18 ACCOUNTS RECEIVABLE.
Attached hereto as SCHEDULE 2.18 is a true, complete and accurate list and
aging of all accounts receivable of ThoughtWare as of the Financials Date. All
such accounts receivable arose in the ordinary course of the business of
ThoughtWare, have not been previously written off as bad debts and are
collectible in the ordinary course of business, except as provided in the
allowance for doubtful accounts reflected on the Financial Statements as of the
Financials Date.
2.19 ACCOUNTS PAYABLE.
Attached hereto as SCHEDULE 2.19 is a current and complete list of all
accounts payable of ThoughtWare as of the Financials Date including each
individual indebtedness of Five Thousand Dollars ($5,000.00) or more and setting
forth the payee, the amount of indebtedness and such additional information as
may be material with respect to any such account payable.
2.20 INSPECTIONS AND INVESTIGATIONS.
Except as expressly set forth and described on SCHEDULE 2.20, ThoughtWare
has not, during the past three (3) years, been the subject of any inspection,
investigation, survey, audit or monitoring by any governmental regulatory
entity, and ThoughtWare has not received from any such entity any notice of
deficiency in connection with the operation of the business of ThoughtWare.
Attached as part of SCHEDULE 2.20 hereto are copies of all reports,
14
correspondence, notices and other documents relating to any such inspection,
investigation, survey, audit, monitoring or other form of review to which any of
the foregoing has been subject.
2.21 AGREEMENTS IN FULL FORCE AND EFFECT.
Except as expressly set forth in the SCHEDULE 2.21(A), all material
contracts, agreements, plans, leases, policies and licenses referred to, or
required to be referred to, in any schedule delivered hereunder are valid and
binding and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy, insolvency, reorganization and other similar laws
affecting creditors' rights generally. To the knowledge of ThoughtWare, there is
no pending or threatened bankruptcy, insolvency or similar proceeding with
respect to any party to such agreements, and to the knowledge of ThoughtWare, no
event has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a material default
thereunder by ThoughtWare or any other party thereto. Attached hereto as
SCHEDULE 2.21(B) is a current and complete list of all contracts or agreements
which provide for the provision of software services, including but not limited
to Learning Management Systems ("LMS"), content delivery services or custom
content development services which obligate ThoughtWare to provide in an
Application Service Provider model to ThoughtWare's customers, setting forth the
customer, contract term, monthly payment amount and number of registered users.
2.22 TAXES.
Except as expressly set forth in SCHEDULE 2.22 hereto, or as expressly
reflected in the Financial Statements, as of the date hereof, ThoughtWare has
filed, or as of the Closing Date will have filed, all federal, state and local
tax returns required to be filed on or prior to the Closing Date, all of which
are or will be true, correct and complete in all material respects, and
ThoughtWare has paid, or by the Closing Date will have paid, all taxes
(including penalties and interest in respect thereof, if any) that have become
due or are due with respect to any period ending on or prior to the Closing
Date; except for any taxes that become due or are due by ThoughtWare or the
Stockholder arising from the characterization of the Merger for tax purposes.
ThoughtWare has withheld or collected from each payment made to each of its
employees the amount of all taxes required to be withheld or collected therefrom
and ThoughtWare has paid the same to the proper tax depositories or collecting
authorities. Except as expressly set forth in SCHEDULE 2.22 hereto, ThoughtWare
has not received notice of any tax claim, deficiency or delinquency being
asserted by, or any notice of proposed assessment from, any taxing authority and
ThoughtWare has not received notice of any contemplated investigation or audit
by the Internal Revenue Service or any state tax agency.
2.23 CAPITALIZATION; TITLE TO SHARES.
SCHEDULE 2.23 hereto sets forth a list of all stockholders of ThoughtWare
and the number and type of shares of capital stock of ThoughtWare owned by such
stockholder. No other shares of capital stock of ThoughtWare, options, warrants
or other securities exercisable for or convertible into shares of capital stock
of ThoughtWare exist or are outstanding except as set forth on SCHEDULE 2.23.
The authorized capital stock of ThoughtWare consists of (i) 400,000,000 shares
15
of Common Stock, of which 17,281,898 shares are issued and outstanding, and (ii)
100,000,000 shares of preferred stock, $0.001 par value per share ("Preferred
Stock"), consisting of (A) 8,000,000 shares of Series A Preferred, all of which
are issued and outstanding, (B) 36,220,294 shares of Series B Preferred,
35,824,134 shares of which of are issued and outstanding, and (C) 55,779,706
shares of Preferred Stock as to which ThoughtWare has not determined any
preferences, limitations or relative rights and none of which are issued or
outstanding.
2.24 CORPORATE DOCUMENTS.
(a) The corporate minute books of ThoughtWare, made available by
ThoughtWare to EDT and Acquisition Subsidiary prior to the date hereof,
accurately reflect all corporate actions taken by the directors and stockholders
of ThoughtWare or any committee of the Board of Directors of ThoughtWare, and
contain true and accurate copies of or originals of the respective minutes of
all meetings or consent actions of the directors and stockholders of ThoughtWare
and any committee of the Board of Directors of ThoughtWare.
(b) The stock record books of ThoughtWare, made available by
ThoughtWare to EDT and Acquisition Subsidiary prior to the date hereof,
accurately reflect the stock ownership of ThoughtWare, and contain complete and
accurate records with respect to the transfer of all securities issued by
ThoughtWare since its inception.
2.25 STATEMENTS TRUE AND CORRECT.
No representation or warranty made by ThoughtWare herein, nor any
statement, certificate or instrument furnished or to be furnished by ThoughtWare
to EDT or Acquisition Subsidiary pursuant to this Agreement or any other
document, agreement or instrument referred to herein or therein, contains or
will contain any untrue statement of material fact or omits or will omit any
material fact necessary to make the statements contained therein not misleading.
2.26 WEBSITE CONTENT.
To the knowledge of ThoughtWare, the ▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ website does not
contain any content that is obscene or would cause damage to the reputation of
ThoughtWare, or is defamatory or libelous toward any person or entity; or
contains viruses or other computer programs that could cause damage to
ThoughtWare's or an end user's computer or data.
2.27 INTELLECTUAL PROPERTY.
(a) OWNERSHIP. Set forth in SCHEDULE 2.27(A) is a true and correct
description of the following proprietary rights owned by ThoughtWare (the
"PROPRIETARY RIGHTS"): (i) all registered trade-marks, trade-names, Internet
domain names, service marks and other trade designations, including
applications, and all registered patents, copyrights and applications currently
owned, in whole or in part, by ThoughtWare with respect to the business of
ThoughtWare, and all licenses, royalties, assignments and other similar
agreements relating to the foregoing to which ThoughtWare is a party (including
expiration date if applicable); and (ii) all agreements, relating to technology,
know-how or processes that ThoughtWare is licensed or authorized to use by
16
others, or which it licenses or authorizes others to use. Except as set forth in
SCHEDULE 2.27(A), ThoughtWare owns or has the unrestricted right to use all of
its Proprietary Rights including its patents, patent applications, trade-marks,
trade names, Internet domain names or URL's including without limitation
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, its computer programs and other computer software,
inventions, technology, service marks and copyrights, if any, necessary to
conduct its business, or possesses adequate licenses or other rights, if any,
thereof, without conflict with the rights of others.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. Except as expressly set forth
in the agreements listed on SCHEDULE 2.27(B) hereto, ThoughtWare has the sole
and exclusive right to use ThoughtWare Proprietary Rights without infringing or
violating the rights of any third parties. Except as expressly set forth in the
agreements listed on SCHEDULE 2.27(B) hereto, (i) use of ThoughtWare Proprietary
Rights does not require the consent of any other person and ThoughtWare
Proprietary Rights are freely transferable, (ii) no claim has been asserted to
ThoughtWare by any person to the ownership of or right to use any ThoughtWare
Proprietary Right or challenging or questioning the validity or effectiveness of
any license or agreement constituting a part of any ThoughtWare Proprietary
Right, and ThoughtWare does not know of any valid basis for any such claim, and
(iii) each of ThoughtWare Proprietary Rights is valid and subsisting, has not
been cancelled, abandoned or otherwise terminated and, if applicable, has been
duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. Except as set forth in SCHEDULE 2.27(C),
ThoughtWare has no knowledge of any claim that, or inquiry as to whether, any
product, activity or operation of ThoughtWare infringes upon or involves, or has
resulted in the infringement of, any proprietary right of any other person,
ThoughtWare or other entity; and no proceedings have been instituted, are
pending or are threatened that challenge the rights of ThoughtWare with respect
to the Proprietary Rights or any software or computer process used by
ThoughtWare in its ordinary course of business. Except as expressly set forth in
the agreements listed on SCHEDULE 2.27(B) hereto, ThoughtWare has not given and
is not bound by any agreement of indemnification for any ThoughtWare Proprietary
Rights. ThoughtWare has no knowledge of any claim that any current or former
employee or consultant claims any interest in, or right to use, the Proprietary
Rights of ThoughtWare, nor has any current or former employee retained any
interest in or to any of ThoughtWare's Proprietary Rights.
(d) SUFFICIENCY OF PROPRIETARY RIGHTS. The Proprietary Rights
constitute the only intellectual property used by ThoughtWare in the operation
of its business.
2.28 KNOWLEDGE OF THOUGHTWARE.
For purposes of this Agreement, ThoughtWare will be deemed to have
"knowledge" of a particular fact or other matter if any Knowledge Party has, or
at any time had, knowledge of such fact or other matter and the matter is within
the scope of duties of that individual. As used herein, Knowledge Party shall
mean the current directors of ThoughtWare and the following senior executive
officers of ThoughtWare: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF EDT AND ACQUISITION SUBSIDIARY
As an inducement to ThoughtWare to enter into this Agreement, EDT and
Acquisition Subsidiary hereby jointly and severally represent and warrant to
ThoughtWare and to the Stockholder as follows:
3.1 ORGANIZATION, STANDING AND AUTHORITY OF EDT.
Each of EDT and Acquisition Subsidiary is a corporation duly organized and
validly existing and in good standing under the laws of the State of Delaware
and is, or, in the case of Acquisition Subsidiary, will be on the Closing Date,
duly qualified and in good standing to do business in each jurisdiction listed
on SCHEDULE 3.1 where the nature of its business or the ownership of its assets
or properties requires such qualification except where the failure to be so
qualified would not have a Material Adverse Effect. The parties hereto hereby
agree that the term "Business" as used in this ARTICLE III shall refer solely to
the business conducted by EDT itself and its wholly-owned subsidiaries, and not
as conducted by any dental practice location or dental practice affiliated
office. EDT and Acquisition Subsidiary each has the full requisite power and
authority to (a) own all its assets and properties and to operate its business
as conducted on the date hereof, (b) execute and deliver this Agreement and each
other document or instrument contemplated hereby (collectively, the "EDT
TRANSACTION AGREEMENTS") and perform its obligations hereunder and thereunder
according to their respective terms, including the issuance of the shares of EDT
Stock contemplated hereby, and (c) to carry on and operate its business as now
being conducted. Except as set forth in SCHEDULE 3.1 neither EDT nor Acquisition
Subsidiary is a participant in any joint venture, partnership, association or
similar business arrangement with any other person or party. On or prior to the
date of this Agreement, the respective Boards of Directors of EDT and
Acquisition Subsidiary have declared the Merger advisable and have approved and
adopted this Agreement in accordance with the DGCL. Approval by the stockholders
of EDT of the Merger, this Agreement and the transactions contemplated by this
Agreement is not required under the DGCL.
3.2 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS RELATING TO THE
OBLIGATIONS OF EDT AND ACQUISITION SUBSIDIARY.
(a) Except as set forth in SECTION 3.2 or elsewhere in this Agreement,
the execution, delivery and performance by EDT and Acquisition Subsidiary of the
EDT Transaction Agreements (with or without the giving of notice, the lapse of
time, or both): (a) has been consented to, where such consent is required by any
governmental or regulatory authority or any other third party; (b) will not
conflict with any provision of either of EDT's or Acquisition Subsidiary's
Certificate of Incorporation, Bylaws or other organizational documents; (c) will
not conflict with, result in a breach of, or constitute a default under any law,
ordinance, regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which EDT or Acquisition Subsidiary is a party
or by which EDT or Acquisition Subsidiary or their respective properties are
bound; (d) will not conflict with, constitute grounds for termination of, result
in a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, license or permit, material to this transaction, to which EDT or
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Acquisition Subsidiary or their respective properties are bound; and (e) will
not create any claim, lien, charge or encumbrance upon any of the assets or
properties of EDT or Acquisition Subsidiary.
(b) No filing or registration with, or authorization, consent or
approval of, any domestic (federal and state), foreign or supranational court,
commission, governmental body, regulatory agency, authority or tribunal is
required by or with respect to EDT or Acquisition Subsidiary in connection with
the execution and delivery of this Agreement by EDT or Acquisition Subsidiary or
is necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement, except for (i) the Securities Act and the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "EXCHANGE ACT") or the Securities and
Exchange Commission (the "SEC"), (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the Secretary of the State of Arizona, (iii) such filings and consents as
may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Merger or by the transactions contemplated by this Agreement, (iv) such filings,
authorizations, orders and approvals as may be required by state takeover laws,
(v) applicable requirements, if any, of state securities or "blue sky" laws and
the American Stock Exchange (the "AMEX"), (vi) any of such items as may be
required under foreign laws and (vii) such other consents, orders,
authorizations, registrations, declarations, approvals and filings the failure
of which to be obtained or made would not, individually or in the aggregate,
have a Material Adverse Effect on EDT or Acquisition Subsidiary, materially
impair the ability of EDT or Acquisition Subsidiary to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby or thereby.
3.3 EDT STOCK ISSUED IN THE MERGER.
All of the shares of EDT Stock issuable in exchange for ThoughtWare Stock
at the Effective Time will, when so issued, constitute duly authorized, validly
issued, fully paid and nonassessable shares, free of any preemptive rights or
other restrictions, whether created by the DGCL or other statute (other than
restrictions on transfer under the Securities Act or applicable state securities
laws or contractual restrictions as set forth in Section 1.7 hereof), EDT's
Certificate of Incorporation or By-laws or any agreement to which EDT is a party
or by which EDT is bound.
3.4 SEC DOCUMENTS AND REPORTS.
EDT has filed all required documents with the SEC since October 10, 1997
(the "SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements (including, in each
case, any notes thereto) of EDT included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
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in accordance with GAAP (except, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved and fairly presented in all material respects the consolidated
financial position of EDT and its consolidated subsidiaries as at the respective
dates thereof and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). EDT has not, since the EDT Financials Date, made
any change in the accounting practices or policies applied in the preparation of
financial statements.
3.5 FINANCIAL STATEMENTS.
Attached hereto as SCHEDULE 3.5 are EDT's audited financial statements for
the fiscal year ended March 31, 2001 and the financial statements for the
interim period ending September 30, 2001 (the "EDT FINANCIALS Date"), reflecting
the results of the operations and financial condition of EDT and its business at
such dates which have been prepared in accordance with generally accepted
accounting principles consistently applied (the "EDT FINANCIAL STATEMENTS").
Since the EDT Financials Date, there has been no Material Adverse Change to the
results of the operations and financial condition of EDT and the Business as
reflected in the EDT Financial Statements.
3.6 LITIGATION AND CLAIMS.
Except as expressly set forth in SCHEDULE 3.6 hereto, there are no claims,
lawsuits, counterclaims, proceedings, or investigations pending, and to EDT's
knowledge (which for purposes of this Agreement shall mean the conscious
awareness of facts or other information) threatened, against or affecting EDT,
the Business or any other individual employed by or under contract with EDT in
any court or before any arbitrator or governmental authority or agency, and to
EDT's knowledge, there is no basis for any such action or any state of facts or
occurrence of any event, which is reasonably expected to give rise to the
foregoing, which has or is reasonably expected to have an adverse effect on the
financial condition of assets or properties of EDT, on EDT's performance
hereunder, or on the continued operation of the Business by EDT. There are no
unsatisfied judgments against EDT, the Business, or any other individual
affiliated with the Business, or any consent decrees to which any of the
foregoing are subject which would have an adverse effect on the financial
condition of assets or properties of EDT, on EDT's performance hereunder, or on
the continued operation of the Business by EDT.
3.7 NO UNDISCLOSED LIABILITIES.
Except as and to the extent reflected in the EDT Financial Statements or as
expressly shown in SCHEDULE 3.7, EDT has no liability or obligation whatsoever,
whether matured, unmatured, absolute, contingent or otherwise, except for
liabilities and obligations incurred in the ordinary course of its business
since the EDT Financials Date, which, in the aggregate, have an adverse effect
on the operations, assets or financial condition of EDT or the Business. The EDT
Financial Statements: (i) present fairly in all material respects the financial
position of EDT as of the dates indicated and present fairly in all material
respects the results of EDT's operations for the period then ended in accordance
with GAAP; and (ii) are in accordance with the books and records of EDT which
have been properly maintained and are complete and correct in all material
respects.
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3.8 NO VIOLATION OF LAW.
Except as expressly set forth in SCHEDULE 3.8 hereto, EDT has not been nor
shall be as of the Closing Date (by virtue of any action, omission to act,
contract to which it is a party or any occurrence or state of facts whatsoever)
in violation of any applicable local, state or federal law, ordinance,
regulation, order, injunction or decree, or any other requirement of any
governmental body, agency or authority or court binding on it, or relating to
its property or business which, in the aggregate, has or is reasonably likely to
have a Material Adverse Effect on the business, assets or financial position of
EDT.
3.9 FILING OF REPORTS.
All returns, reports, plans and filings of any kind or nature necessary to
be filed by EDT with any governmental authority have been properly completed and
timely filed in compliance with all applicable requirements where failure to so
file would have a Material Adverse Effect on the conduct of the Business by EDT
after the Closing.
3.10 CAPITALIZATION; TITLE TO SHARES.
The authorized capital stock of EDT consists of 40,000,000 shares of EDT
Stock and 10,000,000 shares of preferred stock, $0.01 par value ("PREFERRED
STOCK"). As of September 30, 2001 (i) 11,721,664 shares of Common Stock were
issued, (ii) no shares of Preferred Stock were issued and outstanding, (iii)
1,179,630 shares of Common Stock were issued and held in the treasury of EDT,
(iv) a total of 3,500,000 shares of Common Stock were reserved for issuance
pursuant to the EDT 1997 Stock Compensation Plan, (v) 1,416,497 shares of Common
Stock were reserved for issuance pursuant to warrants. All issued and
outstanding shares of EDT Stock are duly authorized, fully paid and
non-assessable and were issued in accordance with the registration or
qualification provisions of the Securities Act, and of any relevant state
securities laws or pursuant to valid exemptions therefrom. There are no other
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or agreements of
any kind for the purchase or acquisition from EDT of any of its securities. All
shares of EDT Stock presently outstanding are, and all Shares which may be
issued pursuant to the exercise of outstanding options under the EDT 1997 Stock
Compensation Plan, when issued in accordance with the terms thereof will be,
validly authorized and issued and fully paid and nonassessable. Since the EDT
Financials Date, EDT has not redeemed or purchased any shares of EDT Stock, or
declared, set aside, or paid any dividend or other distribution in respect of
EDT Stock.
3.11 STATEMENTS TRUE AND CORRECT.
No representation or warranty made by EDT or Acquisition Subsidiary herein,
nor any statement, certificate or instrument furnished or to be furnished by EDT
or Acquisition Subsidiary to the Stockholder or ThoughtWare pursuant to this
Agreement or any other document, agreement or instrument referred to herein or
therein, contains or will contain any untrue statement of material fact or omits
or will omit any material fact necessary to make the statements contained
therein not misleading except as would not be expected to have a Material
Adverse Effect.
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3.12 ACQUISITION SUBSIDIARY.
Acquisition Subsidiary has been recently formed and has no material assets,
liabilities or contracts. EDT is the record and beneficial owner of all of the
outstanding shares of capital stock of Acquisition Subsidiary (the "ACQUISITION
SUBSIDIARY SHARES"). EDT has, and on the Closing Date will have, good title to
the Acquisition Subsidiary Shares, free and clear of all claims, liens, charges,
encumbrances, options and rights of any third parties whatsoever.
3.13 COMMON STOCK OF ACQUISITION SUBSIDIARY.
Acquisition Subsidiary has a total of one thousand (1,000) shares of its
common stock authorized, all of which are issued and outstanding.
3.14 Knowledge of EDT.
For purposes of this Agreement, EDT will be deemed to have "knowledge" of a
particular fact or other matter if any Knowledge Party has, or at any time had,
knowledge of such fact or other matter and the matter is within the scope of
duties of that individual. As used herein, Knowledge Party shall mean the
following senior executive officers of EDT:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., President, Chairman and Chief Executive Officer;
▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇., Senior Vice President, General Counsel and Chief
Development Officer;
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Senior Vice President, Chief Operating Officer and
Chief Financial Officer.
ARTICLE IV.
ADDITIONAL AGREEMENTS
4.1 ACCESS AND INSPECTION.
From the date hereof until the Effective Time, upon reasonable notice and
subject to the terms of the Confidentiality Agreement previously executed
between the parties (the "CONFIDENTIALITY AGREEMENT"), ThoughtWare and EDT, as
applicable, shall afford to the officers, employees, accountants, counsel,
financing sources and other representatives of EDT and ThoughtWare, as
applicable, reasonable access, during normal business hours throughout the
period prior to the Effective Time, to all of its properties, books, contracts,
commitments and records as either party or its representatives or agents may
reasonably request (the "DUE DILIGENCE Inspection"). Unless otherwise required
by law or regulation (including stock exchange rules) and until the Effective
Time, ThoughtWare, EDT and Acquisition Subsidiary shall hold any such
information which is non-public in confidence in accordance with the terms of
the Confidentiality Agreement (except as may be required by law or by any
listing agreement with or by the rules of the AMEX) and, in the event this
Agreement is terminated for any reason, ThoughtWare, EDT or Acquisition
Subsidiary shall promptly return or destroy such information in accordance with
the Confidentiality Agreement.
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4.2 COOPERATION IN MEETING FILING REQUIREMENTS.
ThoughtWare, EDT and Acquisition Subsidiary shall cooperate in preparing,
executing and filing such requests, applications, information and other
submittals as may be required by any federal or state governmental agency or
authority having jurisdiction over the assets or properties of ThoughtWare or
the business of ThoughtWare, for the purpose of consummating the transactions
contemplated herein and Surviving Corporation's operation of the business of
ThoughtWare in substantially the same manner as currently operated by
ThoughtWare.
4.3 POST CLOSING AUDIT OF THOUGHTWARE.
ThoughtWare and the Stockholder shall reasonably cooperate (at no expense
to them, except as otherwise set forth in Section 4.10) with and assist EDT and
its accountants and other representatives in preparing audited financial
statements of ThoughtWare for the fiscal year of ThoughtWare required by EDT's
auditors for inclusion in EDT's financial statements, audit report, or public
filings for the three (3) financial annual periods ending with the Closing Date
and any period subsequent to the Closing Date.
4.4 PUBLIC DISCLOSURE.
Unless otherwise expressly permitted by this Agreement, EDT and ThoughtWare
shall consult with each other before issuing any press release or otherwise
making any public statement or making any other public (or non-confidential)
disclosure (whether or not in response to an inquiry) regarding the terms of
this Agreement and the transactions contemplated hereby, and neither shall issue
any such press release or make any such statement or disclosure without the
prior approval of the other (which approval shall not be unreasonably withheld),
except as EDT may reasonably believe to be required by the SEC, the AMEX or
other law.
4.5 FURTHER ASSURANCES.
Each party covenants that it will, in connection with the Closing and from
time to time after the Closing Date, execute such additional instruments and
take such actions as may be reasonably requested by the other party to confirm
or perfect or otherwise to carry out the intent and purposes of this Agreement.
4.6 NO SHOP AND BREAK UP FEE.
ThoughtWare (and its officers, directors, employees and agents, including,
without limitation, the Stockholder) will not, for the period beginning with the
Execution Date and continuing until the later of either the Effective Time or
termination of this Merger Agreement (the "No-Shop Period"), directly or
indirectly, solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept or consider any proposal of any other person relating
to the acquisition of ThoughtWare (a "Conflicting Transaction"), whether through
direct purchase, merger or other business combination. If ThoughtWare enters
into discussions with any other person or entity with respect to a Conflicting
Transaction during the No-Shop Period, then immediately upon entry into a
definitive agreement with that third party for such acquisition, ThoughtWare (or
the new third party buyer) shall pay to EDT an amount equal to the sum of
$50,000 plus EDT's actual out of pocket costs to compensate EDT for the lost
23
opportunity and expenses incurred by EDT. If EDT fails to close the transactions
contemplated by this Agreement (except by failure of a condition precedent),
including without limitation the condition precedent set forth in SECTION 6.4
prior to the January 15, 2002, EDT shall pay to ThoughtWare, an amount equal to
the sum of $50,000 plus ThoughtWare's actual out of pocket costs to compensate
ThoughtWare for the lost opportunity and expenses incurred by ThoughtWare.
4.7 THOUGHTWARE STOCK OPTION PLAN.
At the Effective Time, (i) each outstanding employee stock option or right
to acquire shares of ThoughtWare Stock granted under the ThoughtWare 2000 Long
Term Incentive Plan (the "ThoughtWare Stock Option Plan") which has not been
exercised prior to the Effective Time shall be terminated prior to the Closing
Date, and (ii) the ThoughtWare Stock Option Plan shall have been terminated
before the Closing Date. EDT may in its sole discretion grant to any person who
becomes an EDT employee after the Effective Time (who was a former ThoughtWare
employee) options to purchased EDT Stock, provided however that EDT shall be
under no obligation to grant any such options to any former employee of
ThoughtWare.
4.8 SALE OF SHARES PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT.
The parties hereto acknowledge and agree that the shares of EDT Stock
issuable to the Stockholder pursuant to SECTION 1.7 hereof, shall constitute
"restricted securities" under the Securities Act, subject to and entitled to the
benefits of Rule 144 promulgated under the Securities Act ("Rule 144"). The
certificates of EDT Stock shall bear the legends set forth in SECTION 1.7(D).
4.9 PIGGYBACK REGISTRATION RIGHTS.
(a) If, at any time prior to the expiration of one year from the
Effective Time EDT proposes to register any of its equity securities under the
Securities Act on any form other than Form S-8 (or any similar or successor form
then in effect) EDT will in such case give prompt written notice (and in any
event at least ten (10) business days' prior written notice prior to the filing
of such registration statement) to the Stockholder and the Releasors of its
intention to do so. Such notice to the Stockholder and the Releasors will
specify the securities to be registered, the proposed numbers and amounts
thereof and the date not less than ten (10) days thereafter by which EDT must
receive written indication of whether the Stockholder or any Releasor wishes to
include its EDT Stock in such registration statement and advising the
Stockholder and each Releasor of its rights under this section. Upon the written
request of the Stockholder or any Releasor made on or before the date specified
in such notice (which request shall specify the number of shares of EDT Stock
intended to be disposed of by the Stockholder or any such Releasor), EDT will,
to the extent permitted under subsection (d) below, use its best efforts to
cause all such shares of EDT Stock to be registered under the Securities Act
(with the securities that EDT at the time proposes to register or, in the case
of a registration on Form S-4, on a separate Form S-3), to the extent required
to permit the sale or other disposition (in accordance with the intended methods
thereof as aforesaid) by the Stockholder or the Releasors of the shares of EDT
Stock to be so registered.
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(b) Notwithstanding anything to the contrary in this section, EDT
shall have the right to discontinue any registration under this section at any
time prior to the effective date of such registration.
(c) In the case of a registration under subsection (a) above, if EDT
determines to enter into an underwriting agreement in connection therewith, all
shares of EDT Stock to be included in such registration shall be subject to such
underwriting agreement and no person may participate in such registration unless
such person agrees to sell such person's securities on the basis provided in
such underwriting agreement and completes and/or executes all questionnaires,
indemnities, and other reasonable documents which must be executed under the
terms of such underwriting agreement.
(d) If EDT's managing underwriter shall advise EDT and the Stockholder
and the Releasors in writing that the inclusion in any registration pursuant
hereto of some or all of (i) the shares of EDT Stock sought to be registered by
the Stockholder or the Releasors, and (ii) the securities of EDT sought to be
registered, creates a substantial risk that the proceeds or price per unit that
will be derived from such registration will be reduced or that the number of
securities to be registered is too large a number to be reasonably sold, (i)
first, the number of securities of EDT (or securities of other persons
exercising "demand rights") sought to be registered shall be included in such
registration, and (ii) next, the number of shares of EDT Stock and other
securities of persons exercising "piggyback rights" shall be included in such
registration to the extent permitted by the managing underwriter (if the
offering is underwritten) pro rata based upon the number of shares of EDT Stock
each requesting person seeks to include in such registration.
(e) If a registration hereunder shall be in connection with an
underwritten public offering, the participating Stockholder or Releasor shall be
deemed to have agreed by acquisition of its shares of EDT Stock not to effect
any public sale or distribution, including any sale pursuant to Rule 144, of any
shares of EDT Stock and to use its best efforts not to effect any such public
sale or distribution of any other equity security of EDT or of any security
convertible into or exchangeable or exercisable for any equity security of EDT
(other than as part of such underwritten public offering) within twenty (20)
days before or ninety (90) days after the effective date of such registration
statement. In such event, such Stockholder agrees, and each Releasor, as a
condition of the rights contemplated by this Section, shall have agreed, if
requested, to sign a customary market stand-off letter with EDT's managing
underwriter, and to comply with applicable rules and regulations of the SEC.
(f) If and to the extent that the Stockholder or a Releasor sells or
otherwise disposes of shares of EDT Stock in any transaction that does not
require registration under the Securities Act (other than a transaction exempt
under Rule 144), the rights of the Stockholder or such Releasor hereunder with
respect to such shares of EDT Stock will be assignable to the transferee of such
shares of EDT Stock; PROVIDED, HOWEVER, that such transferee agrees in writing
to be bound by all the terms and conditions of this SECTION 4.9.
(g) All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this SECTION 4.9 shall be
borne by EDT. All Selling Expenses incurred in connection with any registrations
hereunder shall be borne by the holders of the securities so registered pro rata
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on the basis of the number of shares so registered. "Registration Expenses"
shall mean all expenses incurred by EDT in complying with this SECTION 4.9,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for EDT, reasonable fees and
disbursements of a single special counsel for the holders of securities so
registered, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of EDT). "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of shares of EDT Stock
held by the Stockholder.
4.10 LEGAL AND AUDIT FEES OF THOUGHTWARE.
ThoughtWare shall be responsible for the payment of (i) all legal fees and
expenses incurred in connection with the negotiation, documentation and
consummation of the Merger, this Agreement and the other transactions
contemplated hereby and (ii) audit fees and expenses related to the audit of
ThoughtWare for the period ending June 30, 2001, delivery of those audited
statements and the associated audit letter, roll forward reviewed financial
statements for the stub period ending December 31, 2001 in Form 10-Q format, and
preparation of the federal and state tax return for the period ending December
31, 2001 (such audit fees and expenses collectively, the "2001 Audit Costs").
4.11 RISK OF LOSS
Risk of loss to the assets of ThoughtWare, however caused (other than by
Acquisition Subsidiary or those duly authorized to act on behalf of Acquisition
Subsidiary) shall shift to Surviving Corporation immediately at the Effective
Time.
ARTICLE V.
CONDUCT OF BUSINESS OF THOUGHTWARE
PENDING CLOSING
ThoughtWare and the Stockholder, jointly and severally, covenant and agree
that, without the prior written consent of EDT, between the Execution Date and
the Closing Date:
5.1 DISPOSITION OF ASSETS.
The operation of ThoughtWare's business shall be conducted only in the
ordinary course, and ThoughtWare shall not dispose of any interest of any kind
in the assets or properties of ThoughtWare, nor incur nor guarantee any
obligations for borrowed money without EDT's prior written consent, which
consent shall not be unreasonably withheld.
5.2 ACCOUNTS PAYABLE AND ACCOUNTS RECEIVABLE.
ThoughtWare shall use its best efforts to maintain its accounts payable on
a current basis in the ordinary course of business, except as otherwise
permitted by this Agreement. ThoughtWare shall maintain its accounts receivable
on a current basis in the ordinary course of business, except as otherwise
permitted by this Agreement.
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5.3 SALE OF SHARES.
The Stockholder shall not sell or transfer, or consent to the sale or
transfer of, any shares of capital stock in ThoughtWare or any option, warrant
or other right to acquire an equity interest in ThoughtWare.
5.4 ISSUANCE OF SHARES.
ThoughtWare shall not issue, sell, pledge, dispose of or encumber, or
authorize or propose the issuance, sale, pledge, disposition or encumbrance of,
any shares of, or securities convertible or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of its
capital stock of any class.
5.5 CONTRACTS.
ThoughtWare will not enter into any material contract or other arrangement
without the prior written consent of EDT.
5.6 CONDITION OF ASSETS.
ThoughtWare will maintain its assets in substantially the same condition as
they are in on the date of this Agreement, ordinary wear and tear excepted.
5.7 NO TRANSFERS, LIENS OR ENCUMBRANCES.
ThoughtWare shall not sell, transfer or otherwise dispose of any of the
Tangible Assets, Proprietary Rights, or other assets or sell or transfer any
interest in ThoughtWare, except as otherwise permitted by this Agreement.
ThoughtWare shall not mortgage, pledge or subject to any lien, charge or other
encumbrance any of the Tangible Assets, Proprietary Rights, or other assets or
any interest in ThoughtWare, except as otherwise permitted by this Agreement.
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF EDT AND ACQUISITION SUBSIDIARY
The obligations of EDT and Acquisition Subsidiary to close the Merger are,
unless waived in writing, subject to the satisfaction, at or prior to Closing,
of each of the following conditions:
6.1 NECESSARY APPROVALS.
EDT shall have received all licenses, consents, permits and approvals
necessary in order for EDT to operate the business of ThoughtWare in the same
manner as ThoughtWare, other than those consents and approvals designated by EDT
as being "nonpriority consents".
6.2 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of ThoughtWare set forth in this
Agreement, or the Schedules and Exhibits hereto (including any document or
instrument delivered to EDT or Acquisition Subsidiary thereunder), shall be true
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and correct on the Closing Date with the same force and effect as if such
representations and warranties had been made on the Closing Date, and EDT shall
have received a certificate of a duly authorized officer of ThoughtWare to that
effect.
6.3 PERFORMANCE; COVENANTS; DELIVERIES AT CLOSING.
All of the terms, covenants and conditions of this Agreement to be complied
with or performed by ThoughtWare at or prior to Closing shall have been complied
with and performed in all material respects. At Closing, ThoughtWare or the
Stockholder shall have delivered to EDT the following documents:
a. A certificate dated the Closing Date signed by a duly authorized
officer of ThoughtWare certifying that the representations and
warranties of ThoughtWare contained in this Agreement shall be
true and correct on and as of the date of such certificate and
that ThoughtWare has fulfilled the conditions of this SECTION
6.3;
b. Resolutions of the Board of Directors of ThoughtWare and the
stockholders of ThoughtWare in form and substance satisfactory to
EDT approving the transaction with EDT on the terms hereof, the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, certified
by a duly authorized officer of ThoughtWare, have been adopted
and are in full force and effect;
c. Written consents executed by the appropriate third party to the
consummation of the transactions contemplated by this Agreement
reflected on SCHEDULE 2.2, by EDT as "Required" prior to Closing;
d. All of the books and records of ThoughtWare related to the
operation of its business including, but not limited to: (i) the
books of accounts, contracts and agreements to which ThoughtWare
is a party and (ii) such other documents or certificates as shall
be reasonably requested by EDT;
e. An opinion of counsel of ThoughtWare in substantially the form of
EXHIBIT B attached hereto;
f. Lock Up and Shareholder Representation Agreements executed by the
Stockholder in substantially the form of EXHIBIT C-1 and from
each of the Releasors in substantially the form of EXHIBIT C-2;
g. Release and Settlement Agreement executed by and between
ThoughtWare and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ providing for a complete release
of any and all severance liabilities related to or arising from
his employment relationship or employment agreement with
ThoughtWare in exchange for the issuance to ▇▇▇▇▇▇▇ at Closing of
186,000 shares of EDT common stock (of which 55,800 shares will
be deposited into escrow pursuant to SECTION 1.7(B) of this
Agreement);
28
h. Lease Termination and Release Agreement executed by and between
ThoughtWare and D&S Realty, LLC providing for the complete
release and termination of all liabilities related to or arising
from that certain lease agreement dated October 11, 2000
concerning the premises located at ▇▇▇▇ ▇ & ▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇ in exchange for the issuance to D&S Realty, LLC at
Closing of 310,000 shares of EDT common stock (of which 93,000
shares will be deposited into escrow pursuant to SECTION 1.7(B)
of this Agreement);
i. Written agreements executed by each current employee or director
of ThoughtWare which is a holder of an outstanding ThoughtWare
stock option or warrant evidencing the cancellation of such
option or warrant without any further liability to ThoughtWare;
j. Written evidence in form and substance satisfactory to
ThoughtWare of the termination of the loan agreement between
Silicon Valley Bank and ThoughtWare and the release of all
related liens;
k. Written resignation of each officer and director of ThoughtWare,
effective as of the Effective Time and otherwise in form and
substance reasonably acceptable to EDT;
l. Termination Agreement executed by and between ThoughtWare and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, concerning, among other things, ▇▇. ▇▇▇▇▇▇'▇
Employment Agreement with ThoughtWare and the Warrants issued to
▇▇. ▇▇▇▇▇▇ by ThoughtWare, and otherwise in form and substance
acceptable to EDT; and
m. Such other documents as counsel for EDT shall reasonably request,
including, without limitation, any documents required to be filed
with any governmental body.
6.4 EDT DUE DILIGENCE.
Closing shall only occur upon the complete and sole satisfaction of EDT as
to the Due Diligence Inspection pursuant to SECTION 4.1; PROVIDED, HOWEVER,
nothing herein is intended to extend the date by which the Closing is to occur.
6.5 ABSENCE OF MATERIAL ADVERSE EFFECT.
There shall have not occurred any Material Adverse Change to the business
of ThoughtWare prior to Closing.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF THOUGHTWARE
The obligations of ThoughtWare to close the Merger are subject to the
satisfaction, at or prior to Closing, of each of the following conditions:
29
7.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of EDT and Acquisition Subsidiary set
forth in this Agreement, or any other document or instrument delivered to
ThoughtWare hereunder, shall be true and correct on the Closing Date with the
same force and effect as if such representations and warranties had been made on
the Closing Date.
7.2 PERFORMANCE; COVENANTS; DELIVERIES AT CLOSING.
All of the terms, covenants and conditions of this Agreement to be complied
with or performed by EDT or Acquisition Subsidiary at or prior to Closing shall
have been complied with and performed in all material respects including, but
not limited to, the delivery of the following:
a. The consideration to be paid to the Stockholder in connection
with the Merger, and the shares of EDT Stock to be issued to the
Releasors;
b. A certificate dated the Closing Date signed by duly authorized
representatives of EDT and Acquisition Subsidiary certifying that
the representations and warranties are true and correct on the
date of such certificate and that EDT and Acquisition Subsidiary
have fulfilled all of the conditions of this SECTION 7.2;
c. Resolutions of the Board of Directors of EDT and the Board of
Directors and sole Stockholder of Acquisition Subsidiary in form
and substance satisfactory to ThoughtWare approving the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, certified
by a duly authorized representative of EDT and Acquisition
Subsidiary, respectively;
d. An opinion of outside counsel of EDT in substantially the form
attached hereto as EXHIBIT D; and,
e. Such other documents necessary for the consummation of the
transactions contemplated herein as counsel for ThoughtWare shall
reasonably request, including, without limitation, any documents
required to be filed with any governmental body.
7.3 THOUGHTWARE DUE DILIGENCE.
Closing shall only occur upon the complete and sole satisfaction of
ThoughtWare as to the Due Diligence Inspection pursuant to SECTION 4.1;
PROVIDED, HOWEVER, nothing herein is intended to extend the date by which the
Closing is to occur.
30
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF EACH PARTY
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment in all material respects at or prior to the Effective
Time of the following conditions:
8.1 CONSENT BY BANK ONE
Bank One Texas, N.A. ("BANK ONE") shall have consented to the Merger and
the other transactions contemplated under this Agreement.
8.2 APPROVAL BY STOCKHOLDERS OF THOUGHTWARE.
ThoughtWare shall have received resolutions of, or written consents to
actions by, the stockholders of ThoughtWare, in form and substance satisfactory
to EDT, approving the Merger on the terms hereof, the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby.
ARTICLE IX.
INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties in this Agreement, including any
certificate or schedule made a part thereof or exhibit delivered pursuant to
this Agreement, shall survive the Closing and continue in full force and effect
until the first anniversary of the Effective Time (referred to herein as the
"TERMINATION DATE").
9.2 INDEMNIFICATION OF EDT.
From and after the Closing, subject to the limitations set forth in this
ARTICLE IX, the Stockholder will, together with Releasors by their execution of
the Escrow Agreement, indemnify and hold harmless EDT, and its officers,
directors, stockholders and subsidiaries (collectively, the "EDT INDEMNIFIED
PERSONS"), from and against any loss, liability, claim, damage, expense
(including costs of investigation and defense and reasonable attorneys' fees and
expenses) (collectively, "DAMAGES"), as a result of, directly or indirectly:
(i) any breach of any representation or warranty made by
ThoughtWare in this Agreement or in any certificate or document delivered to EDT
or Acquisition Subsidiary in connection with this transaction;
(ii) any breach of any covenant or obligation made by ThoughtWare
or the Stockholder in this Agreement or otherwise in connection with the
obligations contemplated by this Agreement;
(iii) legal and audit fees and expenses incurred by ThoughtWare
and its affiliates (including without limitation the 2001 Audit Costs and legal
fees and expenses incurred in connection with the negotiation, documentation and
consummation of the Merger, this Agreement and the other transactions
31
contemplated hereby) to the extent that such fees and expenses exceed $129,000
in the aggregate;
(iv) fees and expenses of any broker or finder related to the
consummation of the transactions contemplated by this Agreement except as set
forth in SCHEDULE 11.5;
(v) claims by holders of ThoughtWare stock options or warrants
with respect to the cancellation of such options or warrants;
(vi) any tax liability of ThoughtWare with respect to the TDR
audit matters as set forth on SCHEDULE 2.7; or
(vii) any and all payments or other liabilities or damages due
and owing, whether accrued and unpaid as of the Closing or arising after the
Closing, arising under or in connection with the lease between ThoughtWare, as
lessee, and Legacy Partners Management LP, as lessor, relating to the leased
premises located in Carlsbad, California in excess of the amounts reflected on
SCHEDULE 2.4(B).
Provided, however, that no such indemnification under this SECTION 9.2 shall be
available for any inaccuracy in or material breach of any such representation,
or warranty unless written notice thereof has been delivered to the Stockholder
prior to the Termination Date specifying in reasonable detail the information or
circumstances making such representation or warranty untrue and, to the extent
reasonable ascertainable, the expected Damages related thereto, all as more
particularly set forth in the Escrow Agreement. Provided further, that the
amount of any Damages for which indemnification is sought shall be net of any
amount actually recovered with respect thereto by the EDT Indemnified Persons
under insurance policies (it being understood that the EDT Indemnified Persons
shall use their best efforts to recover any Damages that are insured).
9.3 OFFSET AGAINST ESCROW STOCK
Any Damages to which the EDT Indemnified Persons shall become entitled
pursuant to Section 9.2 shall be satisfied solely by offset by the EDT
Indemnified Persons against the Escrow Stock (or any Cash Settlement Payment
elected to be paid by an Escrow Stockholder in lieu thereof, as more
particularly provided in the Escrow Agreement), to the exhaustion thereof, and
the Stockholder (and the Releasors by execution of the Escrow Agreement) shall
have no personal monetary liability for any Damages claimed or incurred by the
EDT Indemnified Persons. For purposes hereof and the Escrow Agreement, the value
of shares of EDT Stock subject to offset or withdrawal by the EDT Indemnified
Persons from the Escrow for Damages shall be deemed to be $1.20 per share.
9.4 MERGER CONSIDERATION ADJUSTMENT.
Any shares of Escrow Stock released to EDT (or Cash Settlement Payment (as
defined in the Escrow Agreement) elected to be made in lieu thereof) for
indemnification by the Stockholder pursuant to the Escrow Agreement shall be
treated as an adjustment to the consideration payable pursuant to SECTION 1.7 of
this Agreement for all tax purposes, unless and to the extent that such
32
characterization jeopardizes the tax deferred status of the transaction
contemplated herein.
9.5 INDEMNIFICATION BY EDT AND ACQUISITION SUBSIDIARY.
From and after the Closing, subject to the limitations set forth in this
ARTICLE IX, EDT and Acquisition Subsidiary will indemnify and hold harmless
ThoughtWare, and its officers, directors, stockholders and subsidiaries
(collectively, the "ThoughtWare INDEMNIFIED PERSONS"), from and against any
DAMAGE, as a result of any breach of (i) any representation or warranty,
covenant or agreement made by EDT and Acquisition Subsidiary in this Agreement,
or (ii) any other certificate or document delivered by EDT and Acquisition
Subsidiary pursuant to this Agreement. Provided, however, that no such
indemnification under this SECTION 9.5 shall be available for any inaccuracy in
or material breach of any such representation, or warranty unless written notice
thereof has been delivered to EDT or Acquisition Subsidiary prior to the
Termination Date specifying in reasonable detail the information or
circumstances making such representation or warranty untrue and, to the extent
reasonable ascertainable, the expected Damages related thereto. Provided
further, that the amount of any Damages for which indemnification is sought
shall be net of any amount actually recovered with respect thereto by the
ThoughtWare Indemnified Persons under insurance policies (it being understood
that the ThoughtWare Indemnified Persons shall use their best efforts to recover
any Damages that are insured).
9.6 THRESHOLD.
With respect to claims for Damages, the Stockholder (and the Releasors by
execution of the Escrow Agreement) will be liable to the EDT Indemnified
Persons, and EDT and Acquisition Subsidiary shall be liable to the ThoughtWare
Indemnified Persons, for Damages only: (i) if the EDT Indemnified Persons or the
ThoughtWare Indemnified Persons, as applicable, (each an "Indemnified Person")
provides written notice of such claim prior to the Termination Date pursuant to
the Escrow Agreement; and (ii) if the aggregate amount of such claim(s) exceeds
$180,000 (the "THRESHOLD"), in which event, such party may claim indemnification
for all such Damages in excess of the Threshold not to exceed, in the aggregate,
the maximum sum of $558,000 for all such Damages (the "Damages Cap").
9.7 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS
Promptly after receipt by an Indemnified Person under SECTION 9.2 or 9.5,
as applicable, of notice of the commencement of any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal, public or
private) commenced, brought, conducted or heard by or before or otherwise
involving any governmental body or arbitrator (a "Proceeding") against it, such
Indemnified Persons will, if a claim is to be made against an indemnifying party
under this ARTICLE IX, give notice to the indemnifying party of the commencement
of such Proceeding, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that indemnifying party may have
to any Indemnified Persons. If any Proceeding is brought against an Indemnified
Persons and it gives notice to the indemnifying party of the commencement of
such Proceeding, the indemnifying party will be entitled to participate in such
Proceeding and, to the extent that it wishes (unless the indemnifying party is
33
also a party to such Proceeding and the Indemnified Persons determine in good
faith that joint representation would be inappropriate, or the indemnifying
party fails to provide reasonable assurance to the Indemnified Persons of its
financial capacity to defend such Proceeding), to assume the defense of such
Proceeding with counsel satisfactory to the Indemnified Persons and, after
notice from the indemnifying party to the Indemnified Persons of its election to
assume the defense of such Proceeding. If the indemnifying party assumes the
defense of a Proceeding, no compromise or settlement of such claims may be
effected by the indemnifying party without the Indemnified Persons' consent. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten (10) days after the Indemnified
Persons' notice is given, give notice to the Indemnified Persons of its election
to assume the defense of such Proceeding, the indemnifying party will be bound
by any determination made in such Proceeding; provided, however, no compromise
or settlement may be effected by the Indemnified Persons with the indemnifying
parties consent. With respect to any Proceeding both the Indemnified Persons and
the indemnifying party, as the case may be, shall keep the other party fully
informed of the Proceeding at all stages thereof and to render to each other
such assistance as they may reasonably require of each other and to cooperate in
good faith with each other in order to ensure the proper and adequate defense of
any Proceeding brought by any third party. With respect to any Proceeding, the
parties agree to cooperate in such a manner as to preserve in full (to the
extent possible) the confidentiality of all confidential business records and
the attorney-client and work-product privileges.
9.8 EFFECT OF INVESTIGATION.
No investigation or inquiry made by either party shall, regardless of the
Closing of the transactions contemplated hereby, affect or limit any
representation or warranty made by the other party or in any schedule delivered
by any of them pursuant hereto or any right of indemnification contained in this
Agreement.
9.9 SOLE REMEDY.
Following Closing, recourse under the provisions of this Article IX shall
be the sole remedy of any party to this Agreement related to a breach of the
terms of this Agreement.
ARTICLE X.
TERMINATION
10.1 TERMINATION BY MUTUAL CONSENT.
This Agreement may be terminated and may be abandoned at any time prior to
the Effective Time by the mutual consent of EDT, Acquisition Subsidiary and
ThoughtWare.
10.2 TERMINATION BY EDT.
This Agreement may be terminated and the Merger may be abandoned by action
of the Board of Directors of EDT if the Merger shall not have been consummated
by January 15, 2002 PROVIDED THAT EDT shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
34
proximately contributed to the occurrence of the failure referred to in such
clause. This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time by action of the Board of Directors of EDT, if
(i) the Board of Directors of ThoughtWare shall have withdrawn or modified in a
manner adverse to EDT its approval or recommendation of this Agreement, or the
Merger, or shall have withdrawn its recommendation to the stockholders of
ThoughtWare, or (ii) there has been a breach by ThoughtWare of any
representation, warranty, covenant or agreement contained in this Agreement
which is not curable or, if curable, is not cured within thirty (30) days after
written notice of such breach is given by EDT to the party committing such
breach.
10.3 TERMINATION BY THOUGHTWARE.
This Agreement may be terminated and the Merger may be abandoned by action
of the Board of Directors of ThoughtWare if the Merger shall not have been
consummated by January 15, 2002 PROVIDED THAT ThoughtWare shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
referred to in such clause. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time by action of the Board of
Directors of ThoughtWare, if (i) the Board of Directors of EDT shall have
withdrawn or modified in a manner adverse to ThoughtWare its approval or
recommendation of this Agreement or the Merger, or (ii) there has been a
material breach by EDT or Acquisition Subsidiary of any representation,
warranty, covenant or agreement contained in this Agreement which is not curable
or, if curable, is not cured within thirty (30) days after written notice of
such breach is given by ThoughtWare to the EDT.
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this ARTICLE X, no party hereto (or any of its directors or
officers) shall have any liability or further obligation to any other party to
this Agreement except as provided herein except that nothing herein will relieve
any party from liability for any breach of this Agreement.
10.5 EXTENSION; WAIVER.
At any time prior to the Effective Time of the Merger, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (ii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
35
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1 NOTICES.
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly if transmitted by certified mail, return
receipt requested, with proper postage prepaid or sent by overnight carrier or
by personal delivery, addressed to the respective party to whom such notice
relates at the following addresses:
If to EDT:
EDT Learning, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
Phone: ▇▇▇-▇▇▇-▇▇▇▇
With a Copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, III
If to Acquisition Subsidiary:
▇▇▇▇ ▇. ▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
Phone: ▇▇▇-▇▇▇-▇▇▇▇
If to ThoughtWare:
Paradigm Capital Partners, LLC
Attention: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a Copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, PLLC
▇▇ ▇. ▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Phone: ▇▇▇-▇▇▇-▇▇▇▇
36
If to the Stockholder:
ThoughtWare Paradigm Investors
c/o Paradigm Capital Partners, LLC
Attention: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a Copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, PLLC
▇▇ ▇. ▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Phone: ▇▇▇-▇▇▇-▇▇▇▇
Or such other address as shall be furnished in writing by any party to the
other party. All such notices shall be considered received: (a) if transmitted
by certified mail, return receipt requested, with proper postage prepaid, upon
the fifth business day after mailing; (b) if transmitted by overnight carrier,
on the next business day; and (c) if transmitted by personal delivery, upon
receipt.
11.2 SUCCESSORS AND ASSIGNS.
This Agreement shall not be assignable, by operation of law or otherwise,
without the prior written consent of all parties. Subject to the foregoing, this
Agreement shall inure to the benefit of, be enforceable by and be binding upon
the parties, their successors and permitted assigns.
11.3 ENTIRE AGREEMENT.
This Agreement and the exhibits, schedules, certificates and other
documents delivered pursuant hereto or incorporated herein by reference, contain
and constitute the entire agreement among the parties and supersede and cancel
any prior agreements, representations, warranties, or communications, whether
oral or written, among the parties relating to the transactions contemplated by
this Agreement. Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by an agreement in writing
signed by the party against whom or which the enforcement of such change,
waiver, discharge or termination is sought.
11.4 GOVERNING LAW; SEVERABILITY.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without giving effect to the principles of
conflicts of law thereof, PROVIDED, HOWEVER, that the laws of the respective
jurisdictions of incorporation of each of the parties shall govern the relative
37
rights, obligations, powers, duties and other internal affairs of such party and
its board of directors.
11.5 NO BROKERS.
Except as set forth on SCHEDULE 11.5, the ThoughtWare, EDT and Acquisition
Subsidiary each represent to the others that no broker or finder has been
employed in connection with the transactions hereunder and further that EDT
shall not be liable for the payment of brokerage fees or commissions.
11.6 SCHEDULES AND EXHIBITS.
All schedules and exhibits attached to this Agreement are by reference made
a part hereof.
11.7 WAIVERS.
No failure on the part of any party hereto to exercise, and no delay in
exercising, any right, power or remedy created hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
remedy by any such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. No waiver by any party hereto of
any breach of or default in any term or condition of this Agreement shall
constitute a waiver of or assent to any succeeding breach of or default in the
same or any other term or condition hereof.
11.8 HEADINGS.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
11.9 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
11.10 CONFIDENTIALITY.
The parties agree that they will not make any public comment, statement,
communication or disclosure about the existence or contents of this Agreement or
activities relating to the consummation of the transactions contemplated herein
without prior approval of the other party, except as may be required by law, as
may be necessary to obtain the required consents, licenses, permits or approvals
pursuant to SECTION 6.1 herein, or as may be necessary in the ordinary course of
business.
11.11 EXPENSES.
Except as otherwise specifically provided herein, each party will be
responsible for payment of all fees and expenses incurred by that party in
connection with the Merger and this Agreement regardless of whether the Merger
occurs or this Agreement is terminated without consummation of the transaction.
38
11.12 NO THIRD PARTY BENEFICIARIES.
Nothing contained in this Agreement (express or implied) is intended or
shall be construed to confer upon or give to any person, corporation or other
entity, other than the parties hereto and their permitted successors or assigns,
any rights or remedies under or by reason of this Agreement.
[remainder of page intentionally left blank]
39
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
EDT LEARNING, INC. THOUGHTWARE TECHNOLOGIES, INC.
By: By:
----------------------------------- ----------------------------------
Name: Name:
Title: Title:
TW ACQUISITION SUBSIDIARY, INC.
By:
-----------------------------------
Name:
Title:
STOCKHOLDER
THOUGHTWARE PARADIGM INVESTORS
By: PARADIGM HOLDINGS, managing partner
By:
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
Title: Managing Partner
40
EXHIBIT A
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is made and entered into as of
_________, 2002 (the "Effective Date") by and among EDT Learning, Inc., a
Delaware corporation ("EDT"), TW Acquisition Subsidiary, Inc., a Delaware
corporation ("Acquisition Sub"), ThoughtWare Paradigm Investors, A Delaware
partnership ("Paradigm"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), D&S Realty, LLC, a
Tennessee limited liability company ("D&S" and, together with ▇▇▇▇▇▇▇, the
"Releasors") (Paradigmand the Releasors each, an "Escrow Stockholder" and,
collectively, the "Escrow Stockholders"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P. (the "Escrow
Agent").
WITNESSETH:
WHEREAS, EDT, Acquisition Sub, Paradigm and ThoughtWare Technologies, Inc.,
a Tennessee corporation ("ThoughtWare") are parties to that certain Plan of
Reorganization and Agreement of Merger dated January ____, 2002 (the "Merger
Agreement"), pursuant to which ThoughtWare has been merged with and into
Acquisition Sub, a wholly-owned subsidiary of EDT (the "Merger").
WHEREAS In order to facilitate the consummation of the Merger, and in
satisfaction of certain obligations of ThoughtWare pursuant to the Termination
Agreements , EDT has agreed to issue shares of its common stock to the Releasors
in consideration of the execution of the Termination Agreements by the Releasors
and the agreement of the Releasors to deposit certain of such shares as Escrow
Stock pursuant to this Agreement. WHEREAS, the parties have agreed to deposit in
escrow the Escrow Stock, hereinafter defined, otherwise issuable to the Escrow
Stockholders to be held by the Escrow Agent and returned to EDT or distributed
to the Escrow Stockholders in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW. Concurrently with the execution of this
Agreement, EDT has deposited with the Escrow Agent certificates evidencing
465,000 shares of common stock, par value $0.001 per share, of EDT (the "Escrow
Stock"), consisting of (i) 316,200 shares of Escrow Stock that otherwise were to
be issued to Paradigm pursuant to the Merger; (ii) 55,800 shares of Escrow Stock
that otherwise were to be issued to ▇▇▇▇▇▇▇ pursuant to the Severance
Termination Agreement; and (iii) 93,000 shares of Escrow Stock that otherwise
were to be issued to D&S pursuant to the Lease Termination Agreement. The Escrow
Agent shall hold the Escrow Stock for the benefit of EDT and the Escrow
Stockholders, as the case may be, pursuant to the terms of this Agreement.
2. DEFINITIONS. All capitalized terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Merger Agreement.
3. CLAIMS AGAINST THE ESCROW STOCK
The Escrow Stock shall be held by the Escrow Agent as security and the sole
source of satisfaction for any Damages incurred from time to time by any of the
EDT Indemnified Persons and for which the EDT Indemnified Persons are entitled
to recover pursuant to the provisions of Article IX of the Merger Agreement. The
Releasors, by execution of this Agreement, acknowledge and agree that the
deposit of the Escrow Shares attributable to the Releasors was a material
inducement to EDT to consummate the Merger, and to issue the shares of EDT Stock
to Releasors pursuant to the Termination Agreements, , each of them hereby
agrees that all Damages for which any EDT Indemnified Person is entitled to be
indemnified pursuant to Article IX of the Merger Agreement may be recovered and
satisfied by issuance to the EDT Indemnified Persons of the appropriate number
of shares of Escrow Stock determined in accordance with this Agreement
(including without limitation the shares of Escrow Stock that otherwise would be
issued or distributed to Releasors). For all purposes under this Agreement and
all notices delivered hereunder, each share of Escrow Stock shall be deemed to
have a value equal to $1.20 (the "Stipulated Value").
4. PROCEDURE FOR INDEMNIFICATION CLAIMS AGAINST THE ESCROW STOCK
(a) In the event that EDT believes in good faith that there exist
reasonable grounds on the part of any of the EDT Indemnified Persons to make a
claim for Damages (an " Indemnification Claim") against the Escrow Stock, EDT
will deliver to the Escrow Agent and the Escrow Stockholders a certificate in
substantially the form of EXHIBIT A attached hereto (a "Notice of Claim"). No
Notice of Claim relating to an Indemnification Claim may be delivered by EDT
after 5:00 p.m., Arizona time, on the Termination Date. The Escrow Agent shall
give written notice to EDT and the Escrow Stockholders of its receipt of a
Notice of Claim not later than the fifth business day following receipt thereof,
together with a copy of such Notice of Claim.
(b) If the Escrow Agent: (i) shall not, within fifteen (15) business days
following its receipt of a Notice of Claim (the "Objection Period"), have
received from any of the Escrow Stockholders a certificate in substantially the
form of EXHIBIT B attached hereto (an "Objection Certificate") disputing the
obligation to pay the claims referred to in such Notice of Claim; or (ii) shall
have received an Objection Certificate within the Objection Period and shall
thereafter have received either (A) a certificate from EDT and the objecting
Escrow Stockholder(s) substantially in the form of EXHIBIT C attached hereto (a
"Resolution Certificate") stating that EDT and such Escrow Stockholder(s) have
agreed that the claims referred to in such Notice of Claim (or a specified
portion thereof) are payable to EDT, or (B) a final judgment entered in a court
proceeding or an arbitration order accompanied by a certificate substantially in
the form of EXHIBIT D attached hereto (a "Judgment Certificate") of EDT stating
that the claims referred to in such Notice of Claim (or a specified portion
thereof) are payable to EDT or any EDT Indemnified Person, then, subject to the
provisions of Section 4(f) below, the Escrow Agent shall, within five (5)
business days following the expiration of the Objection Period, in the case of
subclause (i), or the Escrow Agent's receipt of a Resolution Certificate or a
Judgment Certificate, in the case of subclause (ii), deliver to EDT the number
of shares of Escrow Stock deliverable to EDT, in proportion to the number of
shares of Escrow Stock deposited by the Escrow Stockholders (subject to and as
adjusted for any Cash Settlement Payments elected to be made by an Escrow
Stockholder pursuant to Section 4(f) hereof), against delivery by EDT of
certificates evidencing the balance of the shares of Escrow Stock attributable
to each Escrow Stockholder equal to the difference between (x) the aggregate
balance of Escrow Stock originally delivered to Escrow Agent pursuant to the
terms of this Agreement less (y) any Escrow Stock previously distributed to EDT
and the Escrow Stockholders pursuant to the terms hereof less (z) the Escrow
Stock to be delivered to EDT in satisfaction of the then-currently pending
Indemnification Claim.
(c) No Escrow Stockholder shall deliver an Objection Certificate to the
Escrow Agent unless such Escrow Stockholder believes in good faith that there
exists reasonable grounds for the objection set forth in such certificate, and
any Objection Certificate delivered to the Escrow Agent by an Escrow Stockholder
shall be concurrently delivered to EDT and each other Escrow Stockholder. The
Escrow Agent shall give written notice to EDT and the Escrow Stockholders of its
receipt of an Objection Certificate not later than the fifth business day
following receipt thereof, together with a copy of such Objection Certificate.
EDT will deliver to the Escrow Stockholders a Resolution Certificate or Judgment
Certificate concurrently with the delivery of such Resolution Certificate or
Judgment Certificate to the Escrow Agent. The Escrow Agent shall give written
notice to EDT and the Escrow Stockholders of its receipt of a Resolution
Certificate or Judgment Certificate not later than the fifth business day
following receipt thereof, together with a copy of such Resolution Certificate
or Judgment Certificate.
(d) Upon (i) EDT's determination that reasonable grounds no longer exist
for an Indemnification Claim referred to in a Notice of Claim (or a specified
portion thereof), or (ii) EDT's decision to release its claim with respect to
any Indemnification Claim referred to in a Notice of Claim (or a specified
portion thereof), EDT will promptly deliver to the Escrow Agent and the Escrow
Stockholders a certificate substantially in the form of EXHIBIT E attached
hereto (an "EDT Cancellation Certificate") canceling such Notice of Claim (or
such specified portion thereof), and such Notice of Claim (or such specified
portion thereof) shall thereupon be deemed canceled. The Escrow Agent shall give
written notice to EDT and the Escrow Stockholders of its receipt of an EDT
Cancellation Certificate not later than the fifth business day next following
receipt thereof, together with a copy of such EDT Cancellation Certificate.
(e) Upon receipt of a final judgment entered in a court proceeding or an
arbitration order accompanied by a Judgment Certificate of an Escrow Stockholder
stating that the claims (or a specified portion thereof) referred to in a Notice
of Claim as to which such Escrow Stockholder has delivered an Objection
Certificate within the Objection Period are not payable, such Notice of Claim
(or such specified portion thereof) shall thereupon be deemed cancelled. The
Escrow Stockholder(s) submitting a Judgment Certificate shall deliver to the
Escrow Agent, EDT and each other Escrow Stockholder a copy of such order, and
such Notice of Claim (or such specified portion thereof) so determined to be not
payable shall thereupon be deemed cancelled. The Escrow Agent shall give written
notice to EDT and the Escrow Stockholders of its receipt of such order not later
than the fifth business day following receipt thereof.
(f) Any Escrow Stockholder may elect (by written notice to the Escrow
Agent, EDT and the other Escrow Stockholders at any time prior to such time as
the Escrow Agent has delivered shares of Escrow Stock to EDT pursuant this
Agreement) to substitute cash for all or any portion of the shares of Escrow
Stock otherwise to be delivered to EDT in satisfaction of an Indemnification
Claim. The amount of cash to be paid by any such electing Escrow Stockholder
shall be equal to the product of (i) the number of shares of Escrow Stock that
were to be issued to EDT in satisfaction of the Indemnification Claim for which
such Escrow Stockholder elects to substitute cash multiplied by (ii) the
Stipulated Value (the "Cash Settlement Payment"). Within five (5) business days
of notice to Escrow Agent of payment of the Cash Settlement Payment to EDT, the
Escrow Agent shall release and deliver to such Escrow Stockholder the number of
shares of Escrow Stock equal to the quotient of (i) the Cash Settlement Payment
divided by (ii) the Stipulated Value. Notwithstanding the foregoing, no Escrow
Stockholder may elect to substitute an amount of cash in the aggregate with
respect to all Indemnification Claims greater than the product of (i) the
Stipulated Value multiplied by (ii) the number of Escrow Shares deposited in
escrow with respect to such Escrow Stockholder as set forth in Section 1 of this
Agreement.
5. TERMINATION OF, DISBURSEMENTS FROM, ESCROW.
(a) The Escrow Agent shall deliver to each of the Escrow Stockholders on
the date that is six (6) months after the date hereof (the "Interim Distribution
Date"), a number of shares of Escrow Stock equal to fifty percent (50%) of the
difference between (i) the then remaining shares of Escrow Stock deposited with
respect to each Escrow Stockholder minus (ii) a proportionate number of shares
of Escrow Stock equal to the product of to the aggregate amount of any
unresolved pending Indemnification Claims (as designated in the applicable
Notice(s) of Claim) multiplied by the Stipulated Value. Following the Interim
Distribution Date, if all the Escrow Stock that otherwise would have been
distributed on such date but for unresolved Indemnification Claims existing at
such date, has not been distributed, the remaining balance of such Escrow Stock
shall be released proportionately to the Escrow Stockholders or EDT, as the case
may be, in conjunction with the resolution of each such unresolved pending
Indemnification Claim, and no shares of Escrow Stock so withheld shall be
subject to any Indemnification Claims for which a Notice of Claim is filed after
the Interim Distribution Date.
(b) The Escrow Agent shall deliver to the Escrow Stockholders on the
Termination Date a number of shares of Escrow Stock equal to the difference
between (i) the then remaining shares of Escrow Stock deposited with respect to
each Escrow Stockholder minus (ii) a proportionate number of shares of Escrow
Stock equal to the product of the aggregate amount of any unresolved pending
Indemnification Claims (as such value is designated in the applicable Notice(s)
of Claim). Following the Termination Date, if all the Escrow Stock has not been
distributed, the remaining balance of the Escrow Stock shall be released
proportionately to the Escrow Stockholders or EDT, as the case may be, in
conjunction with the resolution of each unresolved pending Indemnification
Claim. All amounts to be distributed to the Escrow Stockholders pursuant to this
Section (i) shall be distributed in proportion to the number of shares of Escrow
Stock deposited with respect to such Escrow Stockholder as set forth in Section
1 of this Agreement. This Agreement shall automatically terminate following the
distribution of all Escrow Stock. Notwithstanding anything to the contrary
contained in this Agreement or the Merger Agreement, no distribution shall be
made from escrow if, and to the extent, the aggregate value of the number of
shares of Escrow Stock remaining in escrow following such distribution would be
less than the aggregate Damages claimed by EDT under any Notice of Claim then
pending.
6. ESCROW AGENT.
(a) In performing any of its duties under this Agreement, or upon the
claimed failure to perform its duties hereunder, the Escrow Agent shall not be
liable to any person for any damages, losses or expenses which such person may
incur as a result of the Escrow Agent so acting, or failing to act; provided,
however, that the Escrow Agent shall be liable for damages arising out of its
willful default or gross negligence in performing its duties under this
Agreement. Accordingly, the Escrow Agent shall not incur any such liability with
respect to (i) any action taken or omitted to be taken in good faith upon advice
of its counsel or counsel for EDT, any of the Escrow Stockholders or ThoughtWare
given with respect to any questions relating to the duties and responsibilities
of the Escrow Agent hereunder; or (ii) any action taken or omitted to be taken
in reliance upon any document, including any written notice or instructions
provided for in this Agreement, not only as to its due execution and to the
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which the Escrow Agent shall in
good faith believe to be genuine, to have been signed or presented by the
purported proper person or persons and to conform with the provisions of this
Agreement. The limitation of liability provisions of this Section shall survive
the termination of this Agreement and the resignation or removal of the Escrow
Agent.
(b) EDT and Escrow Stockholders hereby jointly and severally (as between
EDT and the Escrow Stockholders, on the one hand, and the Escrow Agent, on the
other hand) agree to indemnify and hold harmless the Escrow Agent against any
and all losses, claims, damages, liabilities and expenses, including, without
limitation, reasonable costs of investigation and counsel fees and disbursements
(both at the trial and appellate levels) which may be imposed on the Escrow
Agent or incurred by it in connection with its acceptance of this appointment as
the Escrow Agent hereunder or the performance of its duties hereunder (except in
connection with the willful default or gross negligence of the Escrow Agent
hereunder), including, without limitation, any litigation arising from this
Agreement, or involving the subject matter hereof. The indemnity provisions of
this Section shall survive the termination of this Agreement and the resignation
or removal of the Escrow Agent. The Escrow Agent may resign at any time from its
obligations under this Agreement by providing written notice to the parties
hereto. Such resignation shall be effective no more than sixty (60) days after
such written notice has been given. The Escrow Agent shall have no
responsibility for the appointment of a successor escrow agent. If a successor
escrow agent is not selected by mutual agreement of EDT and a majority in
interest of the Escrow Stockholders within sixty (60) days of the resignation of
Escrow Agent, the Escrow Agent shall have the right to institute a ▇▇▇▇ of
Interpleader or other appropriate judicial proceeding in any court of competent
jurisdiction, and shall be entitled to tender into the registry or custody of
any court of competent jurisdiction all money or property in its hand under the
terms of this Agreement, whereupon the parties hereto agree the Escrow Agent
shall be discharged from all further duties under this Agreement.
Notwithstanding the foregoing, any fees or expenses incurred or charged by
Escrow Agent in the ordinary course of performing its duties hereunder shall be
borne by EDT.
7. MISCELLANEOUS.
(a) NOTICE: Each party shall keep each of the other parties hereto advised
in writing of all transactions made pursuant to this Agreement. Any notices or
other communications required or permitted under this Agreement shall be in
writing and shall be sufficiently given if sent by registered or certified mail,
postage prepaid, addressed as follows, or if transmitted by facsimile to the
facsimile numbers identified herein, or to such other person or address as shall
be furnished in writing by any of the parties hereto, and any such notice or
communication shall be deemed to have been given as of the date so mailed or
transmitted. If notice to EDT or Acquisition Sub then, ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, fax no. (▇▇▇) ▇▇▇-▇▇▇▇. If notice to Paradigm
then, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, fax no.
_______________. If notice to ▇▇▇▇▇▇▇, then ______________, fax no.
_____________. If notice to D&S, then ________________, fax no. _______________.
If notice to the Escrow Agent, then ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇; fax no. (▇▇▇) ▇▇▇-▇▇▇▇, attention ▇▇▇▇▇ ▇. ▇▇▇▇, III.
(b) ENFORCEMENT: The validity, enforcement and construction of this
Agreement shall be governed by the laws of the State of Arizona, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, legatees, assigns and
transferees, as the case may be. The Escrow Agent shall be bound only by the
terms of this Agreement and shall not be bound by or incur liability with
respect to the Merger Agreement or any other agreement or understanding between
EDT, Acquisition Sub, the Escrow Stockholders, ThoughtWare, or any of them. The
Escrow Agent shall not be charged with notice or knowledge of any such ancillary
document, or of any fact or information not specifically set forth herein. The
Escrow Agent shall undertake to perform only such duties as are expressly set
forth herein and no additional or implied duties or obligations shall be read
into this Agreement against the Escrow Agent.
(c) SEVERABILITY. If any provision or section of this Agreement is
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement, which
shall remain enforceable in accordance with their terms.
(d) HEADINGS. The headings and subheadings contained in this Agreement are
for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
(e) EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
(f) AMENDMENTS. This Agreement may be amended from time to time but only by
written agreement signed by all of the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of the
day and year first above written.
EDT: ACQUISITION SUB:
EDT LEARNING, INC. TW ACQUISITION SUBSIDIARY, INC.
By: By:
---------------------------- ----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.,
President
ESCROW AGENT: PARADIGM:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P. PARADIGM THOUGHTWARE INVESTORS
By: BY: PARADIGM HOLDINGS, MANAGING PRRTNER
----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇, III
By:
----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
Managing Partner
D&S:
D&S REALTY, LLC
By:
----------------------------
▇▇▇▇▇▇▇:
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, individually
EXHIBIT A
The undersigned, Indemnitee, pursuant to Section 4 of the Escrow Agreement
dated ____________, 2002 (the "Escrow Agreement"), by and among EDT Learning,
Inc., a Delaware corporation ("EDT"), TW Acquisition Subsidiary, Inc., a
Delaware corporation, ThoughtWare Paradigm Investors ("Paradigm"), ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), D&S Realty, LLC, a Tennessee limited liability company
("D&S") (Paradigm, ▇▇▇▇▇▇▇ and D&S each, an "Escrow Stockholder" and
collectively, the "Escrow Stockholders"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P., as escrow
agent (in such capacity, the "Escrow Agent"), (terms defined in the Escrow
Agreement have the same meanings when used herein), hereby delivers this Notice
of Claim to you, the Escrow Agent, and hereby:
(a) certifies that Indemnitee has sent to the Escrow Stockholders a
written notification of a claim for indemnity pursuant to the terms of
the Escrow Agreement in the amount of $_______________; and
(b) instructs you to deliver to Indemnitee such number of shares of Escrow
Stock having a value equivalent to the amount set forth in paragraph
(a) above within five Business Days following the expiration of the
Objection Period, unless you receive an Objection Certificate from an
Escrow Stockholder prior to the expiration of the Objection Period, in
which case you are instructed to pay such amount (or any specified
portion thereof) within five Business Days following your receipt of a
Resolution Certificate or a Judgment Certificate.
[INDEMNITEE]
By:_________________________________
[Name], [Title]
Dated:_________________
EXHIBIT B
OBJECTION CERTIFICATE
The undersigned, Indemnitee, pursuant to Section 4 of the Escrow Agreement
dated ____________, 2002 (the "Escrow Agreement"), by and among EDT Learning,
Inc., a Delaware corporation ("EDT"), TW Acquisition Subsidiary, Inc., a
Delaware corporation, ThoughtWare Paradigm Investors ("Paradigm"), ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), D&S Realty, LLC, a Tennessee limited liability company
("D&S") (Paradigm, ▇▇▇▇▇▇▇ and D&S each, an "Escrow Stockholder" and
collectively, the "Escrow Stockholders"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P., as escrow
agent (in such capacity, the "Escrow Agent"), (terms defined in the Escrow
Agreement have the same meanings when used herein), hereby delivers this Notice
of Claim to you, the Escrow Agent, and hereby:
(a) disputes that the claims for Damages referred to in the Notice of
Claim dated ____________ are payable to Indemnitee pursuant to the
terms of Article 9 of the Merger Agreement;
(b) certifies that the undersigned has sent to Indemnitee a written
statement dated _____________ disputing the liability of the
undersigned to Indemnitee for such claim; and
(c) instructs you to withhold delivery to Indemnitee of such number of
shares of Escrow Stock having a value equivalent to the amount set
forth in paragraph (a) unless and until you receive a Resolution
Certificate or a Judgment Certificate, in which case you are
authorized to deliver Escrow Stock in an amount equal to such amount
(or any portion thereof) specified in such Resolution Certificate or
Judgment Certificate within five Business Days following your receipt
of such Resolution Certificate or a Judgment Certificate.
ESCROW STOCKHOLDER
By: _____________________________
Dated: _________________
EXHIBIT C
RESOLUTION CERTIFICATE
The undersigned, Indemnitee, pursuant to Section 4 of the Escrow Agreement
dated ____________, 2002 (the "Escrow Agreement"), by and among EDT Learning,
Inc., a Delaware corporation ("EDT"), TW Acquisition Subsidiary, Inc., a
Delaware corporation, ThoughtWare Paradigm Investors ("Paradigm"), ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), D&S Realty, LLC, a Tennessee limited liability company
("D&S") (Paradigm, ▇▇▇▇▇▇▇ and D&S each, an "Escrow Stockholder" and
collectively, the "Escrow Stockholders"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P., as escrow
agent (in such capacity, the "Escrow Agent"), (terms defined in the Escrow
Agreement have the same meanings when used herein), hereby delivers this Notice
of Claim to you, the Escrow Agent, and hereby:
(a) certify that Indemnitee and the undersigned Escrow Stockholder have
resolved their dispute as to the claims described in the Notice of
Claim dated _____________ and the related Objection Certificate dated
_____________ and that the amount owed with respect to the claims
described in such Certificates is $______________; and
(b) instruct you to deliver to Indemnitee such number of shares of Escrow
Stock having a value equivalent to the amount set forth in paragraph
(a) above, within five Business Days of your receipt of this
Resolution Certificate.
[INDEMNITEE]
By: _____________________________
[Name], [Title]
ESCROW STOCKHOLDER
By: _____________________________
Dated:_________________
EXHIBIT D
JUDGMENT CERTIFICATE
The undersigned, Indemnitee, pursuant to Section 4 of the Escrow Agreement
dated ____________, 2002 (the "Escrow Agreement"), by and among EDT Learning,
Inc., a Delaware corporation ("EDT"), TW Acquisition Subsidiary, Inc., a
Delaware corporation, ThoughtWare Paradigm Investors ("Paradigm"), ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), D&S Realty, LLC, a Tennessee limited liability company
("D&S") (Paradigm, ▇▇▇▇▇▇▇ and D&S each, an "Escrow Stockholder" and
collectively, the "Escrow Stockholders"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P., as escrow
agent (in such capacity, the "Escrow Agent"), (terms defined in the Escrow
Agreement have the same meanings when used herein), hereby delivers this Notice
of Claim to you, the Escrow Agent, and hereby:
(a) certifies that attached hereto is a copy of a final arbitration order
resolving the dispute between Indemnitee and the undersigned Escrow
Stockholder as to the claim described in the Notice of Claim dated
____________ and the related Objection Certificate dated
______________ and that the amount owed with respect to the claim
described in such Certificates, as provided in such judgment, is
$______________; and
(b) instruct you to deliver to Indemnitee such number of shares of Escrow
Stock having a value equivalent to the amount set forth in paragraph
(a) above, within five Business Days of your receipt of this
Resolution Certificate.
[INDEMNITEE]
By: _____________________________
[Name], [Title]
Dated:_________________
EXHIBIT E
INDEMNITEE CANCELLATION CERTIFICATE
The undersigned, Indemnitee, pursuant to Section 4 of the Escrow Agreement
dated ____________, 2002 (the "Escrow Agreement"), by and among EDT Learning,
Inc., a Delaware corporation ("EDT"), TW Acquisition Subsidiary, Inc., a
Delaware corporation, ThoughtWare Paradigm Investors ("Paradigm"), ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), D&S Realty, LLC, a Tennessee limited liability company
("D&S") (Paradigm, ▇▇▇▇▇▇▇ and D&S each, an "Escrow Stockholder" and
collectively, the "Escrow Stockholders"), and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P., as escrow
agent (in such capacity, the "Escrow Agent"), (terms defined in the Escrow
Agreement have the same meanings when used herein), hereby delivers this Notice
of Claim to you, the Escrow Agent, and hereby:
(a) certifies that it hereby releases [all] [specify portion] of the
claims designated in the Notice of Claim dated _________________ and
that, as a result, the remaining Damages claimed by Indemnitee with
respect to such Notice of Claim is $__________; and
(b) agrees that such Notice of Claim is, to the extent released as
provided in paragraph (a) above, canceled.
[INDEMNITEE]
By: _____________________________
[Name], [Title]
Dated:_________________
EXHIBIT B
FORM OF
OPINION LETTER BY COUNSEL OF THOUGHTWARE
EDT Learning, Inc.
December [ ], 2001
Page 2
December __, 2001
EDT Learning, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Plan of Reorganization and Agreement of Merger (the "Merger
Agreement"), dated December [ ], 2001, among EDT Learning, Inc.
("EDT"), TW Acquisition Subsidiary, Inc. ("Merger Sub"), ThoughtWare
Technolgies, Inc. (the "Company") and the Stockholders of the Company
Gentlemen:
We have acted as counsel to the Company in connection with the Merger
Agreement providing for the merger of the Company with and into Merger Sub.
Unless otherwise defined herein, terms used in this opinion which are defined in
the Merger Agreement are used herein as so defined.
For purposes of rendering our opinion, we have examined originals or copies
certified or otherwise identified to our satisfaction, of the Merger Agreement,
including all exhibits and schedules thereto, the Escrow Agreement, and such
other documents, agreements, corporate records and certificates as we have
deemed necessary for the purposes of this opinion. In our examination we have
assumed the genuineness of signatures or documents not executed in our presence,
the legal capacity of natural persons, the authority of the person executing any
document in a corporate, governmental, fiduciary or other capacity, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed,
photostatic, facsimile or electronic copies and the authenticity of the
originals of such copies, and the accuracy and completeness of all corporate
records made available to us by the Company and its agents. We have also assumed
that the other parties to the Merger Agreement have the power and authority to
execute, deliver and perform all agreements and documents executed by them, that
they have duly and validly executed and delivered such documents and agreements
and that such documents and agreements are legally valid and binding on and
enforceable against them.
In rendering this opinion we have also assumed: (A) that the Merger
Agreement has been duly and validly executed and delivered by the parties
thereto other than the Company and constitute valid, binding and enforceable
obligations upon such parties other than the Company; (B) that the
representations and warranties made in the Merger Agreement by EDT and Merger
Sub are true and correct; (C) that any wire transfers, drafts or checks tendered
by EDT and Merger Sub will be honored; (D) the genuineness of all signatures not
witnessed by us, the authenticity of documents submitted to us as originals, and
the conformity to originals of documents submitted as copies; (E) the legal
capacity of all natural persons executing the Merger Agreement; and (F) that
EDT Learning, Inc.
December [ ], 2001
Page 3
there are no oral or written statements or agreements that modify, amend, or
vary, or purport to modify, amend, or vary, any of the terms of the Merger
Agreement.
Our use of the term "to our knowledge," or similar phrases to qualify a
statement in this opinion means that those attorneys in this firm who are
primarily responsible for handling the proposed transaction pursuant to the
Merger Agreement for the Company do not have current actual knowledge that the
statement is inaccurate, but we have not performed any independent investigation
or verification as to the accuracy of such statements. No inference as to our
knowledge of any matters bearing on the accuracy of any such statement should be
drawn from the fact of our representation of the Company in connection with this
opinion letter or in other matters. As to relevant factual matters, we have
relied upon, among other things, the Company's factual representations in the
Merger Agreement and factual representations in certificates of officers of the
Company.
Based upon our examination of and reliance upon the foregoing and subject
to the limitations, exceptions, qualifications and assumptions set forth below,
we are of the opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware with corporate power and
authority to own its properties and to conduct its business as now conducted.
2. Immediately prior to the Effective Time, the authorized capital stock of
the Company consisted of [ ] shares of Company Common Stock. Immediately prior
to the Effective Time, the total number of shares of Company Common Stock
outstanding was [ ]. In addition, [ ] shares of Company Common Stock are subject
to outstanding Company Options. To our knowledge, the shares of Company Common
Stock that are issued and outstanding are duly authorized, validly issued, fully
paid and nonassessable.
3. The Merger Agreement has been duly approved by the Board of Directors of
the Company and adopted by its stockholders and is binding upon the Company.
4. Neither the execution, delivery or performance of the Merger Agreement
by the Company, nor the consummation by the Company of the transactions therein
contemplated, will result in the violation of any statute or regulation, or any
order or decree known to us of any court or government authority binding upon
the Company or its property, or conflict with or result in default under any of
the provisions of the Company's Certificate of Incorporation or Bylaws.
With respect to the opinions expressed herein, we advise you that with
respect to the enforceability of the Merger Agreement, (a) such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, and other
similar laws of general application relating to or affecting the rights and
remedies of creditors generally and (b) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defense and the discretion of any court before which any proceeding therefore
may be brought.
EDT Learning, Inc.
December [ ], 2001
Page 4
We are admitted to practice in the State of Tennessee. Accordingly, the
opinions set forth above are limited to the laws of the State of Tennessee and
the federal laws of the United States of America. To the extent that the laws of
any other jurisdiction other than the laws of the State of Tennessee and the
federal laws of the United States of America apply to any of the matters
addressed in the opinions set forth above, we have assumed, with your
permission, that the laws of such jurisdictions are identical to those of the
State of Tennessee, and we express no opinion herein as to whether such
assumption is reasonable or correct.
This opinion is rendered solely for your benefit in connection with the
transactions described above and is not to be used or relied upon by you for any
other purpose or by any other person for any purpose without our prior written
consent.
Very truly yours,
[ ]
By: ____________________________________
[ ], Esq.
EXHIBIT C
FORM OF
STOCKHOLDER LOCKUP AGREEMENT
LOCK-UP AGREEMENT
This Lock-Up Agreement (this "Agreement") is made and entered into as of
January __, 2002 (the "Effective Date"), by and between EDT Learning, Inc., a
Delaware corporation ("EDT"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("Stockholder").
WHEREAS, in connection with the transactions contemplated by that certain
Plan of Reorganization and Agreement of Merger (the "Merger Agreement") between
EDT, TW Acquisition Subsidiary, Inc. ("Acquisition Sub"), ThoughtWare
Technologies, Inc. ("ThoughtWare") and the Series B Stockholder of ThoughtWare
Technologies, Inc. ("Stockholder") pursuant to which ThoughtWare will be merged
with and into Acquisition Sub (the "Merger"), EDT has agreed to issue to
Stockholder [Number of Shares] shares of EDT Common Stock (the "Lock-Up
Shares");
WHEREAS, as a condition to and an inducement to EDT's agreement to
consummate the Merger, Stockholder has agreed to enter into this Agreement
covering all of the Lock-Up Shares; and
WHEREAS, the agreements of Stockholder contained herein are an important
aspect of the Merger and EDT would not have entered into the Merger Agreement
absent the covenant contained therein providing for the execution by Stockholder
of this Agreement.
NOW, THEREFORE, for and in consideration of the agreements and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
SECTION 1. LOCK-UP. Stockholder agrees not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase, hypothecate,
pledge, grant any rights with respect to or otherwise dispose (other than to
donees who agree to be similarly bound) the Lock-Up Shares, without the prior
written consent of EDT, for a period of one (1) year from the date hereof (the
"Lock-Up Period"). Notwithstanding the foregoing, 25% of the Lock-Up Shares will
be transferable 90 days after the date hereof, 50% of the Lock-Up Shares will be
transferable 180 days after the date hereof and 75% of the Lock-Up Shares will
be transferable 270 days after the date hereof, as long as any sale or transfer
effected prior to one year from the date hereof will be made only in a
transaction exempt from the registration requirements of federal and state
securities laws and in which the transferee agrees to be bound by the terms of
this Agreement.
SECTION 2. STOCK LEGEND. DURING THE LOCK-UP PERIOD, Stockholder agrees and
consents to the entry of stop transfer instructions with the transfer agent
against the transfer of the Lock-Up Shares held by Stockholder except in
compliance with the foregoing restrictions. Stockholder is aware that EDT is
relying upon this Agreement in entering into the Agreement and Plan of Merger,
Therefore the Lock-Up Shares issued will contain the following legend on each
certificate:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE DESIGNATED AS RESTRICTED
SHARES PURSUANT TO THE TERMS OF, AND ARE SUBJECT TO THE PROVISIONS OF, A
LOCK-UP AGREEMENT DATED JANUARY __, 2002 AS MAY BE AMENDED FROM TIME TO
TIME, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT AS
THEREIN PROVIDED. THE CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT TO
THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. THE
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") AND THEREFORE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION AND ONLY IN
ACCORDANCE WITH RULE 144 OF THE SECURITIES ACT.
SECTION 3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Arizona, without regard
to its choice of law principles.
SECTION 4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
EDT LEARNING, INC.
By: ________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.,
President
STOCKHOLDER:
________________________________
[Name of Stockholder]
Date:___________________________
Print Name:_____________________
EXHIBIT D
OPINION OF COUNSEL FOR EDT LEARNING, INC.
December__, 2001
ThoughtWare Technologies, Inc.
▇▇▇▇ ▇ & ▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Plan of Reorganization and Agreement of Merger (the "Merger Agreement"),
[dated ________, 2001], among EDT Learning, Inc. ("EDT"), TW Subsidiary,
Inc. ("Merger Sub"), ThoughtWare Technologies, Inc. (the "Company") and the
stockholders of the Company
Gentlemen:
We have acted as counsel to EDT and Merger Sub in connection with the
Merger Agreement providing for the merger of the Company with and into Merger
Sub. Unless otherwise defined herein, terms used in this opinion which are
defined in the Merger Agreement are used herein as so defined.
In reaching the conclusions expressed in this opinion, we have examined and
relied on such documents, corporate records and other instruments, including
certificates of public officials and certificates of officers of EDT and Merger
Sub, and have made such further investigation and inquiry relevant to the
transaction contemplated by the Agreement as we have deemed necessary to the
opinions expressed herein. We have assumed that all signatures on all documents
submitted to us are genuine, that all documents submitted to us as originals are
accurate and complete and that all documents submitted to us as copies are true,
correct and complete copies of the originals thereof.
Based solely upon the foregoing, subject to the comments and exceptions
hereinafter stated, and limited in all respects to the laws of the State of
Texas, the Delaware General Corporation Law and the United States of America, it
is our opinion that:
1. Each of EDT and Merger Sub is duly incorporated, validly existing, and
in good standing under the laws of the State of Delaware.
2. The Merger Agreement has been duly approved by the Board of Directors of
Merger Sub and adopted by its stockholder. The Merger Agreement has been duly
approved by the Board of Directors of EDT.
3. The shares of EDT Stock issuable pursuant to the Merger are duly
authorized and when issued will be validly issued, fully paid and nonassessable.
4. The Merger Agreement and the Escrow Agreement have been duly executed
and delivered by EDT and Merger Sub, as applicable, and are the legal, valid and
binding agreements of EDT and Merger Sub, as applicable, enforceable in
accordance with their respective terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally and except that equitable
remedies may not be available in connection with the enforcement thereof.
Page 1 of 2
ThoughtWare Technologies, Inc.
_______________, 2001
Page 2
5. To the best of our knowledge, except as set forth on SCHEDULE 5.6 to the
Merger Agreement, there are no suits, proceedings or investigations pending or
threatened against EDT or Merger Sub which might result in any material adverse
change in the financial condition or business of EDT or Merger Sub, or which
questions the validity of the Merger Agreement or any action taken or to be
taken pursuant to or in connection with the Merger Agreement.
6. Neither the execution and delivery of the Merger Agreement, nor any
performance thereunder, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, EDT's certificate of
incorporation or bylaws, Merger Sub's articles of incorporation or bylaws, or
any agreement, instrument, judgment, decree, regulation or other restriction, of
which we have knowledge and to which EDT or Merger Sub is a party or by which
either or their properties are bound.
For purposes of this opinion, "knowledge" of counsel shall mean (with
respect to matters of fact) that after an examination of documents made
available to counsel by EDT and Merger Sub and after inquiry of the officers and
directors of EDT and Merger Sub, but without any judgment or litigation searches
or any other independent factual investigation, counsel has no reason to believe
that statements made to such counsel's "knowledge" are factually incorrect.
"Knowledge" shall furthermore refer only to then current actual knowledge of
members of counsel's firm who have worked on matters for EDT and Merger Sub.
With respect to the opinions expressed herein, we advise you that with
respect to the enforceability of the Merger Agreement, (a) such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, and other
similar laws of general application relating to or affecting the rights and
remedies of creditors generally and (b) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and the discretion of any court before which any proceeding therefore
may be brought. Additionally, we express no opinion with respect to the
non-competition provisions of any agreement.
We do not render any opinion with respect to any matter except as
specifically set forth herein. This opinion is being delivered solely to you in
connection with the Merger Agreement and may not be delivered to or relied upon
by any other party or for any other purpose. This opinion is rendered as of the
date hereof, and we have not undertaken to supplement our opinion with respect
to factual matters or changes in the laws that may hereafter occur.
This opinion is provided to you solely for the purpose of complying with
the Merger Agreement, and, without our prior written consent, this opinion may
not be quoted in whole or in part or otherwise referred to in any report or
document or furnished to any person or entity other than your counsel or your
employees, except in response to a valid subpoena or other lawful process.
Very truly yours,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ L.L.P.
SCHEDULES
TO THE
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
BY AND AMONG
EDT LEARNING, INC.
A DELAWARE CORPORATION,
TW ACQUISITION SUBSIDIARY, INC.
A DELAWARE CORPORATION,
THOUGHTWARE TECHNOLOGIES, INC.
A DELAWARE CORPORATION
AND
CERTAIN STOCKHOLDERS OF THOUGHTWARE TECHNOLOGIES, INC.
DATED JANUARY 11, 2002
The attached Schedules to the Plan of Reorganization and Agreement of
Merger among EDT Learning, Inc., a Delaware corporation ("EDT"), TW Acquisition
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of EDT
("ACQUISITION SUBSIDIARY"), ThoughtWare Technologies, Inc., a Delaware
corporation ("ThoughtWare"), and certain stockholders of ThoughtWare (the
"STOCKHOLDERS"), dated as of January 11, 2002 (the "AGREEMENT"), contains
certain disclosures that are required by the terms of the Agreement. The section
numbers in the attached Schedules correspond to the section numbers in the
Merger Agreement. Capitalized terms not otherwise defined herein, as the context
requires, shall have the meanings assigned to them in the Agreement.
The information contained in these Schedules may be over-inclusive in the
sense that certain parts of these Schedules may contain more information that is
required to be disclosed under the terms of the Agreement. The inclusion of such
information shall not be construed to expand in any way the scope or substance
of any of the representations, warranties or covenants set forth in the body of
the Agreement.
SCHEDULES
TABLE OF CONTENTS
Schedule 1.6 Directors and Officers of Acquisition Subsidiary
Schedule 3.1 Organization, Standing and Authority of EDT
Schedule 3.2 Absence of Conflicting Agreements or Required Consents
Relating to EDT's Obligations
Schedule 3.5 Financial Statements
Schedule 3.6 Litigation and Claims
Schedule 3.7 Undisclosed Liabilities
Schedule 3.8 Violations of Law
Schedule 5.3 Sale of Shares
Schedule 5.4 Issuance of Shares
Schedule 11.5 Brokers
SCHEDULES TO THE MERGER AGREEMENT
SCHEDULE 1.6 DIRECTORS AND OFFICERS OF ACQUISITION SUBSIDIARY
1. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. is President, Chief Executive Officer and the
sole Director of TW Acquisition Subsidiary, Inc.
2. ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇. is the Secretary of TW Acquisition Subsidiary, Inc.
SCHEDULE 3.1 ORGANIZATION, STANDING AND AUTHORITY OF EDT
1. EDT Learning, Inc. is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware
and is authorized to do business and is in good standing under the
laws of the States of Arizona and Tennessee.
2. TW ACQUISITION SUBSIDIARY, INC. IS A CORPORATION DULY ORGANIZED AND
VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF
DELAWARE AND IS AUTHORIZED TO DO BUSINESS AND IS IN GOOD STANDING
UNDER THE LAWS OF THE STATE OF ARIZONA.
SCHEDULE 3.2 REQUIRED CONSENTS RELATING TO EDT'S OBLIGATIONS
1. Consent of Bank One, NA under that certain credit Agreement between
EDT and Bank One.
2. Consent of the American Stock Exchange to the issuance of the stock
consideration to the Learning Edge Stockholders.
SCHEDULE 3.5 FINANCIAL STATEMENTS OF EDT.
1. Attached hereto as EXHIBIT 3.5 are copies of EDT's audited financial
statements for the periods reflected therein.
SCHEDULE 3.6 LITIGATION AND CLAIMS.
1. Lawsuits pending between EDT and affiliated dental practices:
(a) ▇-▇▇▇▇▇▇▇.▇▇▇, INC. FORMERLY KNOWN AS PENTEGRA DENTAL GROUP, INC.
V. ▇▇▇▇ ▇▇▇▇▇▇▇▇, DDS, PC, JOINTLY AND SEVERALLY WITH ▇▇▇▇
▇▇▇▇▇▇▇▇, GUARANTOR, Cause # 200055331 in the District Court,
215th Judicial District, ▇▇▇▇▇▇ County, Texas; EDT claims breach
of contract and damages in excess of $200,000. ▇▇▇▇▇▇▇▇ denies
the amount.
(b) ▇-▇▇▇▇▇▇▇.▇▇▇ FORMERLY KNOWN AS PENTEGRA DENTAL GROUP, INC., A
DELAWARE CORPORATION, PLAINTIFF ▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, DDS AND
▇▇▇▇▇▇ ▇▇▇▇, HUSBAND AND WIFE, AND CHAPEL STREET DENTAL
ASSOCIATES, PC, A TENNESSEE CORPORATION, DEFENDANTS, Cause #
CV2001-009201 in Superior Court of the State of Arizona in and
for the County of Maricopa. EDT claims damages for breach of
contract in an amount exceeding $100,000. The underlying
contractual document is a "Modification Agreement of the Service
Agreement". Ford has counterclaimed for breach of contract and
misrepresentation and other state statutory causes of action.
There is no current trial setting.
(c) ▇-▇▇▇▇▇▇▇.▇▇▇ FORMERLY KNOWN AS PENTEGRA DENTAL GROUP, INC., A
DELAWARE CORPORATION, PLAINTIFF V. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇. JR., DMD AND
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, HUSBAND AND WIFE, AND S.R. ENTERPRISES, INC.,
AN ARIZONA CORPORATION, DEFENDANTS, Cause # CV2001-012438 in
Superior Court of the State of Arizona in and for the County of
Maricopa. EDT claims damages for breach of contract in an amount
exceeding $100,000. The underlying contractual document is a
"Modification Agreement of the Service Agreement." ▇▇▇▇▇▇▇ has
counterclaimed for breach of contract and misrepresentation and
other state statutory causes of action. There is no current trial
setting. ▇▇. ▇▇▇▇▇▇▇ recently filed for protection under the U.S.
Bankruptcy Code, Chapter 13, personal bankruptcy. EDT is
attempting to recover its assets from the Bankruptcy Trustee and
to recover sums due under the agreements from the Bankruptcy
estate.
(d) EDT LEARNING INC. V. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, DDS AND ▇▇▇▇▇▇▇ DENTAL
SERVICES, INC. EDT claims damages for breach of contract in an
amount exceeding $200,000. The underlying contractual document is
a "Membership Agreement." EDT claims damages for breach of
contract in an amount exceeding $100,000. There is no current
trial setting.
(e) EDT LEARNING INC. V. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, DMD AND ▇▇▇▇▇ DENTAL
CORPORATION, PC, Cause to be filed in Superior Court of the State
of Arizona in and for the County of Maricopa. EDT claims damages
for breach of contract in an amount exceeding $175,000. The
underlying contractual document is a "Modification Agreement of
the Service Agreement." There is no current trial setting.
(f) EDT LEARNING INC. V. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, DDS AND ▇. ▇. ▇▇▇▇▇▇,
DDS, PC, Cause # CV2001-021158 in Superior Court of the State of
Arizona in and for the County of Maricopa. EDT claims damages for
breach of contract in an amount exceeding $500,000. The
underlying contractual document is a "Modification Agreement of
the Service Agreement." There is no current trial setting.
(g) EDT LEARNING INC. V. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, DDS AND ▇▇▇▇ ▇▇▇▇▇▇▇▇,
DDS, PC. EDT claims damages for breach of contract in an amount
exceeding $300,000. The underlying contractual document is a
"Modification Agreement of the Service Agreement." Default
letters have been tendered and EDT intends to pursue litigation
if EDT's demands for payment are not satisfied.
(h) EDT LEARNING INC. V. S. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, DDS AND S. VIC.
UHRENHOLDT, DDS, PC, Cause # CV2001-021157 in Superior Court of
the State of Arizona in and for the County of Maricopa. EDT
claims damages for breach of contract in an amount exceeding
$100,000. The underlying contractual document is a "Membership
Agreement." There is no current trial setting.
(i) ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, DDS AND ▇▇▇ ▇▇▇▇▇▇▇▇▇, DDS, PC, AN OKLAHOMA
PROFESSIONAL CORPORATION, PLAINTIFF V. ▇-▇▇▇▇▇▇▇.▇▇▇, INC.
FORMERLY KNOWN AS PENTEGRA DENTAL GROUP, INC., A DELAWARE
CORPORATION; ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., DDS; BANK ONE, TEXAS, NA, A
NATIONAL BANKING ASSOCIATION AND HPSC, INC., A DELAWARE
CORPORATION, DEFENDANTS, Cause # CIV-00-2053-R in the U.S.
District Court for the Western District of Oklahoma) and Arizona
(PENTEGRA DENTAL GROUP, INC., A DELAWARE CORPORATION, PLAINTIFF
V. ▇▇▇ ▇▇▇▇▇▇▇▇▇, DDS AND ▇▇▇▇ ▇▇▇ CENTRACCO, HUSBAND AND WIFE,
AND ▇▇▇ ▇▇▇▇▇▇▇▇▇, DDS, PC, AN OKLAHOMA PROFESSIONAL CORPORATION,
Cause # CV-00-2303-PHX-EHC in U.S. District Court, District of
Arizona). EDT claims damages for breach of contract in an amount
exceeding $500,000. The underlying contractual document is a
"Service Agreement". Centracco has claims for breach of contract,
securities fraud, misrepresentation and other state and federal
statutory causes of action and claims damages in excess of
$500,000. There is no current trial setting but discovery is in
process.
2. EDT was recently added by Transcitadel (landlord) as a party to a
dispute concerning default of the premises lease of ▇▇. ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ (PLAINTIFF: TRANSCITADEL, LLC V. DEFENDANTS: ▇-▇▇▇▇▇▇▇.▇▇▇,
INC. FORMERLY KNOWN AS PENTEGRA DENTAL GROUP, INC. (SUCCESSOR TO OMEGA
ORTHODONTICS, INC.) AND ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., THIRD PARTY
PLAINTIFF: ▇-▇▇▇▇▇▇▇.▇▇▇, INC.,. THIRD PARTY DEFENDANT: ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇, DDS AND ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, INDIVIDUALLY, ▇▇▇▇ # ▇▇▇▇▇▇▇▇
in the District Court, El Paso County, State of Colorado). ▇▇.
▇▇▇▇▇▇▇▇▇▇ had acquired the dental practice of ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
▇▇. ▇▇▇▇▇▇▇▇▇▇ executed the EDT form service agreement and
modification agreement providing for the assumption of the premises
lease. ▇▇. ▇▇▇▇▇▇▇▇▇▇ defaulted on the lease which prompted the
landlord to ▇▇▇ EDT. EDT has in turn filed counterclaims against ▇▇.
▇▇▇▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇. The court recently granted a summary
judgment against ▇▇▇▇▇▇▇▇▇▇ for $46,000 and any future amounts. EDT
settled its claims with Transcitadel for a payment for $75,000,
$50,000 in January 2002 and ten monthly installments thereafter.
3. EDT has a pending dispute with former employee and director, ▇▇. ▇▇▇▇
▇▇▇▇. ▇▇. ▇▇▇▇ claims that he is owed sums pursuant to his employment
agreement for vacation pay, underpayment of salary and as a part of a
bonus plan. EDT disputes the amount claimed and has put ▇▇. ▇▇▇▇ on
notice of violations of his employment agreement, breach of his
covenant not to compete and possible other actions which may give rise
to breach of fiduciary duty and tortious interference with contract.
On July 27, 2001 ▇▇. ▇▇▇▇ submitted a Demand for Arbitration with the
American Arbitration Association. ▇▇. ▇▇▇▇ has claimed damages in
excess of $300,000. EDT is disputing his claims and filed a
counterclaim for damages. Mediation on December 17, 2001 resulted in a
settlement with payment to ▇▇. ▇▇▇▇ as follows: $75,000 in cash -
$25,000 paid on January 1, 2002 with remaining balance to be paid in
$5,000 monthly payments beginning February 1, 2002 until paid and
53,571 Shares of EDT Common Stock to be transferred to ▇▇. ▇▇▇▇
between January 1, 2002 and February 1, 2002.
4. In the matter styled EDT LEARNING, INC., FORMERLY KNOWN AS
▇-▇▇▇▇▇▇▇.▇▇▇, INC. AND PENTEGRA DENTAL GROUP, INC., A DELAWARE
CORPORATION VS. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, AN INDIVIDUAL; ▇▇▇▇ DOES AND ▇▇▇▇
DOES I-X; AND XYZ CORPORATIONS 1-10, EDT was granted a Temporary
Restraining Order to enjoin and restrain ▇▇. ▇▇▇▇▇▇▇▇, a former
employee, from interfering with the contracts and business
relationships of EDT by contacting affiliate dentists for the purpose
of encouraging them to join a lawsuit against EDT. This case is now in
the discovery phase.
SCHEDULE 3.7 UNDISCLOSED LIABILITIES.
1. EDT (while as Pentegra) employed all persons who worked at the
respective affiliated dental practice (except the dentist). EDT for a
time had over 1,000 employees and accordingly provided benefits and
payroll to those dental practice employees. As a part of the
modification of the Service Agreements with the affiliated dental
practices, each practice agreed to re-employ those dental practice
employees, and in most instances indemnity EDT for any employment
related claims of any dental practice employee. Employment claims
could be asserted by those dental practice employees as former
employees of EDT.
2. EDT was the sponsor of an employee benefit plan (the "Plan") which
covered all employees including employee which were employed by
Pentegra but physically located at each affiliated dental practice
location. That requirement plan was intended to be qualified under
Section 401 of the Internal Revenue Code, and was a multi-employer
plan. Several affiliated dental practice professional corporations
adopted to Plan. That Plan was terminated as a part of the
modification of the Service Agreements with the affiliated dental
practices. A part of that modification was the termination of all
"dental practice employees" by Pentegra and the re-hiring of those
dental practice employees by the respective dental practices with
which they were originally employed prior to the affiliation. Those
employees may have claims under ERISA or the IRS Code for employee
benefits. The IRS could take the position that the Plan was not in
compliance with ERISA or the Code given the relationship of the
employees in the Plan and the affiliated service group rules related
to qualified retirement plans. Reference is made to the due diligence
materials provided, including the Plan documents and the filings
related to the Plan for employees which work at the respective dental
practices.
3. EDT as a part of the affiliation transaction with each affiliated
dental practice executed, in most instances, a lease for the dental
office premises. In many instances those landlords are third parties
unrelated to the dental practice affiliated with EDT. There is a
probability that EDT could be engaged in a lawsuit with those
landlords should the dental practice default in the payment of monthly
rent (See ▇▇▇▇▇▇▇▇▇▇ Claim above). Each dental practice has expressly
assumed their respective premises lease and EDT has written indemnity
from each of dental practice related to any default in the premises
lease. EDT has received default letters occasionally from the landlord
related to the ▇▇▇▇▇▇▇▇/Van Zandt dental practice in Houston.
4. EDT has received periodically an early payoff of the fees which are
due under the Service Agreements from its affiliated dental practices.
EDT has granted to Bank One an assignment of its security interests
which EDT obtained from its affiliated dental practice. As a part of
the windup and full payment by the affiliated practice, Bank One (with
which it has a contractual lending relationship) and/or HPSC (with
which it has a contractual credit agreement concerning dental
equipment) could claim violation of their respective credit agreement
as a part of the release of EDT's security interest and/or conveyance
of title of dental practice assets.
SCHEDULE 3.8 VIOLATIONS OF LAW.
1. Reference is made to the items described in Schedule 4.6 and Schedule
4.7 above. Certain dental practices with which EDT has pending
litigation (see descriptions above) have alleged that EDT violated
certain state and federal statutes concerning the issuance of stock,
the offering of a "business opportunity" and the operation of a dental
practice in their respective jurisdictions.
2. Certain states have statutory prohibitions against "fee splitting" of
professional fees earned by licensed dentists. Reference is made to
the public filings which describe the risk that certain regulatory
organizations could claim that EDT is engaged in fee splitting or
other unauthorized acts related to the practice of dentistry.
SCHEDULE 5.3 SALE OF SHARES
None
SCHEDULE 5.4 ISSUANCE OF SHARES
None
SCHEDULE 11.5 BROKERS
None
EXHIBIT 3.5
FINANCIAL STATEMENTS OF EDT
Attached hereto are the audited financial statements (SEC Form 10K) for the
period ending March 31, 2001, together with the financial statements for the
quarterly periods (SEC Form 10Q) ending June 30, 2001 and September 30, 2001.
▇-▇▇▇▇▇▇▇.▇▇▇, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, MARCH 31,
2001 2000
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ............................................. $ 1,051 $ 553
Receivables from Affiliated Practices, net of allowance
for doubtful accounts of $1,147 and $3,269, respectively ............. 195 2,966
Prepaid expenses and other current assets ............................. 128 499
Notes receivable from Affiliated Practices-current, net
of allowance for doubtful accounts of $323 and $427, respectively.... 261 421
-------- --------
Total current assets ............................................. 1,635 4,439
Property and equipment, net ........................................... 3,279 6,886
Intangible assets, net ................................................ 3,107 25,786
Notes receivable from Affiliated Practices, net of allowance
for doubtful accounts of $1,766 and $1,287, respectively ............ 1,059 709
Other assets .......................................................... 111 86
-------- --------
Total assets ..................................................... $ 9,191 $ 37,906
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long term debt ..................................... $ 471 $ 492
Accounts payable and accrued liabilities .............................. 959 1,702
Current portion of deferred revenue ................................... 1,052 206
Accrued employment agreement .......................................... 248 400
Current portion of capital lease liabilities .......................... 345 309
-------- --------
Total current liabilities ........................................ 3,075 3,109
Long term debt, less current maturities ................................. 11,461 14,829
Capital lease liabilities ............................................... 643 961
Deferred revenue ........................................................ 666 --
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $.001 par value 40,000,000 shares authorized,
11,721,664 and 10,820,783 issued, respectively ....................... 12 11
Additional paid-in capital ............................................ 25,809 25,604
Accumulated deficit ................................................... (31,349) (6,432)
Less: Treasury shares at cost: 1,149,116, and 154,748,
respectively ........................................................ (1,126) (176)
-------- --------
Total shareholders' equity (deficit) ............................. (6,654) 19,007
-------- --------
Total liabilities and shareholders' equity (deficit) ............. $ 9,191 $ 37,906
======== ========
The accompanying notes are an integral part of the
consolidated financial statements
▇-▇▇▇▇▇▇▇.▇▇▇, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2001 2000 1999
-------- -------- --------
Net revenue ................................................................. $ 12,458 $ 56,988 $ 38,824
Operating expenses:
Clinical salaries, wages and benefits ..................................... 3,452 22,957 14,735
Dental supplies and lab fees .............................................. 285 10,134 7,133
Rent ...................................................................... 176 3,922 2,963
Advertising and marketing ................................................. 33 1,380 785
General and administrative ................................................ 7,340 10,586 4,497
Other operating expenses .................................................. 192 7,993 5,627
Impairment of assets ...................................................... 23,0000 -- --
Depreciation and amortization ............................................. 2,368 2,504 1,200
-------- -------- --------
Total operating expenses ............................................. 36,846 59,476 36,940
-------- -------- --------
Earnings (loss) from operations ............................................. (24,388) (2,488) 1,884
Interest expense ............................................................ 1,358 1,310 399
Interest income ............................................................. (352) (208) (188)
Other income ................................................................ (407) (93) (44)
-------- -------- --------
599 1,009 167
Income (loss) before income taxes and extraordinary item .................... (24,987) (3,497) 1,717
Income tax expense (benefit) ................................................ -- 2,213 (525)
-------- -------- --------
Income (loss) before extraordinary item ..................................... (24,987) (5,710) 2,242
Extraordinary item--gain on debt forgiveness (net of tax effect of $0)....... 70 350 --
-------- -------- --------
Net income (loss) .................................................... $(24,917) $ (5,360) $ 2,242
======== ======== ========
Basic and diluted earnings per share:
Earnings (loss) before extraordinary item ................................. $ (2.38) $ (0.55) $ 0.29
Extraordinary item ........................................................ .01 .03 --
-------- -------- --------
Net earnings (loss) ....................................................... $ (2.37) $ (0.52) $ 0.29
======== ======== ========
Weighted average number of shares outstanding--basic and diluted ............ 10,496 10,356 7,803
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements
▇-▇▇▇▇▇▇▇.▇▇▇, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
COMMON ADDITIONAL TOTAL
------------------ PAID IN ACCUMULATED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY (DEFICIT)
------ ------ ------- ------- ----- ----------------
Balances, April 1, 1998 ....................... 6,442 $ 6 $ 10,304 $ (3,314) $ $ 6,996
Issuance of common stock ...................... 375 1 2,870 -- -- 2,871
Issuance of common stock to Affiliated
Practices .................................... 2,286 2 8,494 -- -- 8,496
Tax benefit related to assets acquired in
affiliations.................................. -- -- 155 -- -- 155
Net income .................................... -- -- -- 2,242 -- 2,242
------ ----- -------- -------- -------- --------
Balances, March 31, 1999 ...................... 9,103 9 21,823 (1,072) 20,760
Issuance of common stock ...................... 1,893 2 3,836 -- 3,838
Shares repurchased ............................ (175) -- (297) -- (176) (473)
Issuance of options for compensation .......... -- -- 54 -- -- 54
Net loss ...................................... -- -- -- (5,360) -- (5,360)
Tax benefit related to assets acquired in
affiliations.................................. -- -- 188 -- -- 188
------ ----- -------- -------- -------- --------
Balances, March 31, 2000 ...................... 10,821 11 25,604 (6,432) (176) 19,007
Issuance of common stock ...................... 998 1 307 -- -- 308
Shares repurchased ............................ (97) -- (102) -- (950) (1,052)
Net loss ...................................... -- -- -- (24,917) -- (24,917)
------ ----- -------- -------- -------- --------
Balances, March 31, 2001 ...................... 11,722 $ 12 $ 25,809 $(31,349) $ (1,126) $ (6,654)
====== ===== ======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements
▇-▇▇▇▇▇▇▇.▇▇▇, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income (loss) .................................................... $(24,917) $ (5,360) $ 2,242
Adjustment to net income (loss):
Provision for bad debts ............................................ 1,705 4,505 125
Impairment of assets ............................................... 23,000 -- --
Depreciation and amortization ...................................... 2,368 2,504 1,200
Stock options compensation ......................................... -- 54 --
Gain on debt forgiveness ........................................... (70) (350) --
Deferred income taxes (benefit) .................................... -- 2,161 (525)
Changes in operating assets and liabilities:
Receivables from Affiliated Practices ............................ 110 (2,383) (5,784)
Prepaid expenses and other current assets ........................ 111 (168) (364)
Other assets ..................................................... 75 -- --
Accounts payable and accrued liabilities ......................... (773) (1,401) (63)
Deferred revenue ................................................. (85) -- --
Accrued employment agreement ..................................... (152) (190) (310)
-------- -------- --------
Net cash provided by (used in) operating activities ........ 1,372 (628) (3,479)
-------- -------- --------
Cash flows from investing activities:
Repayment of notes receivable ...................................... 533 116 --
Capital expenditures ............................................... (138) (347) (1,424)
Acquisitions, net of cash acquired ................................. -- (472) (10,326)
Issuance of notes receivable ....................................... (24) (279) (1,257)
-------- -------- --------
Net cash provided by (used in) investing activities ........ 371 (982) (13,007)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common and redeemable preferred stock..... -- -- 2,930
Proceeds from line of credit ....................................... -- 2,100 8,000
Repayment of long-term debt ........................................ (1,245) (984) --
Offering and financing costs ....................................... -- -- (105)
-------- -------- --------
Net cash provided by (used in) financing activities ........ (1,245) 1,116 10,825
-------- -------- --------
Net change in cash and cash equivalents .................... 498 (494) (5,661)
Cash and cash equivalents, beginning of period ....................... 553 1,047 6,708
-------- -------- --------
Cash and cash equivalents, end of period ............................. $ 1,051 $ 553 $ 1,047
======== ======== ========
The accompanying notes are an integral part of the financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
RECENT EVENTS
In the fourth quarter of fiscal year 2000, the Company announced that it
would be implementing a new business strategy to change from its historical
practice management business to a focus on an eBusiness and e-Learning strategy.
The Company's new strategic direction includes Business-to-Business (B2B) online
services and e-Learning services through its Internet or online portal found at
▇▇▇.▇-▇▇▇▇▇▇▇.▇▇▇. This shift in business model and focus was approved by the
shareholders at the annual shareholder meeting held in Phoenix, Arizona on
August 25, 2000. The shareholders also approved the Company's name change to
▇-▇▇▇▇▇▇▇.▇▇▇, Inc. The Company is proposing to change its name from
▇-▇▇▇▇▇▇▇.▇▇▇, Inc. to "EDT Learning, Inc." to more accurately reflect its
current business model and the expansion of the scope of its business offering
which focuses on providing e-Learning tools and systems to corporate clients
inside and outside of the dental industry. A name change of the Company to "EDT
Learning, Inc." was approved by the Board in June 2001. The name change will be
submitted to a shareholder vote at the August 2, 2001 Annual Shareholders
Meeting.
As a part of the new business plan approved by shareholders, the Company
modified the Affiliated Service Agreements, which were acceptable to both the
Company and the Affiliated Practices. The new modified Service Agreements
provide in general that:
1. The term of the Service Agreement has been reduced from its original
term of 30 to 40 years to a new term of only five (5) years from the
original date of execution.
2. All dental practice employees have become employees of the dental
practice, and accordingly the associated payroll and practice expenses
are being paid by the dentist and not the Company.
3. Service Fees have been reduced to a level approximating 90% of fiscal
year 2000 fees and fixed in amount for the balance of the Service
Agreement term.
4. All accounts receivable outstanding were either paid or converted to
an interest-bearing promissory note (average three-year term with an
annual interest rate of 10%).
5. The tangible practice assets originally contributed by the dental
practice will be transferred back to the dental practice at the end of
the amended Management Services Agreement term for a nominal value.
6. The Company be released by the dentist and dental practice of all
known and unknown claims by the dentist including breach of the
Service Agreement, securities claims or other claims related to the
affiliation transaction.
As of March 31, 2001, all but one of the active Service Agreements have
been modified or terminated. As a result of the modifications and terminations
of the Service Agreements, the Company prepared an impairment analysis to
determine the recoverability of the Management Services Agreement intangible
assets and fixed assets grouped at the practice level. The Company prepared the
analysis by calculating the expected discounted future cash flows under modified
contracts less the carrying amount of the intangible asset and fixed assets to
determine the impairment charge. Based on the modified and terminated Service
Agreements, the Company recorded a charge due to impairment of approximately $23
million for the year ended March 31, 2001. The fair value of the remaining
intangible assets associated with the Service Agreements is being amortized over
the remaining term of the modified Service Agreements.
EXPANSION OF MODEL AND FOCUS
As an extension of its educational and training background, the Company has
broadened its reach to focus on the larger growing e-Learning and corporate
training market. With the launch of the Company's state of the art learning
management system (LMS) and its e-Learning engine, the Company now provides a
comprehensive array of e-Learning content, hosting and delivery services to
corporations across industry boundaries. The Company's synchronous and
asynchronous content delivery solutions provide an array of e-Learning products
that are customized to each corporate client. The Company's initial business
model required that it be able to communicate with 107 remote locations using
the Intranet through low bandwidth dial up modems in a secure environment. To
communicate with its Affiliated Practices the Company built a proprietary
Intranet (virtual private network), which processed secure financial
transactions. From that experience and using existing technology and systems,
the Company created the e-Learning engine and LMS, which provides an integrated
solution for corporate clients. The Company's learning management system was
created to be a web based, low bandwidth, cross browser compatible content
delivery and data management system.
The Company's LMS delivers web enabled content through a series of server
side components. Because of its design, the interface can be optimized to use
less than 20K of bandwidth and can deliver any web-enabled content (from
documents and presentations to video.) The testing system is database enabled,
which provides the flexibility to create test questions according to testing
requirements. The system has the ability to provide multiple test environments
to meet user needs and questions that can be changed by the administrator.
Testing options include open book tests, closed book tests, timed tests, random
question tests, or smart tests (test questions by category or lessons that are
designed to identify skill weaknesses). Lessons and courses are designed with
pre and post tests and all testing activity is recorded into a database.
LIQUIDITY AND MANAGEMENT PLANS
During fiscal 2001, the Company incurred a net loss of $24.9 million and
had an accumulated deficit of $31.3 million at March 31, 2001. In addition, the
Company had a working capital deficit of $1.4 million at March 31, 2001.
As discussed in Note 10, at March 31, 2001, the Company was not in
compliance with certain of the financial covenants of the line of credit. At
March 31, 2001, $9.3 million was outstanding under the line of credit. In
conjunction with the extension discussed below, the bank has waived
non-compliance of certain financial ratios at March 31, 2001.
On June 29, ▇▇▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇▇, NA extended the terms of the credit
facility through July 2, 2002. In connection with the extension, the Company
will issue 393,182 warrants to acquire shares of the Company's common stock at
$0.42 per share. Until the credit facility is paid in full, the bank will have
the right to maintain a 3% fully diluted interest in the Company through the
issuance of additional warrants. The Company also paid $61,000 in fees to the
bank as part of the extension.
Terms of the extension include monthly principal payments of $25,000 and
modification of the financial covenants. The Company has prepared financial
projections through the term of the extension and believes it will be in
compliance with the financial covenants.
As discussed above, the bank credit facility due date has been extended to
July 2, 2002. Based upon its current strategy, the Company projects to have
sufficient funds to meet its operating capital requirements through fiscal 2002,
however, there would not be sufficient cash flow to fund the credit facility
obligation due July 2, 2002. Management believes it will be able to replace the
credit facility with other bank financing alternatives or refinancing of its
current line of credit. There is no assurance that other financing will be
available to refinance the current line of credit in sufficient amounts, if at
all, and there can be no assurance that the related terms and conditions will be
acceptable to the Company. Failure of the Company to obtain such alternative
financing or refinancing of its current line of credit would have a material and
adverse effect on the Company's financial position.
In order to increase its liquidity, the Company has developed the following
strategies; (i) implement its revised eCommerce and e-Learning based strategic
alternative described above, (ii) reducing costs in the Company's corporate
office, and (iii) raising additional capital through a private placement.
However, there can be no assurance that the Company's strategies will be
achieved.
ORGANIZATION AND BASIS OF PRESENTATION
Pentegra Dental Group, Inc. (the "Company") together with its wholly owned
subsidiary, Pentegra Investments, Inc. ("PII"), provides practice management
services to dental practices throughout the United States. In July 1997,
Pentegra Dental Group, Inc., changed its name to Pentegra Investments, Inc. and
formed a new wholly owned subsidiary named Pentegra Dental Group, Inc.
("Pentegra Dental" or "the Company"). On March 30, 1998, simultaneously with the
Company's initial public offering, PII repurchased (the "Share Repurchase") from
the stockholders of PII, on a pro rata basis, at a purchase price of $0.015 per
share, that number of shares as was necessary so that the aggregate number of
shares of Pentegra Dental common stock, par value $.001 per share (the "Common
Stock"), issued in connection with the Affiliations (as defined below) and the
Share Exchange (as defined below) would not exceed 3,941,898 shares. Pursuant to
that agreement, PII repurchased 909,237 shares for $14,000 and exchanged on a
share-for-share basis, shares of PII common stock, par value $0.015 per share,
for 1,756,667 shares of Common Stock (the "Share Exchange"). On March 30, 1998,
Pentegra Dental acquired (the "Affiliations") simultaneously with the closing of
its initial public offering (the "Offering" or "IPO"), substantially all of the
tangible and intangible assets, and assumed the liabilities, of 50 dental
practices (collectively, the "Founding Affiliated Practices") in exchange for
3.1 million shares of Common Stock, $6.5 million in cash and net assets assumed
of approximately $300,000. The net proceeds of the 2.5 million shares of Common
Stock issued in the IPO (after deducting the underwriting discounts and
commissions) were $19.8 million. Total related offering costs were $3.4 million.
The acquisitions of the Founding Affiliated Practices have been accounted
for in accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 48, "Transfers of Non-monetary Assets by Promoters or
Shareholders". In accordance with SAB No. 48, the acquisition of the assets and
assumption of certain liabilities for all of the Founding Affiliated Practices
pursuant to the Affiliations has been accounted for by the Company at the
transferors' historical cost basis, with the shares of Common Stock issued in
those transactions being valued at the historical cost of the non-monetary
assets acquired net of liabilities assumed. The cash consideration of
approximately $6.5 million, paid at closing on March 30, 1998, less net assets
acquired of approximately $300,000, is reflected as a dividend by the Company to
the owners of the Founding Affiliated Practices in the quarter ended March 31,
1998. SAB No. 48 is not applicable to any acquisitions made by the Company
subsequent to the IPO. Acquisitions of certain of the assets and liabilities of
practices that affiliate with the Company after the IPO have been accounted for
as purchases, and resulted in substantial annual non-cash amortization charges
for intangible assets in the Company's statements of operations.
In April 1998, the over allotment option to sell 375,000 shares of Common
Stock was exercised at a price of $8.50 per share, yielding additional net
proceeds to the Company of approximately $2.9 million.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated upon consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less at the date of acquisition to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the various classes
of depreciable assets, ranging from three to seven years. Maintenance and
repairs are charged to expense whereas renewals and major replacements are
capitalized. Gains and losses from dispositions are included in operations.
INTANGIBLE ASSETS
The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the affiliated dental
practices. As part of the purchase allocation, the Company allocated the
purchase price to the tangible assets acquired and liabilities assumed, based on
estimated fair market values. In connection with each acquisition, the Company
entered into a long-term Management Services Agreement with each affiliated
dental practice, which cannot be terminated individually by either party without
cause. The cost of the Management Services Agreement was originally being
amortized on a straight-line basis over the lessor of its term or 25 years. As
discussed in Note 1, the Management Services Agreements were modified during
fiscal 2001 and are now being amortized over the remaining term of the modified
Service Agreements (not more than five years).
In connection with the allocation of the purchase price to identifiable
intangible assets, the Company analyzes the nature of the group with which a
Management Services Agreement is entered into, including the number of dentists
in each group, number of dental centers and ability to recruit additional
dentists, the affiliated dental practice's relative market position, the length
of time each affiliated dental practice has been in existence, and the term and
enforceability of the Management Services Agreement. Because the Company does
not practice dentistry, maintain patient relationships, hire dentists, enter
into employment and non-compete agreements with the dentist, or directly
contract with payors, the intangible asset created in the purchase allocation
process is associated primarily with the Management Services Agreement with the
affiliated dental practice.
The Company reviews intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. If this review indicates that the carrying amount of the asset
may not be recoverable, as determined based on the undiscounted cash flows of
the related operations over the remaining amortization period, the carrying
value of the asset is reduced to estimated fair value. Among the factors that
the Company will continually evaluate are unfavorable changes in each affiliated
dental practice's relative market share and local market competitive
environment, current period and forecasted operating results and cash flows of
the affiliated dental practice and its impact on the management fee earned by
the Company, and legal factors governing the practice of dentistry.
REVENUE RECOGNITION
Under the terms of the original Services Agreement with an Affiliated
Practice, the Company served as the exclusive manager and administrator of all
non-dental services relating to the operation of an Affiliated Practice. The
obligations of the Company included assuming responsibility for the operating
expenses incurred in connection with managing the dental centers. These expenses
included salaries, wages and related costs of non-dental personnel, dental
supplies and laboratory fees, rental and lease expenses, promotion and marketing
costs, management information systems and other operating expenses incurred at
the Affiliated Practices. In addition, the Company incurred general and
administrative expenses related to the financial and administrative management
of dental operations, insurance, training and development and other typical
corporate expenditures. As compensation for its services under the original
services agreement and subject to applicable law, the Company was paid a
management fee comprised of two components: (1) the costs incurred by it on
behalf of the Affiliated Practice, and (2) a management fee either fixed in
amount, an amount usually approximating 35% of the Affiliated Practice's
operating profit, before dentist compensation or 15% of the Affiliated
Practice's collected gross revenue ("Service Fee"). Therefore, net revenues
represented amounts earned by the Company under the terms of its Service
Agreements with the Affiliated Practices, which generally equated to the sum of
the Service Fees and the operating expenses that the Affiliated Practices paid
to the Company under the Service Agreements.
The Company has embarked upon a new strategy focusing on eCommerce and
e-Learning. Prior to the transition, the Company processed all payments to
vendors and employed the team members of Affiliated Practices. The modified
Management Services Agreements caused the team members to cease working as
employees for the Company and they became employees of the individual Affiliated
Practices. In addition, processing of payments to practice vendors is being
performed at the practice level, by practice employees. The Company is no longer
being reimbursed for expenses paid on the practices' behalf. As a result, the
components of net revenues have changed and decreased significantly with the new
Management Services Agreements.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred taxes are determined based on differences between
the financial reporting and tax basis of assets and liabilities and are measured
using the enacted marginal tax rates currently in effect when the differences
reverse.
EARNINGS PER SHARE
Basic earnings per share are computed based upon the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Diluted earnings per share are not separately presented because
such amounts would be the same as amounts computed for basic earnings per share.
As of March 31, 2001 and 2000, options to purchase 1,643,173 and 1,147,327
shares of Common Stock at exercise prices above the market value of Common Stock
were excluded from the calculation of earnings per share because their effect
would have been antidilutive. As of March 31, 2001 and 2000, shares of 266,180
and 559,656 convertible from the Company's convertible subordinated notes were
excluded from the calculation because their effects would have been
antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
NEW PRONOUNCEMENTS
In June 2000, FASB has issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (as amended by SFAS No. 137) and SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These statements require recognition of all derivatives as either
assets or liabilities on the balance sheet and measurement of those instruments
at fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income (loss). Appropriate accounting
for changes in fair value of derivatives held is dependent on whether the
derivative transaction qualifies as an accounting hedge and on the
classification of the hedge transaction. Management believes that the adoption
of SFAS No. 133 and 138 will not have a material effect on the Company's
financial statements.
In March 2000, the Emerging Issue Task Force (EITF) reached a consensus on
Issue 00-2, "Accounting for the Costs of Developing a Web Site." EITF 00-2
states that for specific web site development costs, the accounting for such
costs should be based generally on a model consistent with the American
Institute of Certified Public Accountants Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The adoption of the pronouncement did not have an impact on the
Company's position or the results of the operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements"(as amended by SAB 101A and 101B)
that provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies and was adopted by the
Company. The adoption of the pronouncement did not have an impact on the
Company's position or the result of operations.
RECLASSIFICATIONS
Certain prior year balances in the consolidated financial statements have
been reclassified to confirm with the fiscal 2001 presentation.
3. NOTES RECEIVABLE
Notes receivable consisted of the following:
MARCH 31,
--------------------
2001 2000
------- -------
(IN THOUSANDS)
Notes receivable ................................. $ 3,409 $ 2,844
Less: allowance for doubtful accounts ............ (2,089) (1,714)
------- -------
1,320 1,130
Notes receivable, current ........................ 261 421
------- -------
$ 1,059 $ 709
======= =======
Notes receivables are with Affiliated Practices and are uncollateralized,
ranging in length from one to thirteen years. The notes bear interest at March
31, 2001 at fixed rates ranging from 5% to 10% with interest and principal
payments due monthly.
The collection schedule of notes receivable for each of the next five years
subsequent to March 31, 2001 were as follows (in thousands):
2002 ......................................................... $ 798
2003 ......................................................... 1,057
2004 ......................................................... 477
2005 ......................................................... 226
2006 ......................................................... 234
Thereafter ................................................... 617
------
$3,409
======
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
MARCH 31,
---------------------
2001 2000
------ ------
(IN THOUSANDS)
Furniture & Fixtures ............................. $1,447 $2,732
Equipment ........................................ 2,454 3,662
Computer Equipment ............................... 1,704 2,103
Leasehold Improvements ........................... 185 371
------ ------
Total property and equipment .................. 5,790 8,868
Less: accumulated depreciation ................... 2,511 1,982
------ ------
Property and equipment, net ................... $3,279 $6,886
====== ======
Depreciation expense for the years ended March 31, 2001 and 2000 was $1.1
million and $1.3 million, respectively.
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
MARCH 31,
-----------------------
2001 2000
------- -------
(IN THOUSANDS)
Management Services Agreements ................. $ 5,528 $26,905
Other .......................................... 286 504
------- -------
5,814 27,409
Less: accumulated amortization ................. 2,707 1,623
------- -------
Intangible assets, net ......................... $ 3,107 $25,786
======= =======
Amortization expense for the years ended March 31, 2001 and 2000 was $1.3
million and $1.2 million, respectively.
As discussed in Note 1, the Company modified the terms of its existing
Management Services Agreements. The Company recognized an impairment charge of
$23 million in fiscal 2001 related to the modifications.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
MARCH 31,
-----------------
2001 2000
------ ------
(IN THOUSANDS)
Accounts payable trade ............................... $ 508 $1,111
Amounts payable to Affiliated Practices .............. -- 332
Accrued interest ..................................... 344 73
Other ................................................ 107 186
------ ------
Total accounts payable and accrued liabilities .... $ 959 $1,702
====== ======
7. DEFERRED REVENUE
Deferred revenue consisted of the following:
MARCH 31,
-----------------
2001 2000
------ ------
(IN THOUSANDS)
Deferred revenue, current ............................ $1,052 $ 206
Deferred revenue, noncurrent ......................... 666 --
------ ------
$1,718 $ 206
====== ======
Deferred revenue results primarily from Affiliated Practices prepaying
their future service fees with either cash payments or forgiveness of debt owed
to them by the Company.
During fiscal 2001 and 2000, the Company recorded deferred revenue from
cash payments of $563,000 and $100,000 and from canceling debt of $1,500,000 and
$59,000, respectively.
8. EXTRAORDINARY ITEM
In January 2001, former Liberty stockholders forgave $70,000 previously due
from the Liberty Merger Agreement (See Note 9).
In December 1999, a former member of the Board of Directors forgave
$350,000 previously due from the Company (See Note 15).
9. AFFILIATIONS
On July 1, 1999, the Company executed a merger agreement with Omega
Orthodontics, Inc. ("Omega"). In exchange for the approximately 5.0 million
shares outstanding of Omega, the Company issued approximately 1.8 million shares
of the Company's stock, and assumed approximately $1.1 million in debt. The
merger was accounted for under the purchase method of accounting.
The following unaudited pro forma summary of financial information presents
the Company's combined results of operations as if the acquisition of Omega
Orthodontics, Inc. had occurred at the beginning of the periods presented, after
including the impact of certain adjustments including: (i) the elimination of
nonrecurring merger related costs, and (ii) reduced amortization expense
reflecting in value assigned to intangible assets, (in thousands, except per
share data).
FISCAL YEARS ENDED
MARCH 31,
-----------------------
2000 1999
--------- ---------
PRO FORMA PRO FORMA
UNAUDITED UNAUDITED
-------- --------
Revenues ........................................ $ 59,063 $ 46,645
Expenses ........................................ 61,752 44,216
-------- --------
Net income (loss) ............................... $ (2,689) $ 2,429
======== ========
Net income (loss) per basic and diluted
share before extraordinary item ................ $ (.26) $ 0.25
-------- --------
Weighted average number of basic and diluted
share outstanding .............................. 10,356 9,546
======== ========
The pro forma financial information presented does not purport to indicate
what the combined results of operations would have been had the merger occurred
at the beginning of the periods presented or the results of operations that may
be obtained in the future. Additionally, the pro forma financial information
presented does not reflect the anticipated cost savings resulted from the
integration of the Company's and Omega's operations.
ACQUISITION OF LIBERTY DENTAL ALLIANCE
On November 13, 1998 the Company and Liberty Dental Alliance, Inc.
("Liberty") entered into an Agreement and Plan of Merger (the "Liberty Merger
Agreement"), pursuant to which Liberty became a wholly owned subsidiary of the
Company, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., D.D.S. was named President of the Company.
The Liberty Merger Agreement provided the Company pay Liberty common
stockholders consideration for completed Liberty affiliations.
In connection with the Liberty Merger Agreement, the Company has agreed to
pay investment-banking fees of up to $100,000 to SunTrust Equitable Securities
Corporation. This amount was paid in fiscal 2002. The Company issued an
aggregate of 145,000 options to acquire the Company's common stock to certain
consultants of the Company with an exercise price of $6.125 per share, in the
same proportions and upon completion of Liberty Affiliations as the Additional
Common Merger Consideration.
As of March 31, 2000, the Company had completed all Liberty Affiliations
with 17 dental practices of which all were completed during fiscal 1999. These
dental practices generated aggregate annual patient revenue of approximately $13
million during their most recently completed fiscal year, and include dentists
treating patients in 17 dental offices. The aggregate consideration paid by the
Company for these practices consisted of approximately $5.6 million in cash,
1,295,268 shares of the Company's common stock and approximately $3.6 million
aggregate principal amount of 6% Series A convertible subordinated notes,
one-half payable November 2002 and one-half payable November 2003, and $160,000
aggregate principal amount of 6% of Series B convertible subordinated notes,
one-half payable April 2003 and one-half payable April 2004.
The consideration paid pursuant to the Liberty merger on the Liberty
affiliations consisted of approximately $444,000 in cash, 423,356 shares of the
Company's common stock, the assumption of approximately $350,000 in liabilities
of Liberty and 92,550 options to purchase the Company's common stock.
For the year ended March 31, 1999, the Company completed new dentist
affiliations with 34 practices. Total consideration paid by the Company for the
new affiliations consisted of 2,286,000 shares of Common Stock, $4.6 million
aggregate principal amount of Convertible Subordinated Debt Securities, $537,000
in notes and $10.3 million of cash.
The assets and liabilities have been recorded at their estimated fair
values at the date of acquisition. The aggregate purchase price and related
expenses that exceeded the fair market value of net assets, have been assigned
to Management Services Agreements. Management fees and related costs are
included in the financial statements from their acquisition dates. The
allocations were as follows (in thousands):
2000 1999
------- -------
Property and equipment, net ......................... $ 500 $ 1,955
Management services agreements ...................... 4,938 21,970
Deferred tax asset .................................. 1,212 --
Net liabilities acquired ............................ (2,340) --
------- -------
4,310 23,925
Less: Common stock issued ........................... 3,838 8,496
Less: Notes payable and convertible subordinated
notes issued ....................................... -- 5,103
------- -------
Cash purchase price ................................. $ 472 $10,326
======= =======
ASSET PURCHASE
On October 13, 2000, the Company entered into an Asset Purchase Agreement
with ▇▇▇▇▇.▇▇▇, Inc. The consideration for the purchase of assets is 750,000
shares of the Company's common stock with an additional 500,000 shares to be
held in escrow and paid contingent upon certain performance criteria of the
Company's common stock.
10. LONG-TERM DEBT
Long-term debt consisted of the following:
MARCH 31,
---------------------
2001 2000
------- -------
(IN THOUSANDS)
Credit facility ................................. $ 9,302 $10,100
Convertible subordinated notes, Series A ........ 1,812 3,546
Convertible subordinated notes, Series B ........ -- 288
Shareholders' notes payable ..................... 442 559
Notes payable ................................... 376 828
------- -------
11,932 15,321
Less: Current portion of long-term debt ........ 471 492
------- -------
Long-term debt .................................. $11,461 $14,829
======= =======
The credit facility provided the Company with a revolving line of credit of
up to $15.0 million, to be used for general corporate purposes including
financing of acquisitions, capital expenditures and working capital. The credit
facility bears interest at an adjustable rate based on LIBOR. At March 31, 2001
and 2000 the interest rate on outstanding amounts was 10.94% and 10.68%,
respectively. The credit facility is collateralized by liens on certain of the
Company's assets, including its rights under the Management Services Agreements
and accounts and notes receivable. The credit facility contains restrictions on
the incurrence of additional indebtedness and payment of dividends on the Common
Stock.
At March 31, 2001, the Company was not in compliance with certain of the
financial covenants of the line of credit. At March 31, 2001, $9.3 million was
outstanding under the line of credit. In connection with the extension discussed
below, the bank waived non-compliance of certain financial ratios at March 31,
2001.
On June 29, ▇▇▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇▇, NA extended the terms of the credit
facility through July 2, 2002. In connection with the extension, the Company
will issue 393,182 warrants to acquire shares of the Company's common stock at
$0.42 per share. Until the credit facility is paid in full, the bank will have
the right to maintain a 3% fully diluted interest in the Company through the
issuance of additional warrants. The Company also paid $61,000 in fees to the
bank as part of the extension.
Terms of the extension include monthly principal payments of $25,000 and
modification of the financial covenants. The Company has prepared financial
projections through the term of the extension and believes it will be in
compliance with the financial covenants.
As discussed above, the bank credit facility due date has been extended to
July 2, 2002. Based upon its current strategy, the Company projects to have
sufficient funds to meet its operating capital requirements through fiscal 2002,
however, there would not be sufficient cash flow to fund the credit facility
obligation due July 2, 2002. Management believes it will be able to replace the
credit facility with other bank financing alternatives or refinancing of its
current line of credit. There is no assurance that other financing will be
available to refinance the current line of credit in sufficient amounts, if at
all, and there can be no assurance that the related terms and conditions will be
acceptable to the Company. Failure of the Company to obtain such alternative
financing or refinancing of its current line of credit would have a material and
adverse effect on the Company's financial position.
The Convertible Subordinated Notes Series A Securities (Series A
Securities) were issued in connection with the acquisition of certain Affiliated
Practices. The Series A Securities bear interest at 6% and can be converted to
Common Stock of the Company at conversion prices ranging from $6.75 to $7.00 per
share. The conversion period began on November 1, 1999 and ends on November 1,
2003. The principal amount of the Series A Securities, if not converted, is
payable one-half on November 1, 2002 and one-half on November 1, 2003.
The Convertible Subordinated Notes Series B Securities (Series B
Securities) were issued in connection with the acquisition of certain Affiliated
Practices. The Series B Securities bear interest at 6% and can be converted to
Common Stock of the Company at a conversion price of $6.75 per share. The
conversion period began on April 1, 2000 and ends on April 1, 2004.
During fiscal 2001, $1,734,000 of previously issued Series A Securities and
$242,000 of the remaining Series B Securities, respectively, were returned by
the holders to offset amounts owed to the Company and prepay future service
fees. During fiscal 2000, $665,000 and $67,000 of previously issued Series A
Securities and Series B Securities, respectively, were returned by the holders
to offset amounts owed to the Company.
In connection with the merger with Omega Orthodontics, Inc., (see Note 9),
the Company assumed certain notes payable to Affiliated Practices. The notes
were originally issued in connection with the affiliation agreements at the time
the assets of the practices were acquired. At March 31, 2001 and 2000, the
remaining principal on these notes was $331,000 and $828,000, respectively.
During fiscal 2001, $355,000 of these notes were returned by the holders to
offset amounts owed to the Company and prepay future service fees. The notes are
due in monthly installments ranging from $1,213 to $4,860 through December 2003,
and bear interest at 8.5%.
In connection with the IPO; the Company issued $468,000 of notes payable to
certain shareholders formerly owning preferred stock. The notes bear 6% interest
and are payable on the earlier of March 30, 2003 or the date upon which the
Company offers and sells an amount of equity securities equal or greater to the
gross proceeds of the IPO. During fiscal 2001, $17,500 of these notes payable
were returned by the holders to offset amounts owned to the Company. During
fiscal 2000, the Company made a payment of $9,000 to the shareholders.
The Company entered into an agreement with an officer to purchase
substantially all the assets and the operations of Pentegra, Ltd. and Napili,
International for total consideration of $200,000, consisting of an aggregate of
$100,000 in cash and a $100,000 principal amount 9.0% promissory note. During
fiscal 2001, the $100,000 promissory note was transferred to deferred revenue
for payment of future management service fees.
In March 1999, the Company issued $537,000 of notes payable to owners of
affiliated dental practices. These notes were paid in April 1999.
The aggregate maturities of long-term debt excluding capital leases for
each of the next five years subsequent to March 31, 2001 were as follows (in
thousands):
2002 ...................................................... $ 471
2003 ...................................................... 10,057
2004 ...................................................... 1,358
2005 ...................................................... 23
2006 ...................................................... 23
-------
$11,932
=======
11. CAPITALIZATION
PREFERRED STOCK
The Company has the authority to issue ten million shares of preferred
stock, par value $.001 per share. At March 31, 2001 and 2000 no shares of
preferred stock were issued or outstanding.
COMMON STOCK
As of March 31, 2001, the Company is authorized to issue forty million
shares of common stock.
The Company has acquired treasury stock from certain Affiliated Practices
for the payment of receivables and purchase of property and equipment.
12. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities)
were as follows (in thousands):
MARCH 31
--------------------
2001 2000
------- -------
Deferred tax assets:
Reserves for uncollectible accounts .............. $ 1,215 $ 1,931
Net operating loss carryforward .................. 8,665 2,472
Organizational costs ............................. 241 352
Property and equipment ........................... 56 --
Other ............................................ 7 26
------- -------
Total deferred tax assets ................... 10,184 4,781
Deferred tax liabilities:
Excess book basis over tax basis of accrued
revenues and expenses .......................... (591) (1,183)
Property and equipment ........................... -- (204)
Management services agreement .................... -- (155)
------- -------
Total deferred tax liabilities .............. (591) (1,542)
Net deferred tax asset ............................. 9,593 3,239
Less valuation allowance ......................... (9,593) (3,239)
------- -------
Net deferred tax asset ........................... $ -- $ --
------- -------
Less current portion ............................. -- --
------- -------
Noncurrent assets ................................ $ -- $ --
======= =======
Significant components of the provision for income taxes were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2001 2000 1999
------ ------ ------
Current tax expense (benefit):
Federal ............................... $ -- $ 52 $ --
State ................................. -- -- --
------ ------ ------
Total current .................... -- 52 --
Deferred tax expense (benefit):
Federal ............................... -- 1,984 (462)
State ................................. -- 177 (63)
------ ------ ------
Total deferred ................... -- 2,161 (525)
------ ------ ------
Expense (benefit) for income taxes ...... $ -- $2,213 $ (525)
====== ====== ======
The differences between the statutory federal tax rate and the Company's
effective tax rate on continuing operations were as follows (in thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Tax (benefit) at U.S. Statutory
rate (34%).............................. $(8,472) $(1,070) $ 584
State income taxes (benefit), net of
federal tax ............................ (1,012) (106) 82
Nondeductible expenses and other ........ 3,130 150 118
Change in valuation allowance ........... 6,354 3,239 (1,309)
------- ------- -------
Total tax expense (benefit) ...... $ -- $ 2,213 $ (525)
======= ======= =======
At March 31, 2001, the Company had net operating loss carry-forwards
available to reduce future taxable income of approximately $22.8 million,
expiring beginning in 2018. The Company recorded a valuation allowance for its
entire deferred tax asset because it concluded it is not likely it would be able
to recognize the tax assets due to the lack of operating history of its
implementation of the eBusiness plan. In addition, approximately $0.2 million of
the valuation allowance will be allocated to shareholder equity when that
portion of the deferred tax asset is recognized in the future. The Company also
has $6.1 million of available deductions related to the increase in tax basis of
the assets acquired in the Affiliations. The tax benefits will be recognized
over a period of seven to fifteen years.
13. STOCK OPTION PLANS
The Company grants stock options under the 1997 Stock Compensation Plan,
stock-based incentive compensation (the "Plan"). The Company recognizes
stock-based compensation issued to employees at the intrinsic value between the
exercise price of options granted and the fair value of stock for which the
options may be exercised. However, pro forma disclosures as if the Company
recognized stock-based compensation at the fair value of the options themselves
are presented below.
Under the Plan, the Company is authorized to issue 2,000,000 shares of
Common Stock pursuant to "Awards" granted to officers and key employees in the
form of stock options.
There were 1,643,173 and 1,147,327 options granted under the Plan, at March
31, 2001 and 2000, respectively. The Compensation Committee administers the
Plan. These stock options have contractual terms of 10 years and have an
exercise price no less than the fair market value of the stock at grant date.
The options vest at varying rates over a one to five year period.
Following is a summary of the status of the Company's stock options as of
March 31, 2001 and for the three years then ended:
NUMBER OF WEIGHTED
SHARES OF AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICES
------- ------
Outstanding at April 1, 1998 ..................... 671,666 $8.50
---------- -----
Exercisable at April 1, 1998 ..................... -- --
---------- -----
Granted .......................................... 358,000 4.94
Exercised ........................................ -- --
Forfeited ........................................ (433,000) 8.46
Expired .......................................... -- --
---------- -----
Outstanding at March 31, 1999 .................... 596,666 6.40
---------- -----
Exercisable at March 31, 1999 .................... 136,333 6.69
---------- -----
Granted .......................................... 608,994 3.17
Exercised ........................................ -- --
Forfeited ........................................ (58,333) 7.06
Expired .......................................... -- --
---------- -----
Outstanding at March 31, 2000 .................... 1,147,327 4.74
---------- -----
Exercisable at March 31, 2000 .................... 267,263 6.41
---------- -----
Granted .......................................... 804,901 0.68
Exercised ........................................ --
Forfeited ........................................ (309,055) 5.76
Expired .......................................... --
---------- -----
Outstanding at March 31, 2001 .................... 1,643,173 2.50
---------- -----
Exercisable at March 31, 2001 .................... 488,749 4.08
---------- -----
Weighted average fair value of options granted
during the period:
Fiscal 1999 ................................... $2.77
Fiscal 2000 ................................... $1.00
Fiscal 2001 ................................... $0.26
The fair value of each stock option granted by the Company is estimated on
the date of grant using the Black-Scholes option pricing model for the three
years ended March 31, 2001 with the following weighted-average assumptions:
dividend yield of 0% for each year; expected volatility of 61.4% for the year
ended March 31, 1999, 67% for the year ended March 31, 2000 and 65% for the year
ended March 31, 2001; risk-free interest rates are 5.7% for the year ended March
31, 1999, 6.2% for the year ended March 31, 2000 and 4.93%-6.29% for the year
ended March 31, 2001; the expected average lives of the options range from seven
to ten years.
The following table summarizes information about stock options outstanding
at March 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ---------------------------
WEIGHTED
WEIGHTED AVERAGE REMAINING
NUMBER OF AVERAGE CONTRACTUAL LIFE NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE (YEARS) SHARES EXERCISE PRICE
------ -------------- ------- ------ --------------
(SHARE DATA IN THOUSANDS)
$0.01 $0.99 616,436 0.50 9.45 61,124 0.50
$1.00 $1.99 210,000 1.27 9.15 50,000 1.56
$2.00 $2.99 445,000 2.21 8.29 165,000 2.34
$3.00 $8.50 371,737 6.83 7.31 212,625 7.00
--------- ---------
1,643,173 488,749
========= =========
Had the compensation cost for the company's stock based compensation plans
been determined using the fair value rather than the intrinsic value of the
options, the Company's net income (loss) and diluted net income (loss) per share
for 2001, 2000 and 1999 would approximate $(24.9) million or $(2.37), $(5.4)
million or $(0.52) and $1.9 million, or $0.25 per share, respectively. The
effects of applying fair value accounting in this pro forma disclosure are not
indicative of future amounts.
WARRANTS
Omega Orthodontics, Inc. (See Note 9) had warrants outstanding to purchase
2,430,000 shares of Omega common stock. As a result of the merger with the
Company on July 1, 2000, these warrants now constitute warrants to acquire, on
the same terms and conditions as were applicable under the original Omega
warrants, 865,343 shares of the Company's common stock exercisable at prices
ranging from $18.53 to $27.80 per share.
14. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases a portion of its property and equipment under the terms
of capital and operating leases. The capital leases bear interest at varying
rates ranging from 8.9% to 12.6% and require monthly payments.
Assets recorded under capital leases, at March 31, 2001, consisted of the
following (in thousands):
Cost ........................................................... $1,190
Less accumulated amortization .................................. 330
------
Total .......................................................... $ 860
======
Future minimum lease payments under capital leases and noncancelable
operating leases with initial or remaining terms of one or more years consisted
of the following at March 31, 2001 (in thousands):
CAPITAL OPERATING
------- ---------
2002 ................................................ $ 437 $ 378
2003 ................................................ 336 282
2004 ................................................ 277 167
2005 ................................................ 115 3
2006 ................................................ -- --
Thereafter .......................................... -- --
------ ------
Total minimum obligations ........................... $1,165 $ 830
======
Less amount representing interest ................ 177
------
Present value of minimum obligations ................ 988
Less current portion ............................. 345
------
Long-term obligation at March 31, 2001 .............. $ 643
======
The Company incurred rent expense of $253,000, $264,000 and $214,000 in
fiscal 2001, 2000 and 1999, respectively.
LITIGATION
The Company has pending lawsuits against five Affiliated Practices for
defaulting in the payment of the required Service Fees. In each of those cases,
the Company is seeking damages equal to past due and remaining service fees,
consequential damages equal to the value of the intangible practice asset and
attorney's fees. Three Affiliated Practices have in response filed a
counter-claim alleging breach of contract, misrepresentation and securities
violations. The Company believes that those counter-claims are without merit and
that the Company will prevail both in the recovery of damages from the
Affiliated Practices as well as a defense to the alleged counter-claims.
The Company is also the defendant in a recently filed lawsuit in which the
plaintiff claims breach of the premises lease associated with an Affiliated
Practice. The Company as a defendant tenant is seeking indemnity from the
Affiliated Practice and believes that it will recover any damages suffered from
the responsible Affiliated Practice.
15. RELATED PARTY TRANSACTIONS
An employment bonus of $1,250,000 to a member of the Board of Directors and
Chief Dental Officer of the Company was recorded prior to fiscal 1999. During
fiscal 2001, 2000 and 1999, $152,000, $190,000 and $310,000 was paid
respectively to this board member. In December 1999, the officer forgave
$350,000 due him by the Company. The net extraordinary gain to the Company after
a tax effect was $350,000. Pursuant to the terms of the Company's employment
agreement with the Chief Dental Officer as amended, the remaining employment
bonus must be paid in full by July 31, 2001. At March 31, 2001, $248,000
remained outstanding.
During the year ended March 31, 2001, the Company made a severance payment
of $64,000 to the former Chief Financial Officer. During the year ended March
31, 2000, the Company made a severance payment of $30,000 to the former Chief
Operating Officer. The Company also agreed to pay the former Chief Operating
Officer $72,000 under the terms of the separation. During the year ended March
31, 1999, the Company made a severance payment of $350,000 to the former Chief
Executive Officer.
During fiscal 2001, the Company recognized $10,000 of legal expense to a
law firm of which a member of the Company's Board of Directors is a partner.
At March 31, 2000 and 1999, the Company had notes and accounts receivable
from Affiliated Practices who also serve as members of the Board of Directors.
At March 31, 2000 and 1999, the total notes receivable from board members were
approximately $361,000 and $109,000 respectively, net of an allowance for
doubtful accounts of $136,000 and $0, respectively. The accounts receivable from
board members at March 31, 2000 and 1999 were approximately $430,000 and
$386,000 respectively, net of allowance for doubtful accounts of $198,000 and
$0, respectively.
16. CREDIT RISK
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables from
Affiliated Practices, and accounts payable approximate fair values due to the
short-term maturities of these instruments. The carrying amounts of the
Company's long-term borrowings, and revolving line of credit and notes
receivables from Affiliated Practices as of March 31, 2001 and 2000, approximate
their fair value based on the Company's current incremental borrowing rates for
similar type of borrowing arrangements.
RECEIVABLES AND NOTES RECEIVABLES FROM AFFILIATED PRACTICES
Receivables from Affiliated Practices represents payment for services
rendered by the Company for the Affiliated Practices. The Company does not
perform periodic credit reports or provide collateral related to the receivables
from Affiliated Practices.
As of March 31, 2001 and 2000, the Company had on allowance for doubtful
accounts of $3.3 million and $5.0 million respectively, for its accounts and
notes receivables from Affiliated Practices. In the years ended March 31, 2001
and 2000, the Company recorded a $1.7 million and $4.5 million charge in bad
debt expense resulting from its inability to collect receivables from Affiliated
Practices after exhausting various payment plans with the Affiliated Practices
and settlement of litigation with certain practices. Although management
believes the remaining receivables are collectable at March 31, 2001, it is
reasonably possible that what the Company will collect may materially differ.
During the years ended March 31, 2001 and 2000, the Company converted
approximately $1.9 million and $971,000 in receivables from Affiliated Practices
into interest bearing notes receivables.
17. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2001 2000 1999
------ ------ ------
(IN THOUSANDS)
Cash paid during the period for:
Interest ............................................................... $1,088 $1,571 $ 55
Income taxes ........................................................... -- -- 85
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock in connection with acquisitions ............... 308 3,838 8,496
Issuance of convertible subordinated notes in connection
with practice affiliations ........................................... -- -- 4,566
Issuance of notes payable in connection with practice
affiliations ......................................................... -- -- 537
Convertible subordinated notes offset against receivables
from Affiliated Practices ............................................ 808 732 --
Conversion of receivables from Affiliated Practices to notes
receivables .......................................................... 1,911 971 --
Capital leases incurred for equipment .................................. 22 1,448 --
Treasury stock acquired for payment of receivable from Affiliated
Practices and purchase of property and equipment ..................... 1,052 473 --
Notes payable offset against future management service fees ............ 1,500 -- --
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth summary quarterly results of operations for
the Company for the years ended March 31, 2001 and 2000:
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- -------
Net revenue ......................................... $ 6,357 $ 2,210 $ 1,966 $ 1,925
Operating expenses .................................. 11,539 21,972 1,479 1,856
Earnings (loss) from operations ..................... (5,182) (19,762) 487 69
Earnings (loss) before income taxes ................. (5,508) (19,973) 266 228
Income taxes ........................................ -- -- -- --
Extraordinary items, net ............................ -- -- -- 70
Net (loss) earnings ................................. $ (5,508) $(19,973) $ 266 $ 298
Net earnings (loss) per share:(1)
Earnings (loss) before extraordinary item ......... $ (.54) $ (2.00) $ .03 $ .02
Extraordinary item ................................ -- -- -- .01
Net earnings (loss) ............................... $ (.54) $ (2.00) $ .03 $ .03
Weighted average common shares outstanding:
Basic and diluted ................................. 10,175 9,969 10,463 10,630
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- -------
Net revenue ......................................... $ 12,449 $ 15,609 $ 14,967 $ 13,963
Operating expenses .................................. 11,544 14,920 14,761 18,251
Earnings (loss) from operations ..................... 905 689 206 (4,288)
Earnings (loss) before income taxes ................. 698 525 8 (4,728)
Income taxes ........................................ 279 250 49 1,635
Extraordinary items, net ............................ 217 133
Net (loss) earnings ................................. $ 419 $ 275 $ 176 $ (6,230)
Net earnings (loss) per share:(1)
Basic and diluted earnings per share
Earnings (loss) before extraordinary item........ $ .05 $ .03 $ -- $ (.60)
Extraordinary item .............................. -- -- .02 .01
Net earnings (loss) ............................. $ .05 $ .03 $ .02 $ (0.58)
Weighted average common share outstanding:
Basic and diluted ................................. 9,103 10,844 10,802 10,675
----------
(1) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share dues not
equal the total computed for the year due to stock transactions that
occurred.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, MARCH 31,
2001 2001
-------- --------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 948 $ 1,051
Receivables from affiliated practices, net of allowance
for doubtful accounts of $1,014 and $1,147, respectively 302 195
Prepaid and other current assets ......................... 179 128
Notes receivable from Affiliated Practices--current, net.. 313 261
-------- --------
Total current assets ................................... 1,742 1,635
Property and equipment, net ................................. 3,001 3,279
Intangible assets, net ...................................... 2,798 3,107
Notes receivable from Affiliated Practices, net ............. 961 1,059
Other assets ................................................ 174 111
-------- --------
Total assets ........................................... $ 8,676 $ 9,191
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long term debt ........................ $ 534 $ 471
Accounts payable and accrued liabilities ................. 810 959
Current portion of deferred revenue ...................... 860 1,052
Accrued employment agreement ............................. 248 248
Current portion of capital lease liabilities ............. 355 345
-------- --------
Total current liabilities .............................. 2,807 3,075
Long term debt, less current maturities ..................... 11,301 11,461
Capital lease liabilities ................................... 543 643
Deferred revenue ............................................ 464 666
Commitments and contingencies
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value 40,000,000 shares
authorized, 11,721,664 issued .......................... 12 12
Additional paid-in capital ............................... 25,841 25,809
Accumulated deficit ...................................... (31,166) (31,349)
Less: 1,149,116 treasury shares at cost .................. (1,126) (1,126)
-------- --------
Total shareholders' deficit ............................ (6,439) (6,654)
-------- --------
Total liabilities and shareholders' deficit ............ $ 8,676 $ 9,191
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
JUNE 30,
----------------------
2001 2000
-------- --------
Revenues
Learning ................................................... $ 159 $ --
Dental contracts ........................................... 1,768 2,218
-------- --------
Total revenues ......................................... 1,927 2,218
Operating expenses
Research and development ................................... 227 --
Sales and marketing ........................................ 203 --
General and administrative ................................. 663 1,818
Depreciation and amortization .............................. 532 5,582
-------- --------
Total operating expenses ............................... 1,625 7,400
Earnings (loss) from operations ............................... 302 (5,182)
Interest expense ........................................... 288 389
Interest income ............................................ (76) (54)
Other income ............................................... (93) (9)
-------- --------
Income (loss) before income taxes .......................... 183 (5,508)
Income taxes ........................................... -- --
-------- --------
Net income (loss) ............................................. $ 183 $ (5,508)
======== ========
Basic and diluted earnings (loss) per share ................... $ .02 $ (0.54)
======== ========
Weighted average number of share outstanding--basic and diluted 10,573 10,175
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(UNAUDITED)
(IN THOUSANDS)
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK DEFICIT
------ ------ ------- ------- ----- -------
Balances, April 1, 2001 11,722 $12 $25,809 $(31,349) $(1,126) $(6,654)
Issuance of warrants .. -- -- 32 -- -- 32
Net income ............ -- -- -- 183 -- 183
------ --- ------- -------- ------- -------
Balances, June 30, 2001 11,722 $12 $25,841 $(31,366) $(1,126) $(6,439)
====== === ======= ======== ======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS
ENDED JUNE 30,
------------------
2001 2000
------- -----
Net cash used in operating activities ....................... $ (15) $(211)
Cash flows from investing activities:
Repayment of notes receivable ............................ 76 16
Proceeds from property and equipment ..................... 31 --
Issuance of notes receivable ............................. -- (12)
Capital expenditures ..................................... (8) (44)
------- -----
Net cash provided by (used in) investing activities .... 99 (40)
------- -----
Cash flows from financing activities:
Repayment of long-term debt and capital leases liabilities (187) (133)
------- -----
Net cash used in financing activities .................. (187) (133)
------- -----
Net change in cash and cash equivalents ..................... (103) (384)
Cash and cash equivalents, beginning of period .............. 1,051 553
------- -----
Cash and cash equivalents, end of period .................... $ 948 $ 169
======= =====
Supplemental disclosures of cash flow information:
Convertible subordinated notes offset against receivables
from Affiliated Practices ................................. -- $ 540
Conversion of receivables from Affiliated Practices to
notes receivables ......................................... -- $ 999
Treasury stock acquired for payment of receivable from
Affiliated Practices and purchase of property and equipment -- $ 772
Notes payable offset against future membership fees ......... -- $ 214
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
EDT Learning, Inc., formerly ▇-▇▇▇▇▇▇▇.▇▇▇, Inc. (the "Company") provides a
comprehensive array of e-Learning content, handling and delivery services that
are customized to each client. The Company also provides practice management
services to dental practices throughout the United States.
The unaudited consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the presentation and disclosures
herein are adequate to make the information not misleading, but do not purport
to be a complete presentation inasmuch as all note disclosures required by
generally accepted accounting principles are not included. In the opinion of
management, the consolidated financial statements reflect all elimination
entries and normal adjustments that are necessary for a fair presentation of the
results for the interim periods ended June 30, 2001 and 2000.
Fiscal operating results for interim periods are not necessarily indicative
of the results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements of the Company
and related notes thereto, and management's discussion and analysis related
thereto, all of which are included in the Company's annual report on Form 10-K
for the year ended March 31, 2001, as filed with the SEC.
RECENT EVENTS, LIQUIDITY AND MANAGEMENT PLANS
A name change of the Company to "EDT Learning, Inc." was approved by the
Board of Directors in June 2001 and was approved by the shareholders at the
August 2, 2001 Annual Shareholders Meeting. The name change was done to more
accurately reflect the Company's current business model and expansion of its
business offering which focuses on providing e-Learning tools and systems to
corporate clients inside and outside the dental industry.
During fiscal 2001, the Company incurred a net loss of $24.9 million and
had an accumulated deficit of $31.3 million at March 31, 2001. In addition, the
Company had cash flow from operations of $1.4 million during the year ending
March 31, 2001. During the quarter ended June 30, 2001, the Company had a net
income of $183,000 and has an accumulated deficit of $31.2 million at June 30,
2001. In addition, the Company used cash flow from operations of $15,000 during
the quarter ended June 30, 2001.
On June 29, ▇▇▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇▇, NA extended the terms of the credit
facility through July 2, 2002. In connection with the extension, the Company
will issue 393,182 warrants to acquire shares of the Company's common stock at
$0.42 per share. The warrants were valued at $32,000. Until the credit facility
is paid in full, the bank will have the right to maintain a 3% fully diluted
interest in the Company through the issuance of additional warrants. The Company
also paid $61,000 in fees to the bank as part of the extension.
Terms of the extension include monthly principal payments of $25,000 and
modification of the financial covenants. The Company has prepared financial
projections through the term of the extension and believes it will be in
compliance with the financial covenants.
As discussed above, the bank credit facility due date has been extended to
July 2, 2002. Based upon its current strategy, the Company projects to have
sufficient funds to meet its operating capital requirements through fiscal 2002,
however, there would not be sufficient cash flow to fund the credit facility
obligation due July 2, 2002. Management believes it will be able to replace the
credit facility with other bank financing alternatives or refinancing of its
current line of credit. There is no assurance that other financing will be
available to refinance the current line of credit in sufficient amounts, if at
all, and there can be no assurance that the related terms and conditions will be
acceptable to the Company. Failure of the Company to obtain such alternative
financing or refinancing of its current line of credit would have a material and
adverse effect on the Company's financial position.
In order to increase its liquidity, the Company has developed the following
strategies; (i) implement its revised eCommerce and e-Learning based strategic
alternative described above, (ii) reducing costs in the Company's corporate
office, and (iii) raising additional capital through a private placement.
However, there can be no assurance that the Company's strategies will be
achieved.
2. SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during each
period. Diluted earnings per share are not separately presented because such
amounts would be the same as amounts computed for basic earnings per share.
Outstanding options to purchase approximately 1,684,563 and 1,219,273
shares of Common Stock at exercise prices above the market value of Common Stock
were excluded from the calculation of earnings per share for the three months
ended June 30, 2001 and 2000, respectively, because their effect would have been
antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
NEW PRONOUNCEMENTS
On June 30, 2001, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations"
which requires that all business combinations be accounted for using the
purchase method. In addition, this Statement requires that intangible assets be
recognized as assets apart from goodwill if certain criteria are met. As the
provisions of this Statement apply to all business combinations initiated after
June 30, 2001, Management will consider the impact of this statement for future
combinations.
On June 30, 2001, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets" which established Standards for reporting acquired goodwill
and other intangible assets. This Statement accounts for goodwill based on the
reporting units of the combined entity into which an acquired entity is
integrated. In accordance with the statement, goodwill and indefinite lived
intangible assets will not be amortized but will be tested for impairment at
least annually at the reporting unit level and the amortization period of
intangible assets with finite lives will not be limited to forty years. The
provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001 with early application permitted for
entities with fiscal years beginning after March 15, 2001. The Company has
$205,000 of goodwill included in its balance sheet at June 30, 2001. Goodwill
amortization for the three months ended June 30, 2001 was $23,000 and is
currently expected to approximate $92,000 for the year ended March 31, 2002
before the provisions of SFAS 142 are applied. Implementation of SFAS 142 by the
Company would result in elimination of amortization of goodwill from acquisition
under the purchase method of accounting. The statement does not result in the
elimination of amortization of the Company's service agreements because under
the scope of the statement only goodwill resulting from acquisitions under the
purchase method of accounting, and not other identifiable intangible assets, is
subject to being no longer amortized.
3. SEGMENT INFORMATION
During the period ended June 30, 2001, the Company had two reportable
segments, learning and dental practice management. The learning segment included
revenues and operating expenses related to the development and sale of the
Company's learning products. The dental practice segment included revenues from
service contracts, operating expenses related to the delivery of the dental
services and other non-operating expenses.
There are no intersegment revenues. The Company does not review assets by
operating segment.
THREE MONTHS ENDED
JUNE 30,
---------------------
2001 2000
------- -------
Revenues
Learning ........................................ $ 159 $ --
Dental practice management ...................... 1,768 2,218
------- -------
Total revenues .............................. 1,927 2,218
------- -------
Operating expenses
Learning ........................................ 430 --
Dental practice management ...................... 1,195 7,400
------- -------
Total operating expenses .................... 1,625 7,400
------- -------
Earnings (loss) from operations
Learning ........................................ (271) --
Dental practice management ...................... 573 (5,182)
------- -------
Total earnings (loss) for operating ......... 302 (5,182)
------- -------
Non operating expenses
Learning ........................................ -- --
Dental practice management ...................... 119 326
------- -------
Total non-operating expenses ................ 119 326
------- -------
Income (loss) before income taxes
Learning ........................................ (271) --
Dental practice management ...................... 454 (5,508)
------- -------
Total income (loss) before income taxes ..... $ 183 $(5,508)
======= =======
4. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company has pending lawsuits against five Affiliated Practices for
defaulting in the payment of the required Service Fees. In each of those cases,
the Company is seeking damages equal to past due and remaining service fees,
consequential damages equal to the value of the intangible practice asset and
attorney's fees. Three Affiliated Practices have in response filed a
counter-claim alleging breach of contract, misrepresentation and securities
violations. The Company believes that those counter-claims are without merit and
that the Company will prevail in defense to the alleged counterclaims.
The Company is also the defendant in a recently filed lawsuit in which the
plaintiff claims breach of the premises lease associated with an Affiliated
Practice. The Company as a defendant tenant is seeking indemnity from the
Affiliated Practice and believes that it will recover any damages suffered from
the responsible Affiliated Practice.
ACCRUED EMPLOYMENT AGREEMENT
The accrued employment is payable to the former Chief Dental Officer of the
Company. Pursuant to the terms of the agreement, as amended, the remaining
balance of $248,000 is payable on July 31, 2001. Payment of the remaining
balance is in dispute.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30, March 31,
2001 2001
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 1,094 $ 1,051
Receivables from affiliate practices, net of allowance for doubtful
accounts of $750 and $1,147, respectively ................................... 437 195
Prepaid and other current assets .............................................. 234 128
Notes receivable from Affiliated Practices--current, net ...................... 335 261
-------- --------
Total current assets ........................................................ 2,100 1,635
Property and equipment, net ..................................................... 2,678 3,279
Intangible assets, net .......................................................... 2,359 3,107
Notes receivable from Affiliated Practices, net ................................. 757 1,059
Other assets .................................................................... 170 111
-------- --------
Total assets ................................................................ $ 8,064 $ 9,191
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long term debt ............................................. $ 8,966 $ 471
Accounts payable and accrued liabilities ...................................... 575 959
Current portion of deferred revenue ........................................... 778 1,052
Accrued employment agreement .................................................. 248 248
Current portion of capital lease liabilities .................................. 334 345
-------- --------
Total current liabilities ................................................... 10,901 3,075
Long term debt, less current maturities ......................................... 2,318 11,461
Capital lease liabilities ....................................................... 478 643
Deferred revenue ................................................................ 367 666
Commitments and contingencies
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value 40,000,000 shares authorized, 11,721,664 issued . 12 12
Additional paid-in capital .................................................... 25,853 25,809
Accumulated deficit ........................................................... (30,724) (31,349)
Less: Treasury shares at cost: 1,179,630 and 1,149,116, respectively .......... (1,141) (1,126)
-------- --------
Total shareholders' deficit ................................................. (6,000) (6,654)
-------- --------
Total liabilities and shareholders' deficit ................................. $ 8,064 $ 9,191
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues
Learning ................................... $ 127 $ -- $ 285 $ --
Dental contracts ........................... 1,709 2,210 3,478 4,428
-------- -------- -------- --------
Total revenues ......................... 1,836 2,210 3,763 4,428
Operating expenses
Research and development ................... 255 -- 481 --
Sales and marketing ........................ 223 -- 426 --
General and administrative ................. 253 3,288 917 5,105
Depreciation and amortization .............. 542 638 1,074 1,268
Impairment of assets ....................... -- 18,046 -- 23,000
-------- -------- -------- --------
Total operating expenses ............... 1,273 21,972 2,898 29,373
Earnings (loss) from operations .............. 563 (19,762) 865 (24,945)
Interest expense ........................... 271 336 559 725
Interest income ............................ (67) (81) (143) (136)
Other income ............................... (83) (44) (176) (53)
-------- -------- -------- --------
Income (loss) before income taxes .......... 442 (19,973) 625 (25,481)
Income taxes ........................... -- -- -- --
-------- -------- -------- --------
Net income (loss) ............................ $ 442 $(19,973) $ 625 $(25,481)
======== ======== ======== ========
Basic and diluted earnings (loss) per share . $ 0.04 $ (2.00) $ 0.06 $ (2.53)
======== ======== ======== ========
Weighted average number of share outstanding--
basic and diluted .......................... 10,542 9,969 10,557 10,072
======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(UNAUDITED)
(IN THOUSANDS)
Common Stock Additional Total
-------------------- Paid-In Accumulated Treasury Shareholders'
Shares Amount Capital Deficit Stock Deficit
-------- -------- -------- -------- -------- --------
Balances, April 1, 2001 .... 11,722 $ 12 $ 25,809 $(31,349) $ (1,126) $ (6,654)
Shares repurchased ......... -- -- -- -- (15) (15)
Issuance of warrants ....... -- -- 44 -- -- 44
Net income ................. -- -- -- 625 -- 625
-------- -------- -------- -------- -------- --------
Balances, September 30, 2001 11,722 $ 12 $ 25,853 $(30,724) $ (1,141) $ (6,000)
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
September 30,
--------------------
2001 2000
------- -------
Net cash provided by operating activities .............................................. $ 367 $ 979
Cash flows from investing activities:
Collection of notes receivable ....................................................... 448 164
Proceeds from property and equipment ................................................. 86 --
Issuance of notes receivable ......................................................... -- (24)
Capital expenditures ................................................................. (8) (59)
------- -------
Net cash provided by investing activities .......................................... 526 81
------- -------
Cash flows from financing activities:
Repayment of long-term debt and capital leases liabilities ........................... (791) (585)
Financing costs ...................................................................... (59) --
------- -------
Net cash used in financing activities .............................................. (850) (585)
------- -------
Net change in cash and cash equivalents ................................................ 43 475
Cash and cash equivalents, beginning of period ......................................... 1,051 553
------- -------
Cash and cash equivalents, end of period ............................................... $ 1,094 $ 1,028
======= =======
Supplemental disclosures of cash flow information:
Warrants issued in connection with financing costs ..................................... $ 44 --
Convertible subordinated notes offset against receivables from Affiliated Practices .... -- $ 540
Conversion of receivables from Affiliated Practices to notes receivables ............... -- $ 1,887
Treasury stock acquired for payment of receivable from Affiliated Practices and
purchase of property and equipment ................................................... -- $ 921
Notes payable offset against future membership fees .................................... -- $ 868
The accompanying notes are an integral part of the
consolidated financial statements.
EDT LEARNING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
EDT Learning, Inc., formerly ▇-▇▇▇▇▇▇▇.▇▇▇, Inc. (the "Company") provides a
comprehensive array of e-Learning content, handling and delivery services that
are customized to each client. The Company also provides practice management
services to dental practices throughout the United States.
The unaudited consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the presentation and disclosures
herein are adequate to make the information not misleading, but do not purport
to be a complete presentation inasmuch as all note disclosures required by
generally accepted accounting principles are not included. In the opinion of
management, the consolidated financial statements reflect all elimination
entries and normal adjustments that are necessary for a fair presentation of the
results for the interim periods ended September 30, 2001 and 2000.
Fiscal operating results for interim periods are not necessarily indicative
of the results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements of the Company
and related notes thereto, and management's discussion and analysis related
thereto, all of which are included in the Company's annual report on Form 10-K
for the year ended March 31, 2001, as filed with the SEC.
RECENT EVENTS, LIQUIDITY AND MANAGEMENT PLANS
A name change of the Company to "EDT Learning, Inc." was approved by the
Board of Directors in June 2001 and was approved by the shareholders at the
August 2, 2001 Annual Shareholders Meeting. The name change was done to more
accurately reflect the Company's current business model and expansion of its
business offering which focuses on providing e-Learning tools and systems to
corporate clients inside and outside the dental industry.
During fiscal 2001, the Company incurred a net loss of $24.9 million and
had an accumulated deficit of $31.3 million at March 31, 2001. In addition, the
Company had cash flow from operations of $1.4 million during the year ending
March 31, 2001. During the three and six months ended September 30, 2001, the
Company had net income of $442,000 and $625,000, respectively and has an
accumulated deficit of $30.7 million at September 30, 2001. In addition, the
Company generated cash flow from operations of $367,000 during the six months
ended September 30, 2001.
On June 29, ▇▇▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇▇, NA extended the terms of the credit
facility through July 2, 2002. In connection with the extension, the Company
issued 393,182 warrants to acquire shares of the Company's common stock at $0.42
per share. The warrants were valued at $32,000. Until the credit facility is
paid in full, the bank will have the right to maintain a 3% fully diluted
interest in the Company through the issuance of additional warrants. The Company
also paid $61,000 in fees to the bank as part of the extension.
Terms of the extension include monthly principal payments of $25,000 and
modification of the financial covenants. The Company has prepared financial
projections through the term of the extension and believes it will be in
compliance with the financial covenants.
As discussed above, the bank credit facility due date has been extended to
July 2, 2002. Based upon its current strategy, the Company projects to have
sufficient funds to meet its operating capital requirements through fiscal 2002,
however, there would not be sufficient cash flow to fund the credit facility
obligation due July 2, 2002. Management believes it will be able to replace the
credit facility with other bank financing alternatives or refinancing of its
current line of credit. There is no assurance that other financing will be
available to refinance the current line of credit in sufficient amounts, if at
all, and there can be no assurance that the related terms and conditions will be
acceptable to the Company. Failure of the Company to obtain such alternative
financing or refinancing of its current line of credit would have a material and
adverse effect on the Company's financial position.
In order to increase its liquidity, the Company has developed the following
strategies; (i) implement its revised eCommerce and e-Learning based strategic
alternative described above, (ii) reducing costs in the Company's corporate
office, and (iii) raising additional capital through a private placement.
However, there can be no assurance that the Company's strategies will be
achieved.
2. SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during each
period. Diluted earnings per share are not separately presented because such
amounts would be the same as amounts computed for basic earnings per share.
Outstanding options and warrants to purchase approximately 2,390,967 and
1,932,773 shares of Common Stock at exercise prices above the market value of
Common Stock were excluded from the calculation of earnings per share for the
three and six month periods ended September 30, 2001 and 2000, respectively,
because their effect would have been antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
NEW PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which
establishes one accounting model to be used for long-lived assets to be disposed
of by sale and broadens the presentation of discontinued operations to include
more disposal transactions. SFAS No. 144 supercedes SFAS 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The company does not anticipate any
financial statement impact with the adoption of this statement.
In June 2001, the Financial Accounting Standard Board issued SFAS 141,
"Business Combinations" which requires that all business combinations be
accounted for using the purchase method. In addition, this Statement requires
that intangible assets be recognized as assets apart from goodwill if certain
criteria are met. As the provisions of this Statement apply to all business
combinations initiated after June 30, 2001, Management will consider the impact
of this statement for future combinations.
In June 2001, the Financial Accounting Standard Board issued SFAS 142,
"Goodwill and Other Intangible Assets" which established Standards for reporting
acquired goodwill and other intangible assets. This Statement accounts for
goodwill based on the reporting units of the combined entity into which an
acquired entity is integrated. In accordance with the statement, goodwill and
indefinite lived intangible assets will not be amortized but will be tested for
impairment at least annually at the reporting unit level and the amortization
period of intangible assets with finite lives will not be limited to forty
years. The provisions of this Statement are required to be applied starting with
fiscal years beginning after December 15, 2001 with early application permitted
for entities with fiscal years beginning after March 15, 2001. The Company has
$183,000 of goodwill included in its balance sheet at September 30, 2001.
Goodwill amortization for the three and six months ended September 30, 2001 was
$23,000 and $46,000, respectively and is currently expected to approximate
$92,000 for the year ended March 31, 2002 before the provisions of SFAS 142 are
applied. Implementation of SFAS 142 by the Company would result in elimination
of amortization of goodwill from acquisition under the purchase method of
accounting. The statement does not result in the elimination of amortization of
the Company's service agreements because under the scope of the statement only
goodwill resulting from acquisitions under the purchase method of accounting,
and not other identifiable intangible assets, is subject to being no longer
amortized.
3. SEGMENT INFORMATION
During the three and six month periods ended September 30, 2001, the
Company had two reportable segments, learning and dental practice management.
The learning segment included revenues and operating expenses related to the
development and sale of the Company's learning products. The dental practice
segment included revenues from service contracts, operating expenses related to
the delivery of the dental services and other non-operating expenses.
There are no intersegment revenues. The Company does not review assets by
operating segment.
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues
Learning .................................. $ 127 $ -- $ 285 $ --
Dental practice management ................ 1,709 2,210 3,478 4,428
-------- -------- -------- --------
Total revenues ........................ 1,836 2,210 3,763 4,428
-------- -------- -------- --------
Operating expenses
Learning .................................. 478 -- 907 --
Dental practice management ................ 795 21,972 1,991 29,373
-------- -------- -------- --------
Total operating expenses .............. 1,273 21,972 2,898 29,373
-------- -------- -------- --------
Earnings (loss) from operations
Learning .................................. (351) -- (622) --
Dental practice management ................ 914 (19,762) 1,487 (24,945)
-------- -------- -------- --------
Total earnings (loss) from operations . 563 (19,762) 865 (24,945)
-------- -------- -------- --------
Non operating expenses
Learning .................................. -- -- -- --
Dental practice management ................ 121 211 240 536
-------- -------- -------- --------
Total non-operating expenses .......... 121 211 240 536
-------- -------- -------- --------
Income (loss) before income taxes
Learning .................................. (351) -- (622) --
Dental practice management ................ 793 (19,973) 1,247 (25,481)
-------- -------- -------- --------
Total income (loss) before income taxes $ 442 $(19,973) $ 625 $(25,481)
======== ======== ======== ========
4. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company has pending lawsuits against five Affiliated Practices for
defaulting in the payment of the required Service Fees. In each of those cases,
the Company is seeking damages equal to past due and remaining service fees,
consequential damages equal to the value of the intangible practice asset and
attorney's fees. Two Affiliated Practices have in response filed a counter-claim
alleging breach of contract, misrepresentation and securities violations. The
Company believes that those counter-claims are without merit and that the
Company will prevail in defense to the alleged counterclaims.
The Company is also the defendant in a lawsuit in which the plaintiff
claims breach of the premises lease associated with an Affiliated Practice. The
Company as a defendant tenant is seeking indemnity from the Affiliated Practice
and believes that it will recover any damages suffered from the responsible
Affiliated Practice.
ACCRUED EMPLOYMENT AGREEMENT
The accrued employment agreement is payable to the former Chief Dental
Officer of the Company. Pursuant to the terms of the agreement, as amended, the
remaining balance of $248,000 was payable on July 31, 2001. Payment of the
remaining balance is in dispute.
5. ACQUISITION OF LEARNING-EDGE, INC.
On October 1, 2001, the Company acquired all of the outstanding capital
stock of Learning-Edge, Inc., an Arizona based private e-learning company. The
Company issued 1,950,000 common shares and $850,000 of debt under the terms of
the acquisition agreement. The debt is due in two equal installments on October
1, 2003 and on October 1, 2004, respectively. If the Company raises additional
capital in excess of $3 million, the payment schedule accelerates. The Company
also assumed approximately $1,000,000 of Learning-Edge debt as part of this
acquisition.
In connection with the acquisition of Learning-Edge, Inc., the Company
issued 132,972 warrants to acquire shares of the Company's common stock at $0.44
per share. The warrants were issued on September 10, 2001 and were valued at
$12,000.
SCHEDULES
TO THE
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
BY AND AMONG
EDT LEARNING, INC.,
A DELAWARE CORPORATION,
TW ACQUISITION SUBSIDIARY, INC.,
A DELAWARE CORPORATION,
THOUGHTWARE TECHNOLOGIES, INC.,
A TENNESSEE CORPORATION,
AND
THE SERIES B PREFERRED STOCKHOLDER
OF THOUGHTWARE TECHNOLOGIES, INC.
The attached Schedules to the Plan of Reorganization and Agreement of
Merger among EDT Learning, Inc., a Delaware corporation ("EDT"), TW Acquisition
Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of EDT
("ACQUISITION SUBSIDIARY"), ThoughtWare Technologies, Inc., a Tennessee
corporation ("THOUGHTWARE"), and the Series B Preferred Stockholder of
Thoughtware Technologies, Inc. ("Stockholder") dated as of January 11, 2002 (the
"AGREEMENT"), contains certain disclosures that are required by the terms of the
Agreement. The section numbers in the attached Schedules correspond to the
section numbers in the Merger Agreement. Capitalized terms not otherwise defined
herein, as the context requires, shall have the meanings assigned to them in the
Agreement.
The information contained in these Schedules may be over-inclusive in the
sense that certain parts of these Schedules may contain more information that is
required to be disclosed under the terms of the Agreement. The inclusion of such
information shall not be construed to expand in any way the scope or substance
of any of the representations, warranties or covenants set forth in the body of
the Agreement.
SCHEDULES
TABLE OF CONTENTS
Schedule 2.1 Jurisdictions Qualified to do Business
Schedule 2.2 Required Consents to Relating to Thoughtware's Obligations
Schedule 2.3 Licenses and Authorizations
Schedule 2.4(a) Lease and License Agreements
Schedule 2.4(b) Terminated Lease and License Agreements
Schedule 2.5 Financial Statements of Thoughtware
Schedule 2.6 Absence of Changes
Schedule 2.7 Litigation and Claims
Schedule 2.8 Undisclosed Liabilities
Schedule 2.9 Violations of Law
Schedule 2.10(a) Tangible Assets
Schedule 2.10(b) Leased Equipment
Schedule 2.10(c) Equipment, Utility and Other Deposits
Schedule 2.10(d) Exceptions to Title to Assets
Schedule 2.11 Indebtedness
Schedule 2.12(a) Employment Agreements and Employee Benefit Plans
Schedule 2.12(b) Unfunded Contributions
Schedule 2.12(c) Insurance Benefit Obligations
Schedule 2.13 Exceptions to Compliance with Employment and Labor Laws
Schedule 2.14 Contracts and Commitments
Schedule 2.15 Environmental Protection
Schedule 2.17(a) Insurance Policies
Schedule 2.17(b) Contested Insurance Claims
Schedule 2.18 Accounts Receiveable
Schedule 2.19 Accounts Payable
Schedule 2.20 Inspections and Investigations
Schedule 2.21(a) Agreements in Full Force and Effect
Schedule 2.21(b) Agreements for Provision of Software Services
Schedule 2.22 Taxes
Schedule 2.23 Capitalization of Thoughtware
Schedule 2.27(a) Intellectual Property
Schedule 2.27(b) Conflicting Rights of Third Parties
Schedule 2.27(c) Infringement Claims
Schedule 11.5 Brokers
SCHEDULES TO THE MERGER AGREEMENT
SCHEDULE 2.1 JURISDICTIONS QUALIFIED TO DO BUSINESS
Tennessee, California and Connecticut
SCHEDULE 2.2 REQUIRED CONSENTS RELATING TO THOUGHTWARE'S OBLIGATIONS
1. REQUIRED CONSENTS
ThoughtWare's execution, delivery and performance of the Transaction
Documents require the prior written consent of third parties pursuant
to the following agreements (excluding, for purposes of this Schedule
2.2, all Terminated Lease/License Agreements):
* Dollar Option Lease Agreement dated as of August 26, 1999 between
Consolidated Media Systems, Inc. and ThoughtWare
* Master Lease Agreement No. 101700 dated October 17, 2000 between
Econocom-USA, Inc. and ThoughtWare, as supplemented by Equipment
Schedule No. 1 dated October 25, 2000, as further supplemented by
Equipment Schedule No. 2 dated October 17, 2000, as further
supplemented by Equipment Schedule No. 3 dated November 6, 2000,
as further supplemented by Equipment Schedule No. 4 dated
November 29, 2000, as further supplemented by Equipment Schedule
No. 5 dated January 22, 2001, as further supplemented by
Equipment Schedule No. 6 dated February 15, 2001, as further
supplemented by Equipment Schedule No. 7 dated May 10, 2001
* Equipment Lease Agreement dated March 29, 2001 between General
Electric Capital Corporation and ThoughtWare
* Lease Agreement dated November 22, 1996 between GreatAmerica
Leasing Corporation and ThoughtWare
* Master Agreement #142975 dated June 28, 2001 between American
Express Business Finance Corporation and ThoughtWare, as
supplemented by Equipment Schedule #000 dated June 28, 2001
* Lease No. 001214899-001 dated June 21, 2000 between Dell
Financial Services, L.P. and ThoughtWare
* Lease No. 001275984-001 dated July 25, 2000 between Dell
Financial Services, L.P. and ThoughtWare
1
* Master Technology Service Agreement dated February 23, 2001
between Comdisco, Inc. and ThoughtWare, as modified and amended
by Addendum dated March 29, 2001, as supplemented by Services
Schedule No. 09-RS6502-00 dated March 7, 2001, and as further
modified and amended by Letter Agreement dated August 21, 2001
* Learning Service Provider Value Added Reseller Agreement dated
May 30, 2001 between Avaltus, Inc. and ThoughtWare
* Escrow Agreement in favor of ThoughtWare dated May 30, 2001 among
Avaltus, Inc., ThoughtWare and Union Planters Bank, N.A.
* Application Service Provider License Agreement dated September
14, 2001 between Crystal Decisions, Inc. and ThoughtWare
* Knowledgewire Content License Agreement dated January 1, 2001
between EduNeering, Inc. (successor in interest to KnowledgeWire,
L.L.C.) and ThoughtWare
* Internet Service Provider Agreement (Agreement No. Though002)
dated September 15, 1998 between ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. (f/k/a
DPEC, Inc.) and ThoughtWare
* Strategic Alliance Agreement dated July 16, 2001 between Business
Solutions Network International ("BSNI") and ThoughtWare
* Strategic Alliance and Authorized Representative Agreement dated
July 23, 2001 between ▇.▇. ▇▇▇▇▇▇▇▇▇ & Co. (the "BSNI Member")
and ThoughtWare
* Strategic Alliance and Authorized Representative Agreement dated
July 23, 2001 between The Pyramid Group, Inc. (the "BSNI Member")
and ThoughtWare
* Strategic Alliance and Authorized Representative Agreement dated
July 27, 2001 between Southwest Performance Group (the "BSNI
Member") and ThoughtWare
* Strategic Alliance and Authorized Representative Agreement dated
July 31, 2001 between Leadership Development Centers (the "BSNI
Member") and ThoughtWare
SCHEDULE 2.3 LICENSES AND AUTHORIZATIONS
1. City of Memphis and Shelby County Business License
2
SCHEDULE 2.4(A) LEASE AND LICENSE AGREEMENTS
1. CAPITAL AND OPERATING LEASES
* Dollar Option Lease Agreement dated as of August 26, 1999 between
Consolidated Media Systems, Inc. and ThoughtWare
* Master Lease Agreement No. 101700 dated October 17, 2000 between
Econocom-USA, Inc. and ThoughtWare, as supplemented by Equipment
Schedule No. 1 dated October 25, 2000, as further supplemented by
Equipment Schedule No. 2 dated October 17, 2000, as further
supplemented by Equipment Schedule No. 3 dated November 6, 2000,
as further supplemented by Equipment Schedule No. 4 dated
November 29, 2000, as further supplemented by Equipment Schedule
No. 5 dated January 22, 2001, as further supplemented by
Equipment Schedule No. 6 dated February 15, 2001, as further
supplemented by Equipment Schedule No. 7 dated May 10, 2001
* Equipment Lease Agreement dated March 29, 2001 between General
Electric Capital Corporation and ThoughtWare
* Lease Agreement dated November 22, 1996 between GreatAmerica
Leasing Corporation and ThoughtWare
* Master Agreement #142975 dated June 28, 2001 between American
Express Business Finance Corporation and ThoughtWare, as
supplemented by Equipment Schedule #000 dated June 28, 2001
* Lease No. 001214899-001 dated June 21, 2000 between Dell
Financial Services, L.P. and ThoughtWare
* Lease No. 001275984-001 dated July 25, 2000 between Dell
Financial Services, L.P. and ThoughtWare
2. REAL ESTATE LEASES
See SCHEDULE 2.4(b)
* Standard Office Lease dated December 5, 2000 between The Realty
Associates Fund V, L.P. (as Lessor) and ThoughtWare (as Lessee),
and related Standard Sublease dated September 25, 2001 between
ThoughtWare (as Sublessor) and PRA Destination Management, Inc.
(as Sublessee). This Lease Agreement is in the process of being
terminated, and Lessor and ThoughtWare have agreed in principle
upon the terms for such termination, but definitive documents
effecting such termination have not been executed as of the date
hereof.
3
3. TELECOMMUNICATIONS CONTRACTS
* Master Technology Service Agreement dated February 23, 2001
between Comdisco, Inc. and ThoughtWare, as modified and amended
by Addendum dated March 29, 2001, as supplemented by Services
Schedule No. 09-RS6502-00 dated March 7, 2001, and as further
modified and amended by Letter Agreement dated August 21, 2001
4. AGREEMENTS WITH CONTENT PROVIDERS AND OTHERS
* Learning Service Provider Value Added Reseller Agreement dated
May 30, 2001 between Avaltus, Inc. and ThoughtWare, and related
Escrow Agreement in favor of ThoughtWare dated May 30, 2001 among
Avaltus, Inc., ThoughtWare and Union Planters Bank, N.A.
* Application Service Provider License Agreement dated September
14, 2001 between Crystal Decisions, Inc. and ThoughtWare
* Knowledgewire Content License Agreement dated January 1, 2001
between EduNeering, Inc. (successor in interest to KnowledgeWire,
L.L.C.) and ThoughtWare
* Internet Service Provider Agreement (Agreement No. Though002)
dated September 15, 1998 between ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. (f/k/a
DPEC, Inc.) and ThoughtWare
* Strategic Alliance Agreement dated July 19, 2001 between
▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. and ThoughtWare
* Joint Venture Agreement dated March 7, 2001 between Spectranode,
Inc. and ThoughtWare
* Strategic Alliance Agreement dated July 16, 2001 between Business
Solutions Network International ("BSNI") and ThoughtWare
SCHEDULE 2.4(B) TERMINATED LEASE AND LICENSE AGREEMENTS
1. Standard Office Lease dated November 28, 2000 between ThoughtWare and
Regus Business Centre Corp.
2. Lease Agreement dated October 11, 2000 between D & S Realty, LLC and
ThoughtWare to terminate immediately prior to the closing of the
Merger Agreement pursuant to Lease Termination and Release Agreement
dated November 20, 2001, as amended January 10, 2002, among
ThoughtWare, D & S Realty, LLC, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, III
4
3. Lease dated November 6, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ Limited
Partnership and ThoughtWare
4. Standard Office Lease dated December 5, 2000 between The Realty
Associates Fund V, L.P. (as Lessor) and ThoughtWare (as Lessee), and
related Standard Sublease dated September 25, 2001 between ThoughtWare
(as Sublessor) and PRA Destination Management, Inc. (as Sublessee).
This Lease Agreement is in the process of being terminated, and Lessor
and ThoughtWare have agreed inprinciple upon the terms for such
termination, but definitive documents effecting such termination have
not been executed as of the date hereof. The estimated cost to
ThoughtWare to obtain such release, including payment of accrued and
unpaid rent and tenant improvement allowance, and future rent under
the Lease in excess of rents reserved in the Sub-Lease, is $67,229.
5. Local Exchange Service Agreement dated May 2, 2001 between Time Warner
Telecom of the MidSouth, LLC and ThoughtWare, as supplemented by
Internet Services Addendum dated May 2, 2001
6. Agreement for Continuous Information Services dated July 13, 2001
between International Data Corporation and ThoughtWare
7. Authorized Internet Reseller Agreement dated May 23, 2001 between
National Education Training Group, Inc. and ThoughtWare
SCHEDULE 2.5 FINANCIAL STATEMENTS OF THOUGHTWARE
SEE EXHIBIT 2.5 ATTACHED
SCHEDULE 2.6 ABSENCE OF CHANGES
At December 31, 2001, ThoughtWare had $26,500 in disputed payables with
National Education Training Group, Inc. (NETG). On January 4, 2002,
ThoughtWare reached agreement with NETG to settle the dispute for $7,000.
The payment was made January 4, 2002.
At December 31, 2001, ThoughtWare had $25,000 in disputed payables with
International Data Corporation (IDC). On December 28, 2002, ThoughtWare
signed a written agreement with IDC to settle the dispute for $6,250. The
payment was made January 4, 2002.
At December 31, 2001, ThoughtWare had $15,405 in disputed payables with
Sibernetics Marketing Systems. ThoughtWare has reached a verbal agreement
to settle the dispute for $4,000 and is awaiting written confirmation as
such. The payment has not been made by ThoughtWare.
5
SCHEDULE 2.7 LITIGATION AND CLAIMS
1. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ V. THOUGHTWARE TECHNOLOGIES, INC. (EEOC Charge No.
250A10739). On March 21, 2001, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, a former employee of
ThoughtWare, filed a complaint against ThoughtWare with the U.S. Equal
Employment Opportunity Commission (the "EEOC") alleging ----
ThoughtWare had discriminated against her in connection with its
termination of her employment. The EEOC dismissed ▇▇. ▇▇▇▇▇▇▇'
complaint on November 30, 2001 after determining no actionable cause
existed.
2. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇'▇ employment with ThoughtWare terminated on
September 24, 2001 as part of a restructuring of the company's
organizational staff. After his dismissal, ▇▇. ▇▇▇▇▇▇▇▇▇ contacted
ThoughtWare on several occasions and expressed a desire to arbitrate
his termination. He has alleged that he is due an additional $7,779.15
of commission income through the end of 2001 pursuant to the terms of
an employment agreement with ThoughtWare that he has failed to produce
and of which ThoughtWare does not have a copy. He further contends
that he is entitled to (i) an additional $1,181.82 for severance pay,
and (ii) $2,939.72 for reimbursement of leased vehicle expense.
ThoughtWare has offered in writing to pay to ▇▇. ▇▇▇▇▇▇▇▇▇ an amount
that it considers to be consistent with the employment agreement in
its files. ▇▇. ▇▇▇▇▇▇▇▇▇ has neither accepted nor rejected the
company's offer, and has indicated a continued desire to submit the
matter to arbitration.
3. The Tennessee Department of Revenue (the "TDR") conducted an audit of
ThoughtWare in October 2001 with respect to (i) the company's
Tennessee Franchise and Excise taxes ("F&E Tax") for the tax years
ended December 31, 1998, 1999 and 2000, and (ii) the company's
Tennessee Use Tax ("Use Tax") and Tennessee Sales Tax ("Sales Tax")
for the period December 1, 1998 through October 31, 2001. The audit
has focused on whether the company owes additional sales taxes on its
revenues for the periods indicated and whether it owes any additional
use taxes with respect to out-of-state purchases of computer and
related equipment during such period. The TDR completed its field work
in connection with the audit on December 15, 2001. ThoughtWare has
received no written correspondence from the TDR relating to the audit,
although it was advised by one of the examining agents that, upon
completion of their audit field work, it would receive a preliminary
verbal report on the findings of the audit toward the end of January
2002. On January 4, 2002, the auditor for TDR met with ThoughtWare and
delivered copies of certain audit workpapers indicating the
preliminary results of the auditor's findings. A copy of the
workpapers is attached hereto as EXHIBIT 2.7(C). The workpapers
reflect potential claims for additional F&E Tax in the approximate
amount of $5,000; Use Tax on purchases made by ThoughtWare in the
amount of $29,000; and Sales Tax on certain revenue of ThoughtWare in
the approximate amount of $292,000. A formal assessment has not been
made as of the date hereof. With respect to the potential additional
taxes reflected in the workpapers, ThoughtWare believes (i) the amount
6
indicated for additional F&E Tax fails to reflect all payments made by
ThoughtWare for F&E Taxes for the periods shown; (ii) the amount
indicated for additional Use Tax appears to include property leased by
ThoughtWare under capital leases on which sales tax is paid on, and
included in, the monthly lease payments; and (iii) the amount
indicated for additional Sales Tax includes license/subscription
revenue for services, or access to database services, which do not
constitute sales subject to Tennessee Sales Tax. ThoughtWare believes
its potential liability for additional (i) F&E Tax is approximately
$500; and (ii) Use Tax is (or may be) approximately $20,000, plus any
penalty or interest imposed with respect to items (i) and (ii). With
respect to the potential Sales Tax liability, ThoughtWare believes the
potential liability indicated in the workpapers is based upon
incorrect application of law, and intends to vigorously contest any
proposed assessment with respect thereto if asserted by TDR.
SCHEDULE 2.8 UNDISCLOSED LIABILITIES
None
SCHEDULE 2.9 VIOLATIONS OF LAW
None
SCHEDULE 2.10(A) TANGIBLE ASSETS
SEE EXHIBIT 2.10(A) ATTACHED
SCHEDULE 2.10(B) LEASED AND LICENSED EQUIPMENT
SEE EXHIBIT 2.10(B) ATTACHED
SCHEDULE 2.10(C) EQUIPMENT, UTILITY AND OTHER DEPOSITS
SEE EXHIBIT 2.10(C) ATTACHED
SCHEDULE 2.10(D) EXCEPTIONS TO TITLE TO ASSETS
1. Pursuant to a Loan and Security Agreement dated July 31, 2001 between
ThoughtWare and Silicon Valley Bank (the "SVB Loan Agreement"),
ThoughtWare granted to Silicon Valley Bank ("SVB") a continuing
security interest in all of its machinery, fixtures, inventory,
contract rights, general intangibles, accounts, accounts receivable,
cash, deposit accounts, copyrights and copyright applications, and
certain other personal property more particularly described in the SVB
7
Loan Agreement. The SVB Loan Agreement was never implemented and, at
the request of ThoughtWare, SVB has delivered to ThoughtWare the
original SVB Loan Agreement, and related loan documents, marked
"cancelled", and a UCC-3 Termination Statement for filing with the
Tennessee Secretary of State to terminate the UCC-1 Financing
Statement filed by SVB pursuant to the SVB Loan Agreement.
2. Pursuant to Product Order dated 6/28/01 with ePartners, Incorporated,
ThoughtWare purchased certain SalesLogix software and granted to
ePartners a purchase money security interest therein.
SCHEDULE 2.11 INDEBTEDNESS
SEE EXHIBIT 2.11 ATTACHED
SCHEDULE 2.12(A) EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
1. EMPLOYEE BENEFIT PLANS
* ThoughtWare Technologies, Inc. 401(k) Plan
* See EXHIBIT 2.17 attached hereto for a list of ThoughtWare
employee insurance plans
2. COMPENSATION PLANS
* ThoughtWare Technologies, Inc. 2000 Long-Term Incentive Plan
* SEE SCHEDULE 2.23 for description of stock options granted
pursuant to ThoughtWare Technologies, Inc. 2000 Long-Term
Incentive Plan
* Product Consultant 2001 Sales Compensation Plan
* Individual Sales Compensation Plan for Sales Year End December
31, 2001
* Sales Manager 2001 Sales Compensation Plan
3. EMPLOYMENT AGREEMENTS, ETC. WITH CURRENT EMPLOYEES AND CONSULTANTS*
* Employment Agreement dated as of January 8, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* Employment Agreement dated as of February 9, 2001 between
ThoughtWare and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
8
* Employment Agreement dated as of March 8, 2001 between
ThoughtWare and Chen ▇. ▇▇▇▇, which supercedes Employment
Agreement dated January __, 2001, superceding Employment
Agreement dated July 26, 2000.
* Employment Agreement dated as of March 8, 2001 between
ThoughtWare and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
* Employment Agreement dated as of March 8, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, which supercedes Employment
Agreement dated July 27, 2000
* Employment Agreement dated as of March 12, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
* Employment Agreement dated as of March 15, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (f/k/a ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇),
which supercedes Employment Agreement dated July 27, 2000,
superceding Employment Agreement dated July 26, 2000
* Employment Agreement dated as of March 19, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
* Employment Agreement dated as of March 19, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* Employment Agreement dated as of March 29, 2001 between
ThoughtWare and ▇▇▇▇▇ ▇. ▇▇▇▇▇
* Employment Agreement dated as of April 23, 2001 between
ThoughtWare and ▇▇▇▇▇ ▇▇▇▇▇▇
* Executive Employment Agreement dated as of May 24, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* All employment agreements with current employees and consultants were
terminated by execution of Option Termination Agreements dated January 9,
2002, except ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ whose Executive Employment Agreement was
teminated by execution of a Termination Agreement dated January 9, 2002.
4. EMPLOYMENT AGREEMENTS, ETC. WITH FORMER EMPLOYEES AND CONSULTANTS
* Employment Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇▇▇ ▇▇▇▇▇ - Termination Date: Not Available ("N/A")
* Employment Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇▇▇ ▇▇▇▇▇ - Termination Date: August 15, 2001
9
* Employment Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇▇▇ ▇▇▇▇ - Termination Date: August 31, 2001
* Employment Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇ - Termination Date: N/A
* Employment Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇ ▇▇▇▇▇▇▇ - Termination Date: February 28, 2001
* Employment Agreement dated July 26, 2000 between ThoughtWare and
J. ▇▇▇▇▇ ▇▇▇▇ - Termination Date: N/A
* Consultant Agreement dated July 26, 2000 between ThoughtWare and
Ashkish ▇▇▇▇▇▇▇▇ - Termination Date: N/A
* Consultant Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ - Termination Date: N/A
* Consultant Agreement dated July 26, 2000 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: N/A
* Consultant Agreement dated July 26, 2000 between ThoughtWare and
Akshay ▇▇▇▇▇ - Termination Date: N/A
* Employment Agreement dated July 27, 2000 between ThoughtWare and
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Employment Agreement dated July 27, 2000 between ThoughtWare and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ - Termination Date: September 29, 2000
* Consultant Agreement dated July 27, 2000 between ThoughtWare and
Xiangen Hu - Termination Date: N/A
* Employment Agreement dated July 28, 2000 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: March 27, 2001
* Employment Agreement dated July 28, 2000 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: June 30, 2001
* Employment Agreement dated July 28, 2000 between ThoughtWare and
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: October 31, 2000
* Employment Agreement dated July 31, 2000 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: May 3, 2001
10
* Employment Agreement dated August __, 2000 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ which superceded Employment Agreement
dated July 26, 2000. Termination Date: June 15, 2001
* Employment Agreement dated September 6, 2000 between ThoughtWare
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Employment Agreement dated September 22, 2000 between ThoughtWare
and ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ - Termination Date: October 15, 2001
* Employment Agreement dated October 10, 2000 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: June 29, 2001
* Employment Agreement dated October 27, 2000 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - Termination Date: February 12, 2001
* Offer Letter dated September 12, 2000 between ThoughtWare and
▇▇▇▇ ▇▇▇▇▇ - Termination Date: July 13, 2001
* Employment Agreement dated October 27, 2000 between ThoughtWare
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: May 7, 2001
* Employment Agreement dated October 27, 2000 between ThoughtWare
and ▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: June 29, 2001
* Employment Agreement dated October 27, 2000 between ThoughtWare
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ - Termination Date: August 10, 2001
* Employment Agreement dated December 11, 2000 between ThoughtWare
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: August 10, 2001
* Employment Agreement dated January 1, 2001 between ThoughtWare
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date - September 24, 2001
* Employment Agreement dated January 1, 2001 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, which superceded Employment Agreement
dated July 27, 2000 - Termination Date: October 11, 2001
* Employment Agreement dated January 5, 2001 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: June 29, 2001
* Employment Agreement dated January 25, 2001 between ThoughtWare
and Dev ▇▇▇▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Employment Agreement dated February 22, 2001 between ThoughtWare
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: June 15, 2001
11
* Employment Agreement dated February 24, 2001 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ - Termination Date: June 15, 2001
* Employment Agreement dated March __, 2001 between ThoughtWare and
▇▇▇▇ ▇▇▇▇▇ - Termination Date: April 10, 2001
* Employment Agreement dated March 1, 2001 between ThoughtWare and
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ - Termination Date: October 1, 2001
* Employment Agreement dated March 8, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ - Termination Date: June 29, 2001
* Employment Agreement dated March 8, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Employment Agreement dated March 8, 2001 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, which superceded Employment Agreement dated
July 26, 2000 - Termination Date: June 15, 2001
* Employment Agreement dated March 8, 2001 between ThoughtWare and
▇▇▇▇▇ ▇▇▇▇▇▇▇ - Termination Date: July 31, 2001
* Employment Agreement dated March 8, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, which superceded Employment Agreement dated
July 26, 2000 - Termination Date: May 15, 2001
* Employment Agreement dated March 15, 2001 between ThoughtWare and
▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: June 15, 2001
* Employment Agreement dated March 19, 2001 between ThoughtWare and
▇▇▇▇▇▇ ▇▇▇▇▇ - Termination Date: August 10, 2001
* Employment Agreement dated as of March 19, 2001 between
ThoughtWare and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, which superceded Employment
Agreement dated July 26, 2000 - Termination Date: January 4, 2002
* Employment Agreement dated March 19, 2001 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: May 7, 2001
* Employment Agreement dated March 19, 2001 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.- Termination Date: August 31, 2001
* Employment Agreement dated March 19, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇▇▇▇▇ - Termination Date: August 15, 2001
* Employment Agreement dated March 24, 2001 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇▇ - Termination Date: October 31, 2001
12
* Employment Agreement dated March 26, 2001 between ThoughtWare and
Omoju ▇. ▇▇▇▇▇▇, which superceded Employment Agreement dated July
26, 2000 - Termination Date - December 14, 2001
* Employment Agreement dated March 28, 2001 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇ - Termination Date: October 7, 2001
* Employment Agreement dated March 28, 2001 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇ - Termination Date: June 15, 2001
* Employment Agreement dated March 29, 2001 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, which superceded Employment Agreement dated July
26, 2000 - Termination Date: April 6, 2001
* Employment Agreement dated March 30, 2001 between ThoughtWare and
▇▇▇ ▇. ▇▇▇, which superceded Employment Agreement dated July 26,
2000 - Termination Date: September 24, 2001
* Employment Agreement dated March 30, 2001 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Employment Agreement dated March 30, 2001 between ThoughtWare and
▇▇▇▇▇ ▇. ▇▇▇▇, which superceded Employment Agreement dated July
26, 2000 - Termination Date: August 31, 2001
* Employment Agreement dated April 23, 2001 between ThoughtWare and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Executive Employment Agreement dated as of May 24, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ - Termination Date: January 9,
2002
* Employment Agreement dated June 1, 2001 between ThoughtWare and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - Termination Date: August 17, 2001
* Employment Agreement dated June 21, 2001 between ThoughtWare and
▇▇▇▇▇ Dumchikov - Termination Date: October 26, 2001
* Employment Agreement dated as of June 15, 2001 between
ThoughtWare and ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - Termination Date: January 4,
2002
* Employment Agreement dated June 25, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ - Termination Date: September 24, 2001
* Separation Agreement and General Release dated July 13, 2001
between ▇▇▇▇ ▇. ▇▇▇▇▇ and ThoughtWare - Termination Date: July
31, 2001
* Employment Agreement dated July 16, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: October 31, 2001
13
* Employment Agreement dated July 26, 2001 between ThoughtWare and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: November 7, 2001
* Executive Employment Agreement dated July 28, 2000 between
ThoughtWare and Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III - Termination Date:
September 19, 2001
* Executive Employment Agreement dated July 28, 2000 between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: March 27,
2001
* Executive Employment Agreement dated August 14, 2000 between
ThoughtWare and ▇▇▇▇▇ ▇. ▇▇▇▇▇ - Termination Date: February 15,
2001
* Executive Employment Agreement dated September 5, 2000 between
ThoughtWare and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ - Termination Date: February 12,
2001
* Executive Employment Agreement dated July 25, 2001 between
ThoughtWare and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, which superceded Executive
Employment Agreement dated November 14, 2000 - Termination Date:
November 14, 2001
SCHEDULE 2.12(B) UNFUNDED CONTRIBUTIONS
None
SCHEDULE 2.12(C) INSURANCE BENEFIT OBLIGATIONS
None
SCHEDULE 2.13 EXCEPTIONS TO COMPLIANCE WITH EMPLOYMENT AND LABOR LAWS
1. SEE discussion of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ V. THOUGHTWARE in SCHEDULE 2.7
SCHEDULE 2.14 CONTRACTS AND COMMITMENTS
1. CONTRACTS EXCEEDING SIX MONTHS IN DURATION AND/OR REQUIRING PAYMENTS
IN EXCESS OF $5,000 AFTER THE CLOSING DATE
* Dollar Option Lease Agreement dated as of August 26, 1999 between
Consolidated Media Systems, Inc. and ThoughtWare
* Master Lease Agreement No. 101700 dated October 17, 2000 between
Econocom-USA, Inc. and ThoughtWare, as supplemented by Equipment
Schedule No. 1 dated October 25, 2000, as further supplemented by
Equipment Schedule No. 2 dated October 17, 2000, as further
14
supplemented by Equipment Schedule No. 3 dated November 6, 2000,
as further supplemented by Equipment Schedule No. 4 dated
November 29, 2000, as further supplemented by Equipment Schedule
No. 5 dated January 22, 2001, as further supplemented by
Equipment Schedule No. 6 dated February 15, 2001, as further
supplemented by Equipment Schedule No. 7 dated May 10, 2001
* Equipment Lease Agreement dated March 29, 2001 between General
Electric Capital Corporation and ThoughtWare
* Lease Agreement dated November 22, 1996 between GreatAmerica
Leasing Corporation and ThoughtWare
* Master Agreement #142975 dated June 28, 2001 between American
Express Business Finance Corporation and ThoughtWare, as
supplemented by Equipment Schedule #000 dated June 28, 2001
* Lease No. 001214899-001 dated June 21, 2000 between Dell
Financial Services, L.P. and ThoughtWare
* Lease No. 001275984-001 dated July 25, 2000 between Dell
Financial Services, L.P. and ThoughtWare
* Master Technology Service Agreement dated February 23, 2001
between Comdisco, Inc. and ThoughtWare, as modified and amended
by Addendum dated March 29, 2001, as supplemented by Services
Schedule No. 09-RS6502-00 dated March 7, 2001, and as further
modified and amended by Letter Agreement dated August 21, 2001
* Knowledgewire Content License Agreement dated January 1, 2001
between EduNeering, Inc. (successor in interest to KnowledgeWire,
L.L.C.) and ThoughtWare
* Internet Service Provider Agreement (Agreement No. Though002)
dated September 15, 1998 between ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. (f/k/a
DPEC, Inc.) and ThoughtWare
* Promissory Note dated September 14, 1999 payable by ThoughtWare
to Bank of America, N.A. in the original principal amount of
$65,100.00
15
2. AGREEMENTS BETWEEN THOUGHTWARE AND ITS DIRECTORS, OFFICERS AND/OR
STOCKHOLDERS
* Stock Rights Settlement Agreement dated as of July 26, 2000 among
ThoughtWare, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III,
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and Xiangen Hu
* Series A Preferred Stock Purchase Agreement dated as of July 28,
2000 among ThoughtWare, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, III, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ThoughtWare Paradigm
Investors
* Series A Shareholder Agreement dated as of July 28, 2000 among
ThoughtWare, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III,
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ThoughtWare Paradigm Investors
* Common Shareholder Agreement dated as of July 28, 2000 among
ThoughtWare, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III,
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Waring ▇▇▇, PLC and Sandeford ▇.
▇▇▇▇▇▇▇▇▇, III, as Trustee under Voting Trust Agreement dated as
of 11/1/00 FBO ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc.
* Registration Rights Agreement dated as of July 28, 2000 among
ThoughtWare, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III,
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ThoughtWare Paradigm Investors
* Mutual Release and Waiver dated as of July 28, 2000 among
ThoughtWare, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, III and
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
* Voting Trust Agreement dated November 1, 2000 among ThoughtWare,
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee
* Vesting Agreement dated November 1, 2000 among ThoughtWare,
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee under
Voting Trust Agreement dated 11/1/00 FBO ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc.
* Separation Agreement and General Release dated February 12, 2001
between ThoughtWare and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
* Separation Agreement and General Release dated March 27, 2001
between ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
* Waiver and Consent dated March 27, 2001 among ThoughtWare,
Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, as Trustee under Voting Trust Agreement dated as of
11/1/00 FBO ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc., Waring ▇▇▇, PLC, and ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
16
* Separation Agreement and General Release dated April 25, 2001
between ThoughtWare and ▇▇▇▇▇ ▇. ▇▇▇▇▇
* Separation Agreement and General Release dated July 13, 2001
between ThoughtWare and ▇▇▇▇ ▇. ▇▇▇▇▇
* Series B Preferred Stock Purchase Agreement dated as of May 24,
2001 among ThoughtWare, Thought Paradigm Investors, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* Series B Shareholder Agreement dated as of May 24, 2001 among
ThoughtWare, Thought Paradigm Investors, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* Series B Registration Rights Agreement dated as of May 24, 2001
among ThoughtWare, Thought Paradigm Investors, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* Voting Agreement dated as of May 24, 2001 among ThoughtWare,
Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, III, as Trustee of the Voting Trust dated as of
11/1/00 FBO ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc., Waring ▇▇▇, PLC, Thought
Paradigm Investors, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
* Settlement and Release Agreement dated November 20, 2001, as
amended by ▇▇▇▇▇ Addendum thereto dated January 10, 2002, between
ThoughtWare and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
* Lease Termination and Release Agreement dated November 20, 2001
among ThoughtWare, D & S Realty, LLC, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and
Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III, as amended by First Addendum thereto
dated January 10, 2002
* Termination Agreement dated January 9, 2002 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (relating to Executive Employment Agreement
dated as of May 24, 2001)
* Termination Agreement dated January 9, 2002 between ThoughtWare
and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (relating to Series B Preferred Stock
Subscription Agreement dated as of May 24, 2001),
terminating/surrendering for cancellation Series B Preferred
Stock, Series B Warrants and Incentive Stock Options, and related
Assignment (Series B Warrants) and Irrevocable Stock Power
(Series B Preferred Stock), both dated as of January 9, 2002)
17
SCHEDULE 2.15 ENVIRONMENTAL PROTECTION
None
SCHEDULE 2.17(A) INSURANCE POLICIES
SEE EXHIBIT 2.17(a) ATTACHED
SCHEDULE 2.17(B) CONTESTED INSURANCE CLAIMS
None
SCHEDULE 2.18 ACCOUNTS RECEIVABLE
SEE EXHIBIT 2.18 ATTACHED
SCHEDULE 2.19 ACCOUNTS PAYABLE
SEE EXHIBIT 2.19(a) ATTACHED
SEE EXHIBIT 2.19(b) ATTACHED
SCHEDULE 2.20 INSPECTIONS AND INVESTIGATIONS
1. SEE discussion of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ V. THOUGHTWARE in SCHEDULE 2.7
2. SEE discussion of TDR audit of ThoughtWare in SCHEDULE 2.7
SCHEDULE 2.21(A) AGREEMENTS IN FULL FORCE AND EFFECT
None
SCHEDULE 2.21(B) AGREEMENTS FOR PROVISION OF SOFTWARE SERVICES
1. Development Strategy AALAS Knowledge Management System dated March 20,
2000. This is a statement of work prepared by ThoughtWare to outline
services to be performed by ThoughtWare for the American Association
of Laboratory Animal Science (not a signed contract).
2. Workforce Distance Learning Statement of Work dated June 1, 2001,
prepared by ThoughtWare to outline services to be performed for The
Church Health Center (not a signed contract). These parties entered
into a Pricing Agreement dated June 22, 2001.
18
3. Software License and Services Agreement dated July 2, 2001 between
ThoughtWare and Creditek, Inc.
4. Internet Based Training statement of work dated September 26, 2000,
prepared by ThoughtWare to outline services to be performed for
Federal Express Corporation (not a signed contract). These parties
entered into an Electronic Invoicing Agreement dated November 8, 2000.
5. Internet Based Training Management System statement of work dated July
5, 2000, prepared by ThoughtWare to outline services to be performed
for ▇▇▇▇▇ & Nephew ENT (assigned to Gyrus ENT as of March 8, 2001).
6. Internet Based Employee Lifecycle Management statement of work dated
July 25, 2000, prepared by ThoughtWare to outline services to be
performed for Helena Chemical Company, Inc.
7. Software License and Services Agreement dated January 30, 2001 between
ThoughtWare and Hunter Industries, Inc.
8. Master License Agreement dated January 1, 2001 between ThoughtWare and
MS Carriers.
9. Internet Based Training Development Agreement dated December 17, 1999,
between ThoughtWare and Medtronic Sofamor ▇▇▇▇▇.
10. Distance Learning Agreement (undated proposal for a course) between
ThoughtWare and The Memphis Zoo.
11. Master Software License and Services Agreement dated December 18, 2000
between ThoughtWare and Peppers and ▇▇▇▇▇▇ Group.
12. Software License and Services Agreement dated July 26, 2001 between
ThoughtWare and Peppers and ▇▇▇▇▇▇ Group.
13. Software License and Services Agreement dated November 12, 2001
between ThoughtWare and ▇▇▇▇▇ & Nephew. Also a Master License
Agreement dated January 1, 2001 between ThoughtWare and ▇▇▇▇▇ &
Nephew.
14. Software License and Services Agreement dated July 1, 2001 between
ThoughtWare and ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc.
15. Distance Learning Agreement dated March 7, 2001 between ThoughtWare
and Time Warner Communications.
16. Internet Based Training Development Agreement dated December 21, 1999
between ThoughtWare and ▇▇▇▇▇▇ Medical Technology, Inc.
19
SCHEDULE 2.22 TAXES
1. SEE discussion of TDR audit of ThoughtWare in SCHEDULE 2.7
SCHEDULE 2.23 CAPITALIZATION OF THOUGHTWARE
1. The capitalization of ThoughtWare is as follows:
Shareholder Class of Shares No. of Shares
----------- --------------- -------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Common 12,688,423.50
Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III and ▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, JTWROS 4,229,474.50
Sandeford ▇. ▇▇▇▇▇▇▇▇▇, III, Trustee of Voting
Trust dated 11/1/00 FBO ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, Inc. 150,000.00
Waring ▇▇▇, PLC 14,000.00
University of Memphis 200,000.00
TOTAL NO. OF SHARES OF COMMON STOCK .00
ThoughtWare Paradigm Investors Series A Stock 8,000,000.00
TOTAL NO. OF SHARES OF SERIES A STOCK 8,000,000.00
ThoughtWare Paradigm Investors Series B Stock 35,824,134.00
TOTAL NO. OF SHARES OF SERIES B STOCK(1) 35,824,134.00
TOTAL NO. OF SHARES OF ALL CLASSES OF STOCK 61,106,032.00
----------
(1) Excludes the following shares subject to cancellation for non-payment:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ 226,377.00
20
2. ThoughtWare has issued the following warrants to purchase shares of
its Common Stock:
No. of Shares
Exercise of Common Stock
Expiration Price per for which
Warrant Holder(2) Issue Date Date Share Exercisable
----------------- ---------- ---- ----- -----------
ThoughtWare Paradigm Investors 7/28/00 7/28/05 $0.5000 1,684,211
ThoughtWare Paradigm Investors 5/24/01 5/24/06 $0.0883 10,199,927
----------
TOTAL 11,884,138
==========
3. ThoughtWare Paradigm Investors has delivered its Warrants for
cancellation subject to the closing of the Merger.
In connection with the SVB Loan Agreement, ThoughtWare issued the
following warrant to purchase shares of its Series B Stock:
No. of Shares of
Exercise Series B Stock
Expiration Price per for which
Warrant Holder Issue Date Date Share Exercisable
-------------- ---------- ---- ----- -----------
Silicon Valley Bank 7/31/01 7/31/11 $0.0883 142,500
-------
TOTAL 142,500
=======
SVB has delivered its Warrant for cancellation, subject to the closing
of the Merger.
4. ThoughtWare issued options to purchase a total of 3,602,230 shares of
its Common Stock pursuant to the terms of its 2000 Long-Term Incentive
Plan, as follows:
Exercise Option
Type of Date of No. of Price Expiration
Optionee Option Grant Shares per Share Date
-------- ------ ----- ------ --------- ----
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.* ISO 02/06/01 100,000 0.5000 02/06/11
05/24/01 204,676 0.0883 05/24/11
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.* ISO 09/29/00 20,000 0.5000 09/29/10
01/01/01 10,000 0.5000 01/01/11
07/05/01 10,000 0.0883 07/05/11
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. (f/k/a ISO 09/29/00 25,000 0.5000 09/29/10
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇)* 09/01/01 20,000 0.0883 09/01/11
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.* ISO 02/06/01 500,000 0.5000 02/06/11
05/24/01 1,023,378 0.0883 05/24/11
----------
(2) Excludes Warrants to purchase common shares subject to cancellation for
non-payment:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ - 64,455.00 common shares @ $0.0883
21
Exercise Option
Type of Date of No. of Price Expiration
Optionee Option Grant Shares per Share Date
-------- ------ ----- ------ --------- ----
▇▇▇▇▇, ▇▇▇▇▇ ▇.* ISO 01/24/01 15,000 0.5000 01/24/11
04/01/01 15,000 0.5000 04/01/11
05/01/01 7,500 0.0883 05/01/11
▇▇▇▇▇▇, ▇▇▇▇▇ ▇.* ISO 04/23/01 25,000 0.5000 04/23/11
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇.* ISO 01/08/01 50,000 0.5000 01/08/11
09/01/01 100,000 0.0883 09/01/11
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.* ISO 01/22/01 10,000 0.5000 01/22/11
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.* ISO 11/13/00 10,000 0.5000 11/13/10
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. (f/k/a ▇▇▇▇ ISO 02/08/01 10,000 0.5000 02/08/11
▇. ▇▇▇▇▇▇)*
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇.* ISO 09/29/00 50,000 0.5000 09/29/10
07/05/01 10,000 0.0883 07/05/11
Zhou, Chen E.* ISO 09/29/00 50,000 0.5000 09/29/10
---------
TOTAL OUTSTANDING ISOS 2,265,554
=========
▇▇▇▇▇, ▇▇▇▇▇ ▇. NQSO 05/03/01 100,000 0.5000 05/03/11
▇▇ ▇▇▇▇▇, ▇▇▇▇ NQSO 06/08/01 80,000 0.0883 06/08/06
▇▇▇▇▇▇▇, ▇▇▇▇ ▇. NQSO 02/12/01 100,000 0.5000 02/12/11
▇▇▇▇▇▇, ▇▇▇▇▇ ▇. NQSO 08/15/01 10,000 0.5000 08/15/01
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. NQSO 06/15/01 25,000 0.5000 06/15/11
▇▇▇▇▇▇, IV, ▇▇▇▇▇ ▇.** NQSO 11/28/00 50,000 0.5000 11/28/10
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.** NQSO 05/31/01 50,000 0.0883 05/31/11
▇▇▇▇▇▇▇, ▇▇▇▇▇ NQSO 11/28/00 100,000 0.5000 11/28/10
▇▇▇▇▇▇, ▇▇▇ ▇.** NQSO 03/30/01 50,000 0.5000 03/31/11
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. NQSO 09/29/00 60,000 0.5000 09/29/10
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.** NQSO 07/31/00 150,000 0.5000 07/31/10
05/31/01 50,000 0.0883 05/31/11
▇▇▇▇, ▇▇▇▇▇ ▇. NQSO 08/15/01 50,000 0.5000 08/15/11
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇.** NQSO 11/28/00 50,000 0.5000 11/28/10
▇▇▇▇▇▇▇, ▇▇▇▇ ▇. NQSO 04/01/01 2,000 0.5000 04/01/11
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ NQSO 11/28/00 50,000 0.5000 11/28/10
▇▇▇▇▇▇▇▇, ▇▇▇ ▇. NQSO 11/28/00 50,000 0.5000 11/28/10
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. NQSO 04/13/01 5,000 0.5000 04/13/11
▇▇▇▇▇, ▇▇▇▇ ▇. NQSO 07/13/01 275,000 0.5000 07/13/11
07/13/01 29,676 0.0883 07/13/11
---------
TOTAL OUTSTANDING NQSOS 1,336,676
---------
TOTAL OUTSTANDING OPTIONS 3,602,230
=========
----------
* Optionee(s) executed Option Termination Agreements (ISOs) dated January 9,
2002.
** Optionee(s) executed Option Termination Agreements (NQSOs) dated January 9,
2002.
22
SCHEDULE 2.27(A) INTELLECTUAL PROPERTY
1. TRADEMARKS AND SERVICE MARKS: REGISTRATIONS AND APPLICATIONS
ThoughtWare has not obtained any federal registrations for its
trademarks or service marks. The following is a list of the applications filed
at the U.S. Patent and Trademark Office (the "PTO") with respect to
ThoughtWare's trademarks and service marks:
Filing Serial Filing
▇▇▇▇ Basis Number Date Goods/Services Status
---- ----- ------ ---- -------------- ------
THOUGHTWARE USE 76/098695 07/28/00 Education and training Final Office
TECHNOLOGIES services in the field of Action issued;
business management reply due July
provided in the form of 3, 2002
multimedia interactive
computer programs
accessible via a global
computer information
network.
AMENDED TO: Application
service provider services,
namely, providing
temporary use of online
non-downloadable software
applications for education
and training in the field
of business management, in
International Class 42.
KME (and design) USE 76/127372 09/13/00 Education and training Abandoned
services in the field of
business management
provided in the form of
multimedia interactive
computer programs
accessible via a global
computer information
network.
KNOWLEDGE USE 76/127371 09/13/00 Education and training Abandoned
MANAGEMENT services in the field of
ENGINE business management
provided in the form of
multimedia interactive
computer programs
accessible via a global
computer information
network.
(3 oval design) USE 76/190072 01/08/01 Education and training Non-final Office
services in the field of Action issued;
business management reply submitted
23
Filing Serial Filing
▇▇▇▇ Basis Number Date Goods/Services Status
---- ----- ------ ---- -------------- ------
provided in the form of
multimedia interactive
computer programs
accessible via a global
computer information
network.
AMENDED TO: Application
service provider services,
namely, providing
temporary use of online
non-downloadable software
applications for education
and training in the field
of business management, in
International Class 42.
WLM ITU 78/052121 03/09/01 Application service Non-final Office
provider services, namely, Action issued;
providing temporary use of reply submitted
an integrated suite of
online non-downloadable
software applications in
the fields of employee
recruiting, staffing and
retention, career planning
and management, human
resources management,
employee training,
monitoring and evaluation,
product and service
information, and corporate
policies and procedures.
WORKFORCE ITS 78/052123 03/09/01 Application service Non-final Office
LIFECYCLE provider services, namely, Action issued;
MANAGEMENT providing temporary use of reply due 1/5/02
an integrated suite of
online non-downloadable
software applications in
the fields of employee
recruiting, staffing and
retention, career planning
and management, human
resources management,
employee training,
monitoring and evaluation,
product and service
information, and corporate
policies and procedures.
24
Filing Serial Filing
▇▇▇▇ Basis Number Date Goods/Services Status
---- ----- ------ ---- -------------- ------
WORKFORCE ITU 78/060751 04/25/01 Employee education and Non-final Office
UNIVERSITY training services for Action issued;
employers, namely, reply due 2/7/02
providing generic and
customized professional
and occupational course
content, skills training,
instruction, career
planning, evaluation,
reporting and learning
management services via
the Internet.
WORKFORCE ITU 78/060753 04/25/01 Employee education and Non-final Office
DISTANCE LEARNING training services for Action issued;
employers, namely, reply due 2/7/02
providing generic and
customized professional
and occupational course
content, skills training,
instruction, evaluation,
reporting and learning
management services via
the Internet.
WORKFORCE ITU 78/066900 06/01/01 Application service Non-final Office
MIGRATION METHOD provider services, namely, Action issued;
providing temporary use of reply due 5/27/02
an integrated suite of
online non-downloadable
software applications in
the fields of employee
recruiting, staffing and
retention, career planning
and management, human
resources management,
employee training,
monitoring and evaluation,
product and service
information, and corporate
policies and procedures.
WORKFORCE ITU 78/066898 06/01/01 Application service Non-final Office
ENTERPRISE provider services, namely, Action issued;
providing temporary use of reply due 5/27/02
an integrated suite of
online non-downloadable
software applications in
the fields of employee
recruiting, staffing and
retention, career planning
and management, human
25
Filing Serial Filing
▇▇▇▇ Basis Number Date Goods/Services Status
---- ----- ------ ---- -------------- ------
resources management,
employee training,
monitoring and evaluation,
product and service
information, and corporate
policies and procedures.
2. TRADE NAMES
ThoughtWare has not registered any trade names with the PTO or any
other governmental authority, although it has used the following trade names:
"ThoughtWare", "ThoughtWare Technologies", "ThoughtWare Learning Technologies"
3. INTERNET DOMAIN NAMES
ThoughtWare has registered the following Internet domain names:
Date Expiration
Domain Name Registrar Registered Date
----------- --------- ---------- ----
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Network Solutions 08/21/98 08/21/10
▇▇▇.▇▇▇▇▇▇▇▇▇.▇▇▇ Network Solutions 06/15/99 06/15/03
▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇ Network Solutions 09/03/99 09/03/03
4. COPYRIGHTS
The following is a list of the ThoughtWare works for which copyrights
have been registered with the U.S. Copyright Office or for which applications to
register are pending:
Mailing Registration Registration
Copyrighted Material Date Date Number Status
-------------------- ---- ---- ------ ------
Knowledge Management 11/11/00 11/14/00 TX ▇-▇▇▇-▇▇▇ Registered
Engine Version 1 (KME
Vers. 1)
Distance Learning 11/11/00 11/14/00 TX ▇-▇▇▇-▇▇▇ Registered
Network Version 1 (DLN
Vers. 1)
Distance Learning 05/24/01 Pending
Network Version 2.1
(DLN Vers. 2.1)
Workforce Lifecycle 05/24/01 Pending
Management Version 1
(WLM Vers. 1)
Corporate University 05/24/01 Pending
Version 2 (CU Vers. 2)
26
In addition to the foregoing, ThoughtWare claims copyrights in (i) its
advertising and marketing materials, (ii) the contents of its website, (iii) its
manuals and training materials, and (iv) its logo and design.
5. PATENTS
ThoughtWare has not registered any patents nor has it submitted any
patent applications to the PTO or any other governmental authority.
6. LICENSED INTELLECTUAL PROPERTY
In the ordinary course of business, ThoughtWare licenses, for a fee,
the use of its training products on a non-exclusive basis to its customers.
Access to these training products and services, via the World Wide Web.
ThoughtWare is a party to the following license agreements:
* Content License Agreement dated as of January 1, 2000, between
ThoughtWare and KnowledgeWire, L.L.C.
* Marketing and Distribution License Agreement dated September 15,
1998 between ThoughtWare and ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. (f/k/a DPEC,
Inc.)
* License Agreement dated July 14, 2000 between ThoughtWare and the
University of Memphis
* Agreement dated [_______] between ThoughtWare and the Institute
for Defense Analysis pursuant to Department of Defense
Subcontract No. 45474
SCHEDULE 2.27(B) CONFLICTING RIGHTS OF THIRD PARTIES
1. TRADEMARKS
Thoughtware, Inc., a Florida corporation having an address at ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, is the registrant for three (3)
federal registrations for the trademark THOUGHTWARE. ThoughtWare has, through an
intermediary, been engaged in negotiations to acquire the following federal
registrations from Thoughtware, Inc.:
* Registration No. 1,216,148 for "computer timesharing services in the
business management field";
* Registration No. 1,902,488 for "housemark for a full line of computer
software in the fields of business administration, management, sales,
training, decision support, and education";
27
* Registration No. 1,398,472 for "newsletters and magazines relating to
computers, computer instruction manuals, and user manuals."
If ThoughtWare is unable to acquire the foregoing registrations, it will not be
able to obtain a federal registration of the ▇▇▇▇ THOUGHTWARE TECHNOLOGIES.
In addition to the foregoing, a number of unrelated third parties use the term
"Thoughtware" as trade names, trademarks and/or service marks.
Finally, the following unrelated third parties have applied to the PTO to
register marks containing the term "THOUGHTWARE":
Serial No. ITU/First
Applicant ▇▇▇▇ (Filing Date) Goods and Services Use Status
--------- ---- ------------- ------------------ --- ------
21st Century 21st CENTURY 76/064914 Internet based services 05/02/00 Approved for
Minnesota, LLC THOUGHTWARE (06/07/00) for project planning publication
and communications
(cl. 35); Amended to:
Project planning in
the field of business
and conducting
business surveys to
determine the
effectiveness of the
business plans and
projects of others
via a website on a
global
computer network
Constraints THOUGHTWARE 76/122808 Computer software for ITU Non-final
Management (09/06/00) the use in the field of Office Action
Group, LLC business management issued; reply
consultation (cl. 9); submitted
printed matter for use
in the field of
business management
consultation (cl. 16);
business management
consultation services
(cl. 35)
Constraints THOUGHTWARE 76/122807 Computer software for ITU Non-final
Management PEOPLE (09/06/00) use in the field of Office Action
Group, LLC business management issued
consultation (cl. 9);
printed matter for use
in the field of
business consultation
(cl. 16); business
management consultation
services (cl. 35)
Engage ENGAGE 76/218543 Hosting services in the ITU Non-final
Thoughtware, THOUGHTWARE (03/01/01) field of organizational Office Action
LLC idea culture (cl. 42) issued
Constraints CMG 76/303263 Printed matter for use 09/30/00 Assigned to
Management CONSTRAINTS (08/21/01) in the field of examiner
Group, MANAGEMENT business management
LLC GROUP THE consultation (cl. 16)
THOUGHTWARE Business management
PEOPLE consultation (cl. 35)
28
2. DOMAIN NAMES
Unrelated third parties have registered the following domain names:
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇▇.▇▇ (Australia)
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇ (Canada)
▇▇▇.▇▇▇▇▇▇▇▇▇▇▇.▇▇.▇▇ (United Kingdom)
SCHEDULE 2.27(C) INFRINGEMENT CLAIMS
None
SCHEDULE 11.5 BROKERS
With the exception of the $10,000 account payable due to SunTrust
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as reflected on SCHEDULE 2.19, ThoughtWare has no
broker or finder fees and expenses related to the consummation of the
transactions contemplated by this Agreement.
29
[LOGO]THOUGHTWARE
Lease and License Agreements
Schedule 2.4
As of December 31, 2001
---------------------------- --------------------------------- -------------------------------------------
Type Vendor Items
---------------------------- --------------------------------- -------------------------------------------
Capital Leases CitiCapital (SM) 6 Installed Overhead Projection System
Trust One Bank Workstation, Services, & Racks
Union Planters Leasing Labtops
Union Planters Leasing Labtops
Union Planters Leasing Firewall
Union Planters Leasing Telephone System, Workstations, Projectors
Trust One Bank Laptops & Projectors
Trust One Bank Laptops, Workstations and Servers
GE Capital Konica 4145 Copier and accessories
GreatAmerica Leasing Corp. LCD Projector w/ screen
AMEX Equipment Finance SalesLogix install. & software/hardware
Dell Financial Services Workstations & scanner
Dell Financial Services Workstations
---------------------------- --------------------------------- -------------------------------------------
---------------------------- --------------------------------- -------------------------------------------
Real Estate Leases D&S Realty, LLC Memphis, TN
PL Management Milford, CT
Legacy Partners Management LP Carlsbad, CA
Regus Business Centre Corp Schaumburg , IL
---------------------------- --------------------------------- -------------------------------------------
---------------------------- --------------------------------- -------------------------------------------
Telecommunication Comdisco Continuity SRVC Hosting Service
Time Warner Telecom Internet Connection, Telephone Service
---------------------------- --------------------------------- -------------------------------------------
---------------------------- --------------------------------- -------------------------------------------
Severance Agreements ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Founder
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ Founder
---------------------------- --------------------------------- -------------------------------------------
---------------------------- --------------------------------- -------------------------------------------
Content Providers/ Partners Avaltus, Inc. Course Authorization Development Tool
Crystal Decisions, Inc. Custom Report Generation
EduNeering, Inc Content Provider
First Door Content Provider
International Data Corporation Industry Research
MindLeaders Content Provider
NETG Content Provider
NIIT Content Developer
Spectranode Content Developer
---------------------------- --------------------------------- -------------------------------------------
[LOGO]THOUGHTWARE
Non-Lease Purchased Assets
Schedule 2.10a
As of December 31, 2001 Current
Date Beginning Year Ending
Classification Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Furniture
Furniture 09/22/99 84.00 1,866.00 -- 1,866.00
Furniture 10/01/99 84.00 18,000.00 -- 18,000.00
Stools Chairs 10/21/99 84.00 1,582.00 -- 1,582.00
Chairs 10/24/99 84.00 540.00 -- 540.00
Chairs 11/01/99 84.00 5,622.00 -- 5,622.00
8 Consoles 11/12/99 84.00 1,200.00 -- 1,200.00
▇▇▇▇▇'▇ Rack 11/27/99 84.00 422.00 -- 422.00
Chairs 11/30/99 84.00 2,506.00 -- 2,506.00
Computer Desks 11/30/99 84.00 32,445.00 -- 32,445.00
2 Desks 12/31/99 84.00 431.00 -- 431.00
Richard's Furniture 06/08/00 84.00 461.82 461.82
Flashback 08/21/00 84.00 2,432.38 2,432.38
Furniture 08/24/00 84.00 920.10 920.10
Richard's Furniture 08/24/00 84.00 471.60 471.60
Richard's Furniture 09/11/00 84.00 2,560.55 2,560.55
▇▇▇▇▇▇ ▇▇▇▇▇▇ Aeron Chair 10/18/00 84.00 723.97 723.97
▇▇▇▇▇▇ ▇▇▇▇▇▇ Aeron Chair 10/18/00 84.00 723.98 723.98
Drafting Chair 11/06/00 84.00 107.17 107.17
Bestar 11/09/00 84.00 1,093.00 1,093.00
Chair for Think Room 11/09/00 84.00 649.35 649.35
Office Furniture 12/31/00 84.00 800.00 800.00
Office Furniture 01/31/01 84.00 18,277.54 18,277.54
Office Furniture 01/31/01 84.00 2,137.63 2,137.63
Office Furniture - Delivery 03/13/01 84.00 1,296.00 1,296.00
Filing Cabinet 03/15/01 84.00 529.00 529.00
F&E Furniture 03/21/01 84.00 3,742.60 3,742.60
Filing Cabinet 03/21/01 84.00 529.00 529.00
▇▇▇▇▇▇ Business 03/21/01 84.00 6,860.89 6,860.89
▇▇▇▇▇▇ Business 04/11/01 84.00 1,250.00 1,250.00
Office Furniture - Delivery &Assembly 04/25/01 84.00 2,737.50 2,735.50
F & E Furniture 05/24/01 84.00 513.71 513.71
Total - Furniture 75,557.92 37,873.87 113,429.79
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001 Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
------------------------------------------------------------------------------------------------------------------------------------
Furniture
Furniture 22.21 355.43 266.57 622.00 1,244.00
Furniture 214.29 3,214.29 2,571.43 5,785.71 12,214.29
Stools Chairs 18.83 282.50 226.00 508.50 1,073.50
Chairs 6.43 96.43 77.14 173.57 366.43
Chairs 66.93 937.00 803.14 1,740.14 3,881.86
8 Consoles 14.29 200.00 171.43 371.43 828.57
▇▇▇▇▇'▇ Rack 5.02 70.33 60.29 130.62 291.38
Chairs 29.83 417.67 358.00 775.67 1,730.33
Computer Desks 386.25 5,407.50 4,635.00 10,042.50 22,402.50
2 Desks 5.13 66.70 61.57 128.27 302.73
Richard's Furniture 5.50 38.49 65.97 104.46 357.36
Flashback 28.96 144.78 347.48 492.27 1,940.11
Furniture 10.95 54.77 131.44 186.21 733.89
Richard's Furniture 5.61 28.07 67.37 95.44 376.16
Richard's Furniture 30.48 121.93 365.79 487.72 2,072.83
▇▇▇▇▇▇ ▇▇▇▇▇▇ Aeron Chair 8.62 25.86 103.42 129.28 594.69
▇▇▇▇▇▇ ▇▇▇▇▇▇ Aeron Chair 8.62 25.86 103.43 129.28 594.70
Drafting Chair 1.28 2.55 15.31 17.86 89.31
Bestar 13.01 26.02 156.14 182.17 910.83
Chair for Think Room 7.73 15.46 92.76 108.23 541.13
Office Furniture 9.52 9.52 114.29 123.81 676.19
Office Furniture 217.59 2,611.08 2,611.08 15,666.46
Office Furniture 25.45 305.38 305.38 1,832.25
Office Furniture - Delivery 15.43 185.14 185.14 1,110.86
Filing Cabinet 6.30 75.57 75.57 453.43
F&E Furniture 44.55 534.66 534.66 3,207.94
Filing Cabinet 6.30 75.57 75.57 453.43
▇▇▇▇▇▇ Business 81.68 980.13 980.13 5,880.76
▇▇▇▇▇▇ Business 14.88 178.57 178.57 1,071.43
Office Furniture - Delivery &Assembly 32.57 390.79 390.79 2,344.71
F & E Furniture 6.12 73.39 73.39 440.32
Total - Furniture 1,350.35 11,541.16 16,204.26 27,745.41 85,684.38
------------------------------------------------------------------------------------------------------------------------------------
[LOGO]THOUGHTWARE
Non-Lease Purchased Assets
Schedule 2.10a
As of December 31, 2001 Current
Date Beginning Year Ending
Classification Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Equipment
Televisions 05/17/98 60.00 503.00 -- 503.00
Refrigerator 05/18/99 60.00 750.00 -- 750.00
Refrigerator 09/24/99 60.00 1,803.00 -- 1,803.00
Telephone System 09/30/99 60.00 21,618.00 -- 21,618.00
4 Projectors 11/10/99 60.00 10,463.00 -- 10,463.00
Telephone Addition System 11/09/00 60.00 3,617.72 3,617.72
Panaboard & Stand 03/01/01 60.00 1,515.50 1,515.50
Security System expansion 04/27/01 60.00 1,437.20 1,437.20
Binder machine 05/31/01 60.00 625.00 625.00
Security System Voice Module 05/31/01 60.00 756.00 756.00
Total - Equipment 38,754.72 4,333.70 43,088.42
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Servers - Computer Hardware
Router for T1 12/01/98 36.00 1,208.00 -- 1,208.00
Ram for Network 12/31/98 36.00 313.00 -- 313.00
Ram for NT 12/31/98 36.00 190.00 -- 190.00
LAN Printers 10/10/00 36.00 1,068.80 1,068.80
Backup System for Alpha Server 11/02/00 36.00 670.73 670.73
Kingston 512MB CPQ 04/24/01 36.00 650.93 650.93
PC for useability lab 05/30/01 36.00 514.74 514.74
HP Plotter 05/31/01 36.00 2,336.67 2,336.67
River Telecommunications 05/31/01 36.00 2,555.00 2,555.00
HP Labtop 05/31/01 36.00 1,975.54 1,975.54
HP Deskjet Printer 05/31/01 36.00 508.73 508.73
Total - Servers - Computer Hardware 3,450.53 8,541.61 11,992.14
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001 Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
------------------------------------------------------------------------------------------------------------------------------------
Equipment
Televisions 8.38 268.27 100.60 368.87 134.13
Refrigerator 12.50 250.00 150.00 400.00 350.00
Refrigerator 30.05 480.80 360.60 841.40 961.60
Telephone System 360.30 5,764.80 4,323.60 10,088.40 11,529.60
4 Projectors 174.38 2,441.37 2,092.60 4,533.97 5,929.03
Telephone Addition System 60.30 120.59 723.54 844.13 2,773.59
Panaboard & Stand 25.26 303.10 303.10 1,212.40
Security System expansion 23.95 287.44 287.44 1,149.76
Binder machine 10.42 125.00 125.00 500.00
Security System Voice Module 12.60 151.20 151.20 604.80
Total - Equipment 718.14 9,325.82 8,617.68 17,943.51 25,144.91
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Servers - Computer Hardware
Router for T1 838.89 369.11 1,208.00 0.00
Ram for Network 217.36 95.64 313.00 (0.00)
Ram for NT 131.94 58.06 190.00 (0.00)
LAN Printers 29.69 89.07 356.27 445.33 623.47
Backup System for Alpha Server 18.63 37.26 223.58 260.84 409.89
Kingston 512MB CPQ 18.08 216.98 216.98 433.95
PC for useability lab 14.30 171.58 171.58 343.16
HP Plotter 64.91 778.89 778.89 1,557.78
River Telecommunications 70.97 851.67 851.67 1,703.33
HP Labtop 54.88 658.51 658.51 1,317.03
HP Deskjet Printer 14.13 169.58 169.58 339.15
Total - Servers - Computer Hardware 285.59 1,314.52 3,949.86 5,264.38 6,727.76
------------------------------------------------------------------------------------------------------------------------------------
[LOGO]THOUGHTWARE
Non-Lease Purchased Assets
Schedule 2.10a
As of December 31, 2001 Current
Date Beginning Year Ending
Classification Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Workstations - Computer Hardware
Computer Equipment 03/10/99 36.00 42,253.00 -- 42,253.00
Computer Equipment 07/01/99 36.00 2,088.00 -- 2,088.00
Computer Equipment 07/23/99 36.00 2,376.00 -- 2,376.00
Computer Workstation 10/01/99 36.00 5,431.00 -- 5,431.00
Laptop 10/23/99 36.00 1,806.00 -- 1,806.00
Computer Laptop 11/27/99 36.00 1,053.00 -- 1,053.00
Workstations 01/05/00 36.00 11,820.04 11,820.04
Laptop- ▇. ▇▇▇▇▇▇▇ 07/22/00 36.00 3,480.00 3,480.00
Dell Financial Services 08/15/00 36.00 764.08 764.08
2 Compaq Computer 11/06/00 36.00 1,948.48 1,948.48
Compaq Computer 11/14/00 36.00 974.24 974.24
Compaq Computer 11/15/00 36.00 1,098.72 1,098.72
Lexmark Iptra C710N Duplex 12/01/00 36.00 3,401.59 3,401.59
Total - Workstations - Computer Hardware 78,494.15 -- 78,494.15
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001 Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
-----------------------------------------------------------------------------------------------------------------------------------
Workstations - Computer Hardware
Computer Equipment 1,173.69 23,473.89 14,084.33 37,558.22 4,694.78
Computer Equipment 58.00 1,044.00 696.00 1,740.00 348.00
Computer Equipment 66.00 1,188.00 792.00 1,980.00 396.00
Computer Workstation 150.86 2,262.92 1,810.33 4,073.25 1,357.75
Laptop 50.17 752.50 602.00 1,354.50 451.50
Computer Laptop 29.25 409.50 351.00 760.50 292.50
Workstations 328.33 3,940.01 3,940.01 7,880.03 3,940.01
Laptop- ▇. ▇▇▇▇▇▇▇ 96.67 580.00 1,160.00 1,740.00 1,740.00
Dell Financial Services 21.22 106.12 254.69 360.82 403.26
2 Compaq Computer 54.12 108.25 649.49 757.74 1,190.74
Compaq Computer 27.06 54.12 324.75 378.87 595.37
Compaq Computer 30.52 61.04 366.24 427.28 671.44
Lexmark Iptra C710N Duplex 94.49 94.49 1,133.86 1,228.35 2,173.24
--
Total - Workstations - Computer Hardware 2,180.39 34,074.84 26,164.72 60,239.56 18,254.59
-----------------------------------------------------------------------------------------------------------------------------------
[LOGO]THOUGHTWARE
Non-Lease Purchased Assets
Schedule 2.10a
As of December 31, 2001 Current
Date Beginning Year Ending
Classification Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Leasehold Improvements
Phone system wiring 03/15/01 36.00 3,082.29 3,082.29
Office improvements 03/15/01 60.00 2,000.00 2,000.00
Office improvements 05/24/01 60.00 21,280.00 21,280.00
Total - Leasehold Improvements -- 26,362.29 26,362.29
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Purchased Software
Intel Pro/100+MGMT 20 Pack 09/21/00 36.00 1,120.45 1,120.45
MS Windows Advance Server 25F 09/21/00 36.00 3,259.99 3,259.99
MS SQL Server Ent 10/17/00 36.00 9,430.40 9,430.40
Virusscan V5.0 10/17/00 36.00 1,477.20 1,477.20
MS MBL SQL 2000 Dev Ed 10/21/00 36.00 1,125.00 1,125.00
MS MBL W2000 4 Pack 10/21/00 36.00 1,313.01 1,313.01
Mas 90 Accounting Software 12/01/00 36.00 21,229.27 21,229.27
Starteam 4.2 Enterprise - 10 pk 12/07/00 36.00 8,013.20 8,013.20
Starteam 4.2 Enterprise - Singular 12/07/00 36.00 799.00 799.00
Starteam 4.2 Enterprise 5pk 12/07/00 36.00 3,995.00 3,995.00
Starteam 4.2 Enterprise- Singular 12/07/00 36.00 799.00 799.00
Starteam 4.2 Enterprise- Singular 12/07/00 36.00 799.00 799.00
Total - Purchased Software 53,360.52 -- 53,360.52
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001 Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
---------------------------------------------------------------------------------------------------------------------------------
Leasehold Improvements
Phone system wiring 85.62 1,027.43 1,027.43 2,054.86
Office improvements 33.33 400.00 400.00 1,600.00
Office improvements 354.67 4,256.00 4,256.00 17,024.00
Total - Leasehold Improvements 473.62 -- 5,683.43 5,683.43 20,678.86
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Purchased Software
Intel Pro/100+MGMT 20 Pack 31.12 124.49 373.48 497.98 622.47
MS Windows Advance Server 25F 90.56 362.22 1,086.66 1,448.88 1,811.11
MS SQL Server Ent 261.96 785.87 3,143.47 3,929.33 5,501.07
Virusscan V5.0 41.03 123.10 492.40 615.50 861.70
MS MBL SQL 2000 Dev Ed 31.25 93.75 375.00 468.75 656.25
MS MBL W2000 4 Pack 36.47 109.42 437.67 547.09 765.92
Mas 90 Accounting Software 589.70 589.70 7,076.42 7,666.13 13,563.14
Starteam 4.2 Enterprise - 10 pk 222.59 222.59 2,671.07 2,893.66 5,119.54
Starteam 4.2 Enterprise - Singular 22.19 22.19 266.33 288.53 510.47
Starteam 4.2 Enterprise 5pk 110.97 110.97 1,331.67 1,442.64 2,552.36
Starteam 4.2 Enterprise- Singular 22.19 22.19 266.33 288.53 510.47
Starteam 4.2 Enterprise- Singular 22.19 22.19 266.33 288.53 510.47
Total - Purchased Software 1,482.24 2,588.70 17,786.84 20,375.54 32,984.98
---------------------------------------------------------------------------------------------------------------------------------
[LOGO]THOUGHTWARE
Non-Lease Purchased Assets
Schedule 2.10a
As of December 31, 2001 Current
Date Beginning Year Ending
Classification Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Total - Furniture 75,557.92 37,873.87 113,429.79
Total - Equipment 38,754.72 4,333.70 43,088.42
Total - Servers - Computer Hardware 3,450.53 8,541.61 11,992.14
Total - Workstations - Computer Hardware 78,494.15 -- 78,494.15
Total - Leasehold Improvements -- 26,362.29 26,362.29
Total - Purchased Software 53,360.52 -- 53,360.52
Total - Fixed Assets 249,617.84 77,111.47 326,727.31
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001 Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
------------------------------------------------------------------------------------------------------------------------------------
Total - Furniture 1,350.35 11,541.16 16,204.26 27,745.41 85,684.38
Total - Equipment 718.14 9,325.82 8,617.68 17,943.51 25,144.91
Total - Servers - Computer Hardware 285.59 1,314.52 3,949.86 5,264.38 6,727.76
Total - Workstations - Computer Hardware 2,180.39 34,074.84 26,164.72 60,239.56 18,254.59
Total - Leasehold Improvements 473.62 -- 5,683.43 5,683.43 20,678.86
Total - Purchased Software 1,482.24 2,588.70 17,786.84 20,375.54 32,984.98
Total - Fixed Assets 6,490.33 58,845.04 78,406.78 137,251.83 189,475.48
------------------------------------------------------------------------------------------------------------------------------------
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Equipment
M7324 Expanded Telephone 5 02/28/01 60.00 282.03 282.03
M7310 Telephone 5 02/28/01 60.00 214.35 214.35
M7310 Telephone 5 02/28/01 60.00 214.35 214.35
M7310 Telephone 5 02/28/01 60.00 214.35 214.35
M7310 Telephone 5 02/28/01 60.00 214.35 214.35
M7310 Telephone 5 02/28/01 60.00 214.35 214.35
Star Talk Flash 2 Voice Mail 5 02/28/01 60.00 2,427.90 2,427.90
Kodak SVGA Multimedia Projector 5 02/28/01 60.00 2,099.00 2,099.00
Kodak SVGA Multimedia Projector 5 02/28/01 60.00 2,099.00 2,099.00
Kodak SVGA Multimedia Projector 5 02/28/01 60.00 2,099.00 2,099.00
Kodak SVGA Multimedia Projector 6 02/28/01 60.00 2,099.00 2,099.00
Kodak SVGA Multimedia Projector 6 03/19/01 60.00 2,099.00 2,099.00
Kodak SVGA Multimedia Projector 5 02/28/01 60.00 2,099.00 2,099.00
Total - Equipment - 16,375.68 16,375.68
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Servers - Computer Hardware
128ECC SDRAM RDIMM 1 11/01/00 SL 36.00 360.00 360.00
128MB ECC SDRAM RDIMM 1 11/01/00 SL 36.00 360.00 360.00
128MB ECC SDRAM RDIMM 1 11/01/00 SL 36.00 360.00 360.00
128MB ECC SDRAMM RDIMM 1 11/01/00 SL 36.00 360.00 360.00
18.2 G 10K SL HS 1 11/01/00 SL 36.00 785.00 785.00
18.2 G 10K SL HS 1 11/01/00 SL 36.00 785.00 785.00
18.2 G 10K SL HS 1 11/01/00 SL 36.00 785.00 785.00
18.2 G 10K SL HS 1 11/01/00 SL 36.00 785.00 785.00
18.2G 10K SL HS 1 11/01/00 SL 36.00 785.00 785.00
18.2G 10K SL HS 1 11/01/00 SL 36.00 785.00 785.00
250W Redundant Power Supply 1 11/01/00 SL 36.00 290.00 290.00
250WA Redundant Power Supply 1 11/01/00 SL 36.00 580.00 580.00
256 MB ECC SDRAM RDIMM 1 11/01/00 SL 36.00 720.00 720.00
256MB ECC SDRAM RDIMM 1 11/01/00 SL 36.00 720.00 720.00
256MB ECC SDRAM RDIMM 1 11/01/00 SL 36.00 720.00 720.00
256MB ECC SDRAM RDIMM 1 11/01/00 SL 36.00 720.00 720.00
36.4G 10K HH HS Drive 1 11/01/00 SL 36.00 1,400.00 1,400.00
36.4G 10K HH HS Drive 1 11/01/00 SL 36.00 1,400.00 1,400.00
4prt Console Select Switch 1 11/01/00 SL 36.00 902.09 902.09
5100 Netfinity Servers 1 11/01/00 SL 36.00 3,500.00 3,500.00
5101 Netfinity Servers 1 11/01/00 SL 36.00 3,500.00 3,500.00
5102 Netfinity Servers 1 11/01/00 SL 36.00 3,500.00 3,500.00
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
-------------------------------------------------------------------------------------------------------------------------------
Equipment
M7324 Expanded Telephone 4.70 56.41 56.41 225.62
M7310 Telephone 3.57 42.87 42.87 171.48
M7310 Telephone 3.57 42.87 42.87 171.48
M7310 Telephone 3.57 42.87 42.87 171.48
M7310 Telephone 3.57 42.87 42.87 171.48
M7310 Telephone 3.57 42.87 42.87 171.48
Star Talk Flash 2 Voice Mail 40.47 485.58 485.58 1,942.32
Kodak SVGA Multimedia Projector 34.98 419.80 419.80 1,679.20
Kodak SVGA Multimedia Projector 34.98 419.80 419.80 1,679.20
Kodak SVGA Multimedia Projector 34.98 419.80 419.80 1,679.20
Kodak SVGA Multimedia Projector 34.98 419.80 419.80 1,679.20
Kodak SVGA Multimedia Projector 34.98 419.80 419.80 1,679.20
Kodak SVGA Multimedia Projector 34.98 419.80 419.80 1,679.20
Total - Equipment 272.93 - 3,275.14 3,275.14 13,100.54
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Servers - Computer Hardware
128ECC SDRAM RDIMM 10.00 SL 20.00 120.00 140.00 220.00
128MB ECC SDRAM RDIMM 10.00 SL 20.00 120.00 140.00 220.00
128MB ECC SDRAM RDIMM 10.00 SL 20.00 120.00 140.00 220.00
128MB ECC SDRAMM RDIMM 10.00 SL 20.00 120.00 140.00 220.00
18.2 G 10K SL HS 21.81 SL 43.61 261.67 305.28 479.72
18.2 G 10K SL HS 21.81 SL 43.61 261.67 305.28 479.72
18.2 G 10K SL HS 21.81 SL 43.61 261.67 305.28 479.72
18.2 G 10K SL HS 21.81 SL 43.61 261.67 305.28 479.72
18.2G 10K SL HS 21.81 SL 43.61 261.67 305.28 479.72
18.2G 10K SL HS 21.81 SL 43.61 261.67 305.28 479.72
250W Redundant Power Supply 8.06 SL 16.11 96.67 112.78 177.22
250WA Redundant Power Supply 16.11 SL 32.22 193.33 225.55 354.45
256 MB ECC SDRAM RDIMM 20.00 SL 40.00 240.00 280.00 440.00
256MB ECC SDRAM RDIMM 20.00 SL 40.00 240.00 280.00 440.00
256MB ECC SDRAM RDIMM 20.00 SL 40.00 240.00 280.00 440.00
256MB ECC SDRAM RDIMM 20.00 SL 40.00 240.00 280.00 440.00
36.4G 10K HH HS Drive 38.89 SL 77.78 466.67 544.44 855.56
36.4G 10K HH HS Drive 38.89 SL 77.78 466.67 544.44 855.56
4prt Console Select Switch 25.06 SL 50.12 300.70 350.81 551.28
5100 Netfinity Servers 97.22 SL 194.44 1,166.67 1,361.11 2,138.89
5101 Netfinity Servers 97.22 SL 194.44 1,166.67 1,361.11 2,138.89
5102 Netfinity Servers 97.22 SL 194.44 1,166.67 1,361.11 2,138.89
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
9.1 G 10K SL HS Drive 1 11/01/00 SL 36.00 445.00 445.00
9.1 G 10K SL HS Drive 1 11/01/00 SL 36.00 445.00 445.00
9.1 G 10k SL Hs Drive 1 11/01/00 SL 36.00 445.00 445.00
9.1G 10k SL HS Drive 1 11/01/00 SL 36.00 445.00 445.00
9.1G 10K SL HS Drive 1 11/01/00 SL 36.00 445.00 445.00
9.1G 10K SL HS Drive 1 11/01/00 SL 36.00 445.00 445.00
9.1G 10K SL HS Drive 1 11/01/00 SL 36.00 445.00 445.00
Black Monitor 1 11/01/00 SL 36.00 296.00 296.00
BlankFiller Panel Kit for Rack 1 11/01/00 SL 36.00 57.24 57.24
Cal's for Server 1 11/01/00 SL 36.00 525.00 525.00
Consloe Cable Set- 12 Ft 1 11/01/00 SL 36.00 67.84 67.84
Console Cabinet Set 12 ft 1 11/01/00 SL 36.00 67.84 67.84
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
9.1 G 10K SL HS Drive 12.36 SL 24.72 148.33 173.06 271.94
9.1 G 10K SL HS Drive 12.36 SL 24.72 148.33 173.06 271.94
9.1 G 10k SL Hs Drive 12.36 SL 24.72 148.33 173.06 271.94
9.1G 10k SL HS Drive 12.36 SL 24.72 148.33 173.06 271.94
9.1G 10K SL HS Drive 12.36 SL 24.72 148.33 173.06 271.94
9.1G 10K SL HS Drive 12.36 SL 24.72 148.33 173.06 271.94
9.1G 10K SL HS Drive 12.36 SL 24.72 148.33 173.06 271.94
Black Monitor 8.22 SL 16.44 98.67 115.11 180.89
BlankFiller Panel Kit for Rack 1.59 SL 3.18 19.08 22.26 34.98
Cal's for Server 14.58 SL 29.17 175.00 204.17 320.83
Consloe Cable Set- 12 Ft 1.88 SL 3.77 22.61 26.38 41.46
Console Cabinet Set 12 ft 1.88 SL 3.77 22.61 26.38 41.46
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Console Cable Set 12 Ft 1 11/01/00 SL 36.00 67.84 67.84
Console Cable Set- 12 ft 1 11/01/00 SL 36.00 67.84 67.84
DLT IV Tape Cartridge 1 11/01/00 SL 36.00 2,512.27 2,512.27
DLT IV Tape Cartridge 1 11/01/00 SL 36.00 169.61 169.61
ETH 100/10 PCI RJ45 ADPT-VER 1 11/01/00 SL 36.00 96.00 96.00
ETH 100/10 PCI RJ45 ADPT-VER 1 11/01/00 SL 36.00 96.00 96.00
ETH 100/10 PCI RJ45 ADPT-VER 1 11/01/00 SL 36.00 96.00 96.00
ETH 100/10 PCI RJ45ADPT-VER 1 11/01/00 SL 36.00 96.00 96.00
HP Surestone Dat8I Int Tape Drive 2 11/01/00 SL 36.00 605.84 605.84
IBM 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBM Netfinity 4500 R 1 11/01/00 SL 36.00 754.00 754.00
IBM Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBm Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBM Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBM Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBM Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBm Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBm Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBm Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBM Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBm Netfinity 4500R 1 11/01/00 SL 36.00 754.00 754.00
IBM Sleek Mouse 1 11/01/00 SL 36.00 23.32 23.32
IBM Space Server 11 Keyboard Black 1 11/01/00 SL 36.00 149.69 149.69
IBM Warranty Pack 1 11/01/00 SL 36.00 1,862.00 1,862.00
IBM Warranty Pack 1 11/01/00 SL 36.00 1,395.00 1,395.00
IBM Warranty Pack 1 11/01/00 SL 36.00 1,395.00 1,395.00
IBM Warranty Pack 1 11/01/00 SL 36.00 1,395.00 1,395.00
Intel DC Cable 2 11/01/00 SL 36.00 38.10 38.10
Intel DC Cable 2 11/01/00 SL 36.00 38.10 38.10
Intel Ser 500 Switch Stack 2 11/01/00 SL 36.00 155.21 155.21
Intel Ser 510T Switch I/F 2 11/01/00 SL 36.00 1,475.46 1,475.46
Intel Ser 510T Switch I/F 2 11/01/00 SL 36.00 1,475.46 1,475.46
Intel Ser 510T Switch I/F 2 11/01/00 SL 36.00 1,475.46 1,475.46
Intel Ser 510t Switch I/F 2 11/01/00 SL 36.00 1,475.46 1,475.46
Intel Ser 510T Switch I/F 2 11/01/00 SL 36.00 1,475.46 1,475.46
Lattitude Notebooks 2 11/01/00 SL 36.00 3,307.00 3,307.00
Lattitude Notebooks 2 11/01/00 SL 36.00 3,307.00 3,307.00
Lattitude Notebooks 2 11/01/00 SL 36.00 3,307.00 3,307.00
Lattitude Notebooks 2 11/01/00 SL 36.00 3,307.00 3,307.00
Lattitude Notebooks 2 11/01/00 SL 36.00 3,313.00 3,313.00
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
------------------------------------------------------------------------------------------------------------------------------
Console Cable Set 12 Ft 1.88 SL 3.77 22.61 26.38 41.46
Console Cable Set- 12 ft 1.88 SL 3.77 22.61 26.38 41.46
DLT IV Tape Cartridge 69.79 SL 139.57 837.42 976.99 1,535.28
DLT IV Tape Cartridge 4.71 SL 9.42 56.54 65.96 103.65
ETH 100/10 PCI RJ45 ADPT-VER 2.67 SL 5.33 32.00 37.33 58.67
ETH 100/10 PCI RJ45 ADPT-VER 2.67 SL 5.33 32.00 37.33 58.67
ETH 100/10 PCI RJ45 ADPT-VER 2.67 SL 5.33 32.00 37.33 58.67
▇▇▇ ▇▇▇/▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇-▇▇▇ 2.67 SL 5.33 32.00 37.33 58.67
HP ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Int Tape Drive 16.83 SL 33.66 201.95 235.60 370.24
IBM 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBM Netfinity 4500 R 20.94 SL 41.89 251.33 293.22 460.78
IBM Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBm Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBM Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBM Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBM Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBm Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBm Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBm Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBM Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBm Netfinity 4500R 20.94 SL 41.89 251.33 293.22 460.78
IBM Sleek Mouse 0.65 SL 1.30 7.77 9.07 14.25
IBM Space Server 11 Keyboard Black 4.16 SL 8.32 49.90 58.21 91.48
IBM Warranty Pack 51.72 SL 103.44 620.67 724.11 1,137.89
IBM Warranty Pack 38.75 SL 77.50 465.00 542.50 852.50
IBM Warranty Pack 38.75 SL 77.50 465.00 542.50 852.50
IBM Warranty Pack 38.75 SL 77.50 465.00 542.50 852.50
Intel DC Cable 1.06 SL 2.12 12.70 14.82 23.28
Intel DC Cable 1.06 SL 2.12 12.70 14.82 23.28
Intel Ser 500 Switch Stack 4.31 SL 8.62 51.74 60.36 94.85
Intel Ser 510T Switch I/F 40.99 SL 81.97 491.82 573.79 901.67
Intel Ser 510T Switch I/F 40.99 SL 81.97 491.82 573.79 901.67
Intel Ser 510T Switch I/F 40.99 SL 81.97 491.82 573.79 901.67
Intel Ser 510t Switch I/F 40.99 SL 81.97 491.82 573.79 901.67
Intel Ser 510T Switch I/F 40.99 SL 81.97 491.82 573.79 901.67
Lattitude Notebooks 91.86 SL 183.72 1,102.33 1,286.06 2,020.94
Lattitude Notebooks 91.86 SL 183.72 1,102.33 1,286.06 2,020.94
Lattitude Notebooks 91.86 SL 183.72 1,102.33 1,286.06 2,020.94
Lattitude Notebooks 91.86 SL 183.72 1,102.33 1,286.06 2,020.94
Lattitude Notebooks 92.03 SL 184.06 1,104.33 1,288.39 2,024.61
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
Lattitude Notebooks 2 11/01/00 SL 36.00 3,313.00 3,313.00
Netfinity 700Mhz/2Mb Upgrade 1 11/01/00 SL 36.00 5,903.00 5,903.00
Netfinity 7600 Rack 1 11/01/00 SL 36.00 14,095.00 14,095.00
Netfinity Hot Swap Power Expansion 1 11/01/00 SL 36.00 424.00 424.00
OBI 20/40 GB DLT Int'l Tape Drive 1 11/01/00 SL 36.00 1,725.00 1,725.00
OBI 20/40 GB DLT Int'l Tape Drive 1 11/01/00 SL 36.00 1,725.00 1,725.00
OBI 20/40 GB DLT Int'l Tape Drive 1 11/01/00 SL 36.00 1,725.00 1,725.00
OBI Netfinity Tape Drive 1 11/01/00 SL 36.00 4,179.00 4,179.00
P3 867MHZ/133FSB 256KB Proc 1 11/01/00 SL 36.00 1,732.00 1,732.00
P3 867Mhz/133Fsb 256Kb Proc 1 11/01/00 SL 36.00 1,732.00 1,732.00
Rack Cabinet for Servers 1 11/01/00 SL 36.00 1,732.09 1,732.09
Rack Keyboard Tray Space Server 1 11/01/00 SL 36.00 253.35 253.35
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
Lattitude Notebooks 92.03 SL 184.06 1,104.33 1,288.39 2,024.61
Netfinity 700Mhz/2Mb Upgrade 163.97 SL 327.94 1,967.67 2,295.61 3,607.39
Netfinity 7600 Rack 391.53 SL 783.06 4,698.33 5,481.39 8,613.61
Netfinity Hot Swap Power Expansion 11.78 SL 23.56 141.33 164.89 259.11
OBI 20/40 GB DLT Int'l Tape Drive 47.92 SL 95.83 575.00 670.83 1,054.17
OBI 20/40 GB DLT Int'l Tape Drive 47.92 SL 95.83 575.00 670.83 1,054.17
OBI 20/40 GB DLT Int'l Tape Drive 47.92 SL 95.83 575.00 670.83 1,054.17
OBI Netfinity Tape Drive 116.08 SL 232.17 1,393.00 1,625.17 2,553.83
P3 867MHZ/133FSB 256KB Proc 48.11 SL 96.22 577.33 673.56 1,058.44
P3 867Mhz/133Fsb 256Kb Proc 48.11 SL 96.22 577.33 673.56 1,058.44
Rack Cabinet for Servers 48.11 SL 96.23 577.36 673.59 1,058.50
Rack Keyboard Tray Space Server 7.04 SL 14.08 84.45 98.53 154.83
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Rack Monitor Compartment 1 11/01/00 SL 36.00 170.67 170.67
Serv Raid 3L Adapter 1 11/01/00 SL 36.00 630.00 630.00
Serv Raid 3l Adapter 1 11/01/00 SL 36.00 630.00 630.00
Severaid 3HB/Internal HD Control 1 11/01/00 SL 36.00 1,720.00 1,720.00
Side Panel Kit for Rack Enclosure 1 11/01/00 SL 36.00 188.54 188.54
Infuturo- Netscreen 100 Firewall 4 01/28/01 36.00 10,194.00 10,194.00
Quantam Snap 4100 240GB 7 06/01/01 36.00 3,625.61 3,625.61
Compaq Proliant Viking 7 06/01/01 36.00 97.17 97.17
Compaq Proliant Viking 7 06/01/01 36.00 97.17 97.17
Compaq Ultra 2 SCSI 128MB 7 06/01/01 36.00 466.90 466.90
Compaq Ultra 2 SCSI 128MB 7 06/01/01 36.00 467.90 467.90
Compaq DDS-3 DAT Tape Drive-Internal 7 06/01/01 36.00 662.83 662.83
Compaq DDS-3 DAT Tape Drive-Internal 7 06/01/01 36.00 662.83 662.83
Compaq Proliant 185OR PIII 128MB 7 06/01/01 36.00 799.99 799.99
Compaq Proliant 185OR PIII 128MB 7 06/02/01 36.00 799.99 799.99
Total - Servers - Computer Hardware 113,333.78 17,874.39 131,208.17
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Workstations - Computer Hardware
9.1G 10K SL HS Drive 1 12/01/00 SL 36.00 445.00 445.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Dell Lattitude CPTS500 3 12/01/00 SL 36.00 3,113.00 3,113.00
Inspiron 7500 3 12/01/00 SL 36.00 4,416.00 4,416.00
Cpmac ICS 5 02/28/01 36.00 676.89 676.89
Compac ICS Expanded Software 5 02/28/01 36.00 627.60 627.60
LSDS Trunk Cartridge 5 02/28/01 36.00 394.86 394.86
Lattitude Notebook/128MB/10G Hard Drive 5 02/28/01 36.00 2,948.88 2,948.88
Lattitude Notebook/128MB/10G Hard Drive 5 02/28/01 36.00 2,948.88 2,948.88
Lattitude Notebook/128MB/10G Hard Drive 5 02/28/01 36.00 2,948.88 2,948.88
Lattitude Notebook/128MB/10G Hard Drive 5 02/28/01 36.00 2,948.88 2,948.88
Lattitude Notebook/128MB/10G Hard Drive 5 02/28/01 36.00 2,948.88 2,948.88
Lattitude Notebook/128MB/10G Hard Drive 5 02/28/01 36.00 2,948.88 2,948.88
Dimension L800R/Pentium III/800 Mghz 5 02/28/01 36.00 1,510.00 1,510.00
Dimension L800R/Pentium III/800 Mghz 5 02/28/01 36.00 1,510.00 1,510.00
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
------------------------------------------------------------------------------------------------------------------------------
Rack Monitor Compartment 4.74 SL 9.48 56.89 66.37 104.30
Serv Raid 3L Adapter 17.50 SL 35.00 210.00 245.00 385.00
Serv Raid 3l Adapter 17.50 SL 35.00 210.00 245.00 385.00
Severaid 3HB/Internal HD Control 47.78 SL 95.56 573.33 668.89 1,051.11
Side Panel Kit for Rack Enclosure 5.24 SL 10.47 62.85 73.32 115.22
Infuturo- Netscreen 100 Firewall 283.17 3,398.00 3,398.00 6,796.00
Quantam Snap 4100 240GB 100.71 1,208.54 1,208.54 2,417.07
Compaq Proliant Viking 2.70 32.39 32.39 64.78
Compaq Proliant Viking 2.70 32.39 32.39 64.78
Compaq Ultra 2 SCSI 128MB 12.97 155.63 155.63 311.27
Compaq Ultra 2 SCSI 128MB 13.00 155.97 155.97 311.93
Compaq DDS-3 DAT Tape Drive-Internal 18.41 220.94 220.94 441.89
Compaq DDS-3 DAT Tape Drive-Internal 18.41 220.94 220.94 441.89
Compaq Proliant 185OR PIII 128MB 22.22 266.66 266.66 533.33
Compaq Proliant 185OR PIII 128MB 22.22 266.66 266.66 533.33
Total - Servers - Computer Hardware 3,644.67 6,296.32 43,736.06 50,032.38 81,175.79
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Workstations - Computer Hardware
9.1G 10K SL HS Drive 12.36 SL 148.33 148.33 296.67 148.33
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Dell Lattitude CPTS500 86.47 SL 86.47 1,037.67 1,124.14 1,988.86
Inspiron 7500 122.67 SL 122.67 1,472.00 1,594.67 2,821.33
Cpmac ICS 18.80 225.63 225.63 451.26
Compac ICS Expanded Software 17.43 209.20 209.20 418.40
LSDS Trunk Cartridge 10.97 131.62 131.62 263.24
Lattitude Notebook/128MB/10G Hard Drive 81.91 982.96 982.96 1,965.92
Lattitude Notebook/128MB/10G Hard Drive 81.91 982.96 982.96 1,965.92
Lattitude Notebook/128MB/10G Hard Drive 81.91 982.96 982.96 1,965.92
Lattitude Notebook/128MB/10G Hard Drive 81.91 982.96 982.96 1,965.92
Lattitude Notebook/128MB/10G Hard Drive 81.91 982.96 982.96 1,965.92
Lattitude Notebook/128MB/10G Hard Drive 81.91 982.96 982.96 1,965.92
Dimension L800R/Pentium III/800 Mghz 41.94 503.33 503.33 1,006.67
Dimension L800R/Pentium III/800 Mghz 41.94 503.33 503.33 1,006.67
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
Dimension L800R/Pentium III/800 Mghz 5 02/28/01 36.00 1,510.00 1,510.00
Dimension L800R/Pentium III/800 Mghz 5 02/28/01 36.00 1,510.00 1,510.00
Dimension L800R/Pentium III/800 Mghz 5 02/28/01 36.00 1,510.00 1,510.00
Dimension L800R/Pentium III/800 Mghz 5 02/28/01 36.00 1,510.00 1,510.00
Dell Lattitude C600700 Mhz 256 Mb 6 03/19/01 36.00 3,330.00 3,330.00
Dell Lattitude C600700 Mhz 256 Mb 6 03/19/01 36.00 3,330.00 3,330.00
Dell Lattitude CPT600GT 128 MB 6 03/19/01 36.00 2,700.00 2,700.00
Dell Lattitude CPT600GT 128 MB 6 03/19/01 36.00 2,700.00 2,700.00
Dell Lattitude CPT600GT 128 MB 6 03/19/01 36.00 2,700.00 2,700.00
Dell Lattitude CPT600GT 128 Mb 6 03/19/01 36.00 2,700.00 2,700.00
Dell Lattitude 128 Mb, 10GBHD 7 06/01/01 36.00 2,480.00 2,480.00
Dell Lattitude 128 Mb, 10GBHD 7 06/01/01 36.00 2,480.00 2,480.00
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
Dimension L800R/Pentium III/800 Mghz 41.94 503.33 503.33 1,006.67
Dimension L800R/Pentium III/800 Mghz 41.94 503.33 503.33 1,006.67
Dimension L800R/Pentium III/800 Mghz 41.94 503.33 503.33 1,006.67
Dimension L800R/Pentium III/800 Mghz 41.94 503.33 503.33 1,006.67
Dell Lattitude C600700 Mhz 256 Mb 92.50 1,110.00 1,110.00 2,220.00
Dell Lattitude C600700 Mhz 256 Mb 92.50 1,110.00 1,110.00 2,220.00
Dell Lattitude CPT600GT 128 MB 75.00 900.00 900.00 1,800.00
Dell Lattitude CPT600GT 128 MB 75.00 900.00 900.00 1,800.00
Dell Lattitude CPT600GT 128 MB 75.00 900.00 900.00 1,800.00
Dell Lattitude CPT600GT 128 Mb 75.00 900.00 900.00 1,800.00
Dell Lattitude 128 Mb, 10GBHD 68.89 826.67 826.67 1,653.33
Dell Lattitude 128 Mb, 10GBHD 68.89 826.67 826.67 1,653.33
[LOGO]THOUGHTWARE
Fixed Asset Listing
Capitalized Leases
Schedule 2.10b
As of December 31, 2001
Current
Lease Date Beginning Year Ending
Classification Number Acquired Life Cost Acquisition Cost
------------------------------------------------------------------------------------------------------------------------------------
Dell Docking Station 7 06/01/01 36.00 479.00 479.00
Dimension L Series, 256MB 7 06/01/01 36.00 924.00 924.00
Dimension L Series, 256MB 7 06/01/01 36.00 924.00 924.00
Dimension L Series, 256MB 7 06/01/01 36.00 924.00 924.00
Dimension L Series, 256MB 7 06/01/01 36.00 924.00 924.00
Total - Workstations - Computer Hardware 29,765.00 55,047.63 84,812.63
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Purchased Software
Open Windows Server 2000 1 11/01/00 SL 36.00 713.00 713.00
Open Windows Server 2000 1 11/01/00 SL 36.00 713.00 713.00
Open Windows Server 2000 1 11/01/00 SL 36.00 713.00 713.00
Open Windows Server 2000 1 11/01/00 SL 36.00 713.00 713.00
Windows Server 2000 CD NTSVR 1 11/01/00 SL 36.00 957.74 957.74
Total - Purchased Software 3,809.74 - 3,809.74
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Total - Equipment - 16,375.68 16,375.68
Total - Servers - Computer Hardware 113,333.78 17,874.39 131,208.17
Total - Workstations - Computer Hardware 29,765.00 55,047.63 84,812.63
Total - Purchased Software 3,809.74 - 3,809.74
Total - Capitalized Leases 146,908.52 89,297.70 236,206.22
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2001
Prior Accum Current Total Net
Monthly Depr YTD Depr Accum Book
Classification Depr Expense Expense Depr Value
----------------------------------------------------------------------------------------------------------------------------------
Dell Docking Station 13.31 159.67 159.67 319.33
Dimension L Series, 256MB 25.67 308.00 308.00 616.00
Dimension L Series, 256MB 25.67 308.00 308.00 616.00
Dimension L Series, 256MB 25.67 308.00 308.00 616.00
Dimension L Series, 256MB 25.67 308.00 308.00 616.00
-
Total - Workstations - Computer Hardware 2,355.91 962.78 28,270.88 29,233.65 55,578.98
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Purchased Software
Open Windows Server 2000 19.81 SL 39.61 237.67 277.28 435.72
Open Windows Server 2000 19.81 SL 39.61 237.67 277.28 435.72
Open Windows Server 2000 19.81 SL 39.61 237.67 277.28 435.72
Open Windows Server 2000 19.81 SL 39.61 237.67 277.28 435.72
Windows Server 2000 CD NTSVR 26.60 SL 53.21 319.25 372.45 585.29
Total - Purchased Software 105.83 211.65 1,269.91 1,481.57 2,328.17
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Total - Equipment 272.93 - 3,275.14 3,275.14 13,100.54
Total - Servers - Computer Hardware 3,644.67 6,296.32 43,736.06 50,032.38 81,175.79
Total - Workstations - Computer Hardware 2,355.91 962.78 28,270.88 29,233.65 55,578.98
Total - Purchased Software 105.83 211.65 1,269.91 1,481.57 2,328.17
Total - Capitalized Leases 6,379.33 7,470.75 76,551.98 84,022.73 152,183.49
----------------------------------------------------------------------------------------------------------------------------------
[LOGO]THOUGHTWARE
Equipment, Utility and Other Deposits
Schedule 2.10c
As of December 31, 2001
Leased Real Property
Memphis 65,026.00
New York 5,500.21
Los Angeles 8,166.00
---------
Total - Leased Real Property 78,692.21
---------
Equipment Deposit-Associates 2,314.16
---------
Equipment, Utility and Other Deposits 81,006.37
=========
[LOGO]THOUGHTWARE
Long-term Debt and Capitalize Leases
Principle Balances
Schedule 2.11
As of December 31, 2001
--------- ------------- --------------- -------------- ----------------- --------------- -----------------
Trust One Union Planters Union Planters Union Planters
Bank of Bank Leasing Leasing Leasing
America CitiCapital Econocom Econocom Econocom Econocom
Date Loan Lease Lease 1 Lease 2 Lease 3 Lease 4
--------- ------------- --------------- -------------- ----------------- --------------- -----------------
Oct-99 63,432.18 71,308.59
Nov-99 61,852.04 69,511.45
Dec-99 60,243.82 67,701.28
Jan-00 58,638.63 65,877.98
Feb-00 57,020.84 64,041.46
Mar-00 55,361.43 62,191.63
Apr-00 53,717.89 60,328.39
May-00 52,047.83 58,451.64
Jun-00 50,378.25 56,561.28
Jul-00 48,682.79 54,657.21
Aug-00 46,986.78 52,739.34
Sep-00 45,277.45 50,807.56
Oct-00 43,543.21 48,861.78
Nov-00 41,806.83 46,901.89 86,800.97 27,211.53
Dec-00 40,046.20 44,927.79 84,533.38 26,504.50 28,424.00
Jan-01 38,282.34 42,939.38 82,253.99 25,793.57 27,686.14 9,880.00
Feb-01 36,504.62 40,936.55 79,962.75 25,078.72 26,944.18 9,625.63
Mar-01 34,685.19 38,919.20 77,659.60 24,359.93 26,198.09 9,369.73
Apr-01 32,879.21 36,887.22 75,344.47 23,637.18 25,447.85 9,112.28
May-01 31,050.71 34,840.51 73,017.30 22,910.45 24,693.43 8,853.28
Jun-01 29,216.18 32,778.96 70,678.03 22,179.71 23,934.82 8,592.72
Jul-01 27,359.83 30,702.46 68,326.59 21,444.95 23,171.99 8,330.58
Aug-01 25,496.31 28,610.91 65,962.92 20,706.14 22,404.91 8,066.86
Sep-01 23,618.14 26,504.19 63,586.96 19,963.26 21,633.56 7,801.55
Oct-01 21,719.23 24,382.20 61,198.64 19,216.28 20,857.92 7,534.64
Nov-01 19,811.39 22,244.82 58,797.90 18,465.19 20,077.97 7,266.12
Dec-01 17,883.54 20,091.94 56,384.68 17,709.96 19,293.68 6,995.98
--------- ----------------- --------------- --------------- ----------------
Union Planters Trust One Trust One
Leasing Bank Bank
Econocom Econocom Econocom
Date Lease 5 Lease 6 Lease 7 Total
--------- ----------------- --------------- --------------- ----------------
Oct-99 134,740.77
Nov-99 131,363.49
Dec-99 127,945.10
Jan-00 124,516.61
Feb-00 121,062.30
Mar-00 117,553.06
Apr-00 114,046.28
May-00 110,499.47
Jun-00 106,939.53
Jul-00 103,340.00
Aug-00 99,726.12
Sep-00 96,085.01
Oct-00 92,404.99
Nov-00 202,721.22
Dec-00 224,435.87
Jan-01 226,835.42
Feb-01 39,392.28 258,444.73
Mar-01 38,366.58 21,001.00 270,559.32
Apr-01 37,335.35 20,451.66 261,095.22
May-01 36,298.56 19,899.50 251,563.74
Jun-01 35,256.19 19,344.51 16,301.39 258,282.51
Jul-01 34,208.20 18,786.68 15,878.34 248,209.62
Aug-01 33,154.56 18,225.99 15,452.93 238,081.53
Sep-01 32,095.24 17,662.42 15,025.14 227,890.46
Oct-01 31,030.21 17,095.96 14,594.97 217,630.05
Nov-01 29,959.44 16,526.60 14,162.40 207,311.83
Dec-01 28,882.90 15,954.32 13,727.41 196,924.41
Long-term Debt and Capitalize Leases
Principle Balances
Schedule 2.11
As of December 31, 2001
--------- ------------- --------------- -------------- ----------------- --------------- -----------------
Trust One Union Planters Union Planters Union Planters
Bank of Bank Leasing Leasing Leasing
America CitiCapital Econocom Econocom Econocom Econocom
Date Loan Lease Lease 1 Lease 2 Lease 3 Lease 4
--------- ------------- --------------- -------------- ----------------- --------------- -----------------
Jan-02 15,945.57 17,923.45 53,958.91 16,950.56 18,505.02 6,724.21
Feb-02 13,992.37 15,739.24 51,520.52 16,186.98 17,711.98 6,450.80
Mar-02 12,013.19 13,539.20 49,069.45 15,419.19 16,914.52 6,175.74
Apr-02 10,029.10 11,323.20 46,605.64 14,647.17 16,112.63 5,899.02
May-02 8,026.87 9,091.14 44,129.01 13,870.89 15,306.28 5,620.63
Jun-02 6,011.47 6,842.89 41,639.50 13,090.34 14,495.44 5,340.56
Jul-02 3,978.70 4,578.34 39,137.05 12,305.48 13,680.09 5,058.80
Aug-02 1,931.49 2,297.37 36,621.58 11,516.30 12,860.20 4,775.33
Sep-02 34,093.03 10,722.77 12,035.75 4,490.15
Oct-02 31,551.33 9,924.87 11,206.71 4,203.25
Nov-02 28,996.41 9,122.57 10,373.06 3,914.62
Dec-02 26,428.21 8,315.85 9,534.77 3,624.25
Jan-03 23,846.65 7,504.68 8,691.82 3,332.13
Feb-03 21,251.66 6,689.04 7,844.18 3,038.24
Mar-03 18,643.18 5,868.90 6,991.82 2,742.58
Apr-03 16,021.13 5,044.24 6,134.72 2,445.13
May-03 13,385.45 4,215.04 5,272.85 2,145.89
Jun-03 10,736.06 3,381.27 4,406.19 1,844.84
Jul-03 8,072.89 2,542.90 3,534.70 1,541.98
Aug-03 5,395.87 1,699.91 2,658.37 1,237.29
Sep-03 2,704.93 852.28 1,777.16 930.76
Oct-03 891.05 622.38
Nov-03 312.14
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04
--------- ------------- --------------- -------------- ----------------- --------------- -----------------
--------- ----------------- --------------- --------------- ----------------
Union Planters Trust One Trust One
Leasing Bank Bank
Econocom Econocom Econocom
Date Lease 5 Lease 6 Lease 7 Total
--------- ----------------- --------------- --------------- ----------------
Jan-02 27,800.56 15,379.11 13,290.00 186,477.39
Feb-02 26,712.39 14,800.95 12,850.15 175,965.38
Mar-02 25,618.35 14,219.83 12,407.84 165,377.31
Apr-02 24,518.42 13,635.73 11,963.06 154,733.97
May-02 23,412.56 13,048.63 11,515.80 144,021.81
Jun-02 22,300.74 12,458.52 11,066.05 133,245.51
Jul-02 21,182.93 11,865.39 10,613.79 122,400.57
Aug-02 20,059.09 11,269.22 10,159.00 111,489.58
Sep-02 18,929.20 10,669.99 9,701.68 100,642.57
Oct-02 17,793.22 10,067.69 9,241.81 93,988.88
Nov-02 16,651.11 9,462.30 8,779.37 87,299.44
Dec-02 15,502.85 8,853.81 8,314.35 80,574.09
Jan-03 14,348.40 8,242.20 7,846.74 73,812.62
Feb-03 13,187.73 7,627.45 7,376.52 67,014.82
Mar-03 12,020.80 7,009.55 6,903.67 60,180.50
Apr-03 10,847.58 6,388.48 6,428.19 53,309.47
May-03 9,668.04 5,764.23 5,950.05 46,401.55
Jun-03 8,482.14 5,136.78 5,469.25 39,456.53
Jul-03 7,289.85 4,506.11 4,985.76 32,474.19
Aug-03 6,091.14 3,872.21 4,499.58 25,454.37
Sep-03 4,885.97 3,235.06 4,010.68 18,396.84
Oct-03 3,674.30 2,594.64 3,519.06 11,301.43
Nov-03 2,456.10 1,950.94 3,024.69 7,743.87
Dec-03 1,231.34 1,303.94 2,527.56 5,062.84
Jan-04 653.62 2,027.66 2,681.28
Feb-04 1,524.97 1,524.97
Mar-04 1,019.48 1,019.48
Apr-04 511.17 511.17
--------- ----------------- --------------- --------------- ----------------
[LOGO]THOUGHTWARE
Insurance Policies
Schedule 2.17
As of December 31, 2001
------------------------------------------- ------------------------------------------------ --------------- -------------
Underwriter Type of Coverage Coverage Limit Deductable
------------------------------------------- ------------------------------------------------ --------------- -----------
St. ▇▇▇▇ Fire and Marine Insurance Co. Business Personal Property $500,000.00 $5,000.00
Blanket Earnings and Expense $500,000.00 $5,000.00
Commercial General Liability
Each Occurrence $1,000,000.00 $25,000.00
Premises Damage Limit $250,000.00 $25,000.00
Medical Expense $10,000.00
Personal Injury and Advertising Injury $1,000,000.00 $25,000.00
Products and Completed Work $2,000,000.00 $25,000.00
General Aggregate $2,000,000.00
Hired Automobile Liability $1,000,000.00
Physical Damages $35,000.00 $500.00
Technology Umbrella Excess Liability $4,000,000.00 $10,000.00
Workers Compensation and Employers Liability
Employers Liability Each Accident $500,000.00
Employers Liability Disease Each Employee $500,000.00
Employers Liability Disease Policy Limit $500,000.00
Errors and Ommissions
Total Limit $3,000,000.00
Each Wrongful Act $1,000,000.00
Crime Protection $100,000.00 $2,500.00
Cybertech Liability $1,000,000.00 $25,000.00
Employee Benefit Plans Administration Liability
Each Wrongful Act $500,000.00 $25,000.00
Total Limit $1,500,000.00
------------------------------------------- ------------------------------------------------ --------------- -----------
[LOGO]THOUGHTWARE
Insurance Policies
Schedule 2.17
As of December 31, 2001
------------------------------------------- ------------------------------------------------ --------------- -------------
Underwriter Type of Coverage Coverage Limit Deductable
------------------------------------------- ------------------------------------------------ --------------- -------------
------------------------------------------- ------------------------------------------------ --------------- -------------
Philadelphia Indemnity Insurance Co. Directors & Officers 5,000,000.00 $25,000.00
------------------------------------------- ------------------------------------------------ --------------- -------------
------------------------------------------- ------------------------------------------------ --------------- -------------
Blue Cross\Blue Shield of Tennessee Health Insurance
Individual 5,000,000.00 $1,000.00
Family 5,000,000.00 $2,000.00
------------------------------------------- ------------------------------------------------ --------------- -------------
------------------------------------------- ------------------------------------------------ --------------- -------------
Unum Life Insurance Company of America Life Insurance $175,000.00
Disability and Accident per Month $9,000.00
------------------------------------------- ------------------------------------------------ --------------- -------------
------------------------------------------- ------------------------------------------------ --------------- -------------
Colonial Life & Accident Insurance Company Additional Coverage Purchased by Employee
Life Insurance Variable Variable
Disability and Accident Variable Variable
------------------------------------------- ------------------------------------------------ --------------- -------------
------------------------------------------- ------------------------------------------------ --------------- -------------
Humana Additional Coverage Purchased by Employee
Dental Variable Variable
------------------------------------------- ------------------------------------------------ --------------- -------------
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ThoughtWare Technologies, Inc.
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ACCOUNTS RECEIVABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED AS OF: 12/31/01
--------------------------------------------------------------------------------
DIVISION NO: 01 Memphis, TN
CUSTOMER/ INVOICE DISCOUNT DISCOUNT DAYS
INV DATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
0308211 Church Health Center CONTACT:▇▇▇▇▇▇ ▇▇▇▇▇▇ PHONE: EXT: CR LMT: .00
11/05/01 0015316- IN 11/05/01 .00 129.00 129.00 56
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0308211 TOTALS: .00 129.00 .00 129.00 .00 .00 .00
0601181 ▇▇▇▇▇.▇▇▇ CONTACT: PHONE: EXT: CR LMT: .00
9/07/01 0015258- IN 09/07/01 .00 1,500.00 1,500.00 115
10/02/01 0015279- IN 10/02/01 .00 1,500.00 1,500.00 90
11/01/01 0015300- IN 11/01/01 .00 1,500.00 1,500.00 60
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0601181 TOTALS: .00 4,500.00 .00 .00 1,500.00 3,000.00 .00
0605042 FedEx Services CONTACT: PHONE: EXT: CR LMT: .00
07/31/01 0015212- IN 07/31/01 .00 258.00 258.00 153
10/03/01 0015296- IN 10/03/01 .00 387.00 387.00 89
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0605042 TOTALS: .00 645.00 .00 .00 387.00 .00 258.00
0605043 FedEx Express CONTACT: PHONE: EXT: CR LMT: .00
04/18/01 0015096- IN 04/18/01 .00 1,206.00 1,206.00 257
04/24/01 0015095- IN 04/24/01 .00 728.00 728.00 251
12/19/01 0015345- IN 12/19/01 .00 8,004.00 8,004.00 12
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0605043 TOTALS: .00 9,938.00 8,004.00 .00 .00 .00 1,934.00
0605044 FedEx Ground CONTACT: PHONE: EXT: CR LMT: .00
08/21/01 0015249- IN 08/21/01 .00 645.00 645.00 132
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0605044 TOTALS: .00 645.00 .00 .00 .00 .00 645.00
0605046 FedEx Mexico CONTACT: PHONE: EXT: CR LMT: .00
12/05/01 0015341- IN 12/05/01 .00 318.00 318.00 26
12/12/01 0015344- IN 12/12/01 .00 189.00 189.00 19
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0605046 TOTALS: .00 507.00 507.00 .00 .00 .00 .00
0605048 FedEx Custom Critical CONTACT:▇▇▇▇▇ ▇▇▇▇▇▇▇ PHONE: EXT: CR LMT: .00
10/26/01 0015298- IN 10/26/01 .00 903.00 903.00 66
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ThoughtWare Technologies, Inc.
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ACCOUNTS RECEIVABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED AS OF: 12/31/01
--------------------------------------------------------------------------------
DIVISION NO: 01 Memphis, TN
CUSTOMER/ INVOICE DISCOUNT DISCOUNT DAYS
INV DATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
12/05/01 0015339- IN 12/05/01 .00 645.00 645.00 26
12/12/01 0015343- IN 12/12/01 .00 258.00 258.00 19
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0605048 TOTALS: .00 1,806.00 903.00 .00 903.00 .00 .00
0809122 Hilton Hotel Corporation CONTACT: PHONE: EXT: CR LMT: .00
08/03/01 0015242- IN 08/03/01 .00 129.00 129.00 150
08/03/01 0015243- IN 08/03/01 .00 129.00 129.00 150
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 0809122 TOTALS: .00 258.00 .00 .00 .00 .00 258.00
1305042 Medtronic Sofamor ▇▇▇▇▇ CONTACT: PHONE: EXT: CR LMT: .00
12/04/01 0015328- IN 12/04/01 .00 2,625.00 2,625.00 27
-------- -------- -------- ------- -------- ------- --------
CUSTOMER 1305042 TOTALS: .00 2,625.00 2,625.00 .00 .00 .00 .00
1319030 MS Carriers CONTACT: PHONE: EXT: CR LMT: .00
12/04/01 0015329- IN 12/04/01 .00 36,000.00 36,000.00 27
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 1319030 TOTALS: .00 36,000.00 36,000.00 .00 .00 .00 .00
1913092 Gyrus, Inc. CONTACT: PHONE: EXT: CR LMT: .00
12/12/01 0015342- IN 12/12/01 .00 1,820.00 1,820.00 19
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 1913092 TOTALS: .00 1,820.00 1,820.00 .00 .00 .00 .00
1913093 ▇▇▇▇▇ + Nephew, Inc CONTACT:▇▇▇▇▇▇ ThompsonPHONE: EXT: CR LMT: .00
12/04/01 0015332- IN 12/04/01 .00 3,500.00 3,500.00 27
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 1913093 TOTALS: .00 3,500.00 3,500.00 .00 .00 .00 .00
2008151 ▇▇▇▇▇▇ & ▇▇▇▇▇ CONTACT:▇▇▇▇▇ ▇▇▇▇▇▇▇ PHONE: EXT: CR LMT: .00
12/04/01 0015333- IN 12/04/01 .00 2,000.00 2,000.00 27
12/04/01 0015334- IN 12/04/01 .00 2,000.00 2,000.00 27
12/04/01 0015335- IN 12/04/01 .00 1,000.00 1,000.00 27
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 2008151 TOTALS: .00 5,000.00 5,000.00 .00 .00 .00 .00
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Application Date: 12/31/01 User: FJ / ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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ThoughtWare Technologies, Inc.
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ACCOUNTS RECEIVABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED AS OF: 12/31/01
--------------------------------------------------------------------------------
DIVISION NO: 01 Memphis, TN
CUSTOMER/ INVOICE DISCOUNT DISCOUNT DAYS
INV DATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
2009130 Time Warner Communications CONTACT: PHONE: EXT: CR LMT: .00
11/07/01 0015321- IN 11/07/01 .00 1,260.00 1,260.00 54
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 2009130 TOTALS: .00 1,260.00 .00 1,260.00 .00 .00 .00
2318060 ▇▇▇▇▇▇ Medical Technology CONTACT: PHONE: EXT: CR LMT: .00
12/04/01 0015336- IN 12/04/01 .00 750.00 750.00 27
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 2318060 TOTALS: .00 750.00 750.00 .00 .00 .00 .00
-------- --------- -------- ------- -------- ------- --------
DIVISION 01 TOTALS: .00 69,383.00 59,109.00 1,389.00 2,790.00 3,000.00 3,095.00
NUMBER OF CUSTOMERS:15
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ThoughtWare Technologies, Inc.
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ACCOUNTS RECEIVABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED AS OF: 12/31/01
--------------------------------------------------------------------------------
DIVISION NO: 02 Milford
CUSTOMER/ INVOICE DISCOUNT DISCOUNT DAYS
INV DATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
1605161 Peppers & ▇▇▇▇▇▇ Group CONTACT: PHONE: EXT: CR LMT: .00
11/01/01 0015313- IN 11/01/01 .00 7,500.00 7,500.00 60
11/01/01 0015314- IN 11/01/01 .00 250.00 250.00 60
12/04/01 0015337- IN 12/04/01 .00 7,500.00 7,500.00 27
12/04/01 0015338- IN 12/04/01 .00 250.00 250.00 27
-------- --------- -------- ------- -------- ------- --------
CUSTOMER 1605161 TOTALS: .00 15,500.00 7,750.00 .00 7,750.00 .00 .00
-------- --------- -------- ------- -------- ------- --------
DIVISION 02 TOTALS: .00 15,500.00 7,750.00 .00 7,750.00 .00 .00
NUMBER OF CUSTOMERS:1
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ThoughtWare Technologies, Inc.
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ACCOUNTS RECEIVABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED AS OF: 12/31/01
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DIVISION NO: 04 Los Angeles
CUSTOMER/ INVOICE DISCOUNT DISCOUNT DAYS
INV DATE INVOICE NO DUE DATE DUE DATE AMOUNT BALANCE CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS DELQ
0821142 Hunter Industries, Inc. CONTACT: PHONE: EXT: CR LMT: .00
11/16/01 0015323- IN 11/16/01 .00 680.00 680.00 45
12/05/01 0015340- IN 12/05/01 .00 255.00 255.00 26
-------- --------- --------- -------- --------- -------- --------
CUSTOMER 0821142 TOTALS: .00 935.00 255.00 680.00 .00 .00 .00
-------- --------- --------- -------- --------- -------- --------
DIVISION 04 TOTALS: .00 935.00 255.00 680.00 .00 .00 .00
NUMBER OF CUSTOMERS: 1
-------- --------- --------- -------- --------- -------- --------
REPORT TOTALS: .00 85,818.00 67,114.00 2,069.00 10,540.00 3,000.00 3,095.00
NUMBER OF CUSTOMERS:17
======== ========= ======== ======== ========= ======== ========
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ThoughtWare Technologies, Inc.
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
ADPI ADP, Inc.
694970 11/30/01 12/07 N 165.20 .00 165.20
694971 11/30/01 12/07 N 58.82 .00 58.82
711312 12/14/01 12/21 N 85.50 .00 85.50
711313 12/14/01 12/21 N 41.27 .00 41.27
---------- ---------- --------- --------- --------- --------- ---------
VENDOR ADPI TOTALS: 350.79 .00 126.77 224.02 .00 .00 .00
AMEX AMEX Equipment Finance
011001 10/02/01 11/01 N 1,602.10 .00 1,602.10
112001 12/01/01 12/01 N 1,602.10 .00 1,602.10
---------- ---------- --------- --------- --------- --------- ---------
VENDOR AMEX TOTALS: 3,204.20 .00 .00 1,602.10 .00 1,602.10 .00
ARCH Arch Wireless
K5577707K 11/10/01 12/01 N 38.74 .00 38.74
K5577707L 12/10/01 12/31 N 39.32 .00 39.32
---------- ---------- --------- --------- --------- --------- ---------
VENDOR ARCH TOTALS: 78.06 .00 39.32 38.74 .00 .00 .00
AT&T AT&T
G961636 08/01/01 08/01 N 560.08 .00 560.08
G976678 09/01/01 09/01 N 399.20 .00 399.20
G991827 10/01/01 10/01 N 405.62 .00 405.62
---------- ---------- --------- --------- --------- --------- ---------
VENDOR AT&T TOTALS: 1,364.90 .00 .00 .00 .00 405.62 959.28
BANK Bank of America
27 12/01/01 12/15 N 2,078.47 .00 2,078.47
LATEFEE 12/06/01 12/06 N 1,039.20 .00 1,039.20
---------- ---------- --------- --------- --------- --------- ---------
VENDOR BANK TOTALS: 3,117.67 .00 1,039.20 2,078.47 .00 .00 .00
BB&T BB&T Insurance Services, Inc.
870679 11/28/01 12/11 N 1,267.87 .00 1,267.87
---------- ---------- --------- --------- --------- --------- ---------
VENDOR BB&T TOTALS: 1,267.87 .00 .00 1,267.87 .00 .00 .00
▇▇▇▇ BellSouth
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System Date: 12/20/01 / 10:28 pm Page: 1
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ThoughtWare Technologies, Inc.
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
092901 09/29/01 10/29 N 124.78 .00 124.78
102901 10/29/01 11/28 N 124.64 .00 124.64
112901 11/29/01 12/29 N 124.64 .00 124.64
---------- ---------- --------- --------- --------- --------- ---------
VENDOR ▇▇▇▇ TOTALS: 374.06 .00 .00 124.64 124.64 124.78 .00
BLUE Blue Cross Blue Shield
120101 12/01/01 12/01 N 7,327.63 .00 7,327.63
120101-CM 12/01/01 12/01 N 3,543.68- .00 3,543.68-
---------- ---------- --------- --------- --------- --------- ---------
VENDOR BLUE TOTALS: 3,783.95 .00 .00 3,783.95 .00 .00 .00
CARB Carbon 14
520 08/17/01 09/16 N 48.71 .00 48.71
543 08/28/01 09/27 N 952.60 .00 952.60
SO-CM 12/19/01 12/19 N 501.31- .00 501.31-
---------- ---------- --------- --------- --------- --------- ---------
VENDOR CARB TOTALS: 500.00 .00 501.31- .00 .00 .00 1,001.31
CBRE CB ▇▇▇▇▇▇▇ ▇▇▇▇▇
2001-0822 12/06/01 12/06 N 2,160.81 .00 2,160.81
---------- ---------- --------- --------- --------- --------- ---------
VENDOR CBRE TOTALS: 2,160.81 .00 2,160.81 .00 .00 .00 .00
CITI Citizens Conferencing
20282624 07/31/01 07/31 N 1,297.59 .00 1,297.59
20283669 07/31/01 08/30 N 168.92 .00 168.92
20303484 09/30/01 10/30 N 800.50 .00 800.50
20304390 09/30/01 10/30 N 22.00 .00 22.00
20305090 09/30/01 10/30 N 89.50 .00 89.50
20321915 11/30/01 12/31 N 279.80 .00 279.80
---------- ---------- --------- --------- --------- --------- ---------
VENDOR CITI TOTALS: 2,658.31 .00 .00 279.80 .00 912.00 1,466.51
CITY Treasurer, City of Memphis
110101 11/01/01 11/30 N 2,848.81 .00 2,848.81
---------- ---------- --------- --------- --------- --------- ---------
VENDOR CITY TOTALS: 2,848.81 .00 .00 .00 2,848.81 .00 .00
COLO Colonial
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ThoughtWare Technologies, Inc.
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
101901 10/19/01 10/19 N 719.00 .00 719.00
393111901 11/19/01 12/01 N 511.78 .00 511.78
---------- ---------- --------- --------- --------- --------- ---------
VENDOR COLO TOTALS: 1,230.78 .00 .00 511.78 719.00 .00 .00
COMD Comdisco Continuity SRVC
00393393 08/20/01 09/01 N 1,187.00 .00 1,187.00
00405510 09/24/01 11/01 N 7,217.94 .00 7,217.94
00408459 10/23/01 10/23 N 7,217.94 .00 7,217.94
---------- ---------- --------- --------- --------- --------- ---------
VENDOR COMD TOTALS: 15,622.88 .00 .00 .00 7,217.94 7,217.94 1,187.00
COMM Commericial Refrigeration, Inc
11630 03/23/01 04/22 N 97.48 .00 97.48
11642 03/19/01 04/18 N 348.43 .00 348.43
---------- ---------- --------- --------- --------- --------- ---------
VENDOR COMM TOTALS: 445.91 .00 .00 .00 .00 .00 445.91
COPY CopyFax Inc
5877 12/05/01 12/05 N 66.25 .00 66.25
---------- ---------- --------- --------- --------- --------- ---------
VENDOR COPY TOTALS: 66.25 .00 66.25 .00 .00 .00 .00
CORS Corporate Security, Inc
280912 10/01/01 10/01 N 500.00 .00 500.00
281111 11/01/01 11/01 N 500.00 .00 500.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR CORS TOTALS: 1,000.00 .00 .00 00 500.00 500.00 .00
DELL Dell Financial Services
15916914 11/10/01 12/05 N 257.60 .00 257.60
15970152 11/14/01 12/07 N 972.33 .00 972.33
---------- ---------- --------- --------- --------- --------- ---------
VENDOR DELL TOTALS: 1,229.93 .00 .00 1,229.93 .00 .00 .00
DIRE DirectTV
0024 10/01/01 11/01 N 30.71 .00 30.71
0025 11/01/01 12/01 N 35.71 .00 35.71
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
---------- ---------- --------- --------- --------- --------- ---------
VENDOR DIRE TOTALS: 66.42 .00 .00 .00 35.71 30.71 .▇▇
▇▇▇▇▇ ▇▇▇▇▇ & Young
21269880 10/09/01 10/09 N 9,011.00 .00 9,011.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR ERNST TOTALS: 9,011.00 .00 .00 .00 9,011.00 .00 .00
FEDA Federal Alarm Company
41791 10/19/01 11/08 N 60.00 .00 60.00
42541 11/20/01 12/10 N 60.00 .00 60.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR FEDA TOTALS: 120.00 .00 .00 60.00 60.00 .00 .00
FEDX Federal Express
400014968 10/31/01 11/15 N 21.96 .00 21.96
505504908 09/20/01 10/05 N 135.95 .00 135.95
505618700 09/27/01 10/12 N 48.63 .00 48.63
505736538 10/04/01 10/19 N 19.42 .00 19.42
595287365 10/03/01 10/18 N 46.75 .00 46.75
595317305 10/10/01 10/25 N 69.23 .00 69.23
595351160 10/17/01 11/01 N 31.20 .00 31.20
---------- ---------- --------- --------- --------- --------- ---------
VENDOR FEDX TOTALS: 373.14 .00 .00 .00 188.56 184.58 .00
GECA GE Capital
31025879 10/07/01 11/01 N 182.26 .00 182.26
31263432 11/07/01 11/07 N 182.26 .00 182.26
---------- ---------- --------- --------- --------- --------- ---------
VENDOR GECA TOTALS: 364.52 .00 .00 182.26 182.26 .00 .00
GOOD ▇▇▇▇▇▇▇, ▇▇▇▇
110801A 11/08/01 11/08 N 1,353.90 .00 1,353.90
110801B 11/08/01 11/08 N 796.35 .00 796.35
---------- ---------- --------- --------- --------- --------- ---------
VENDOR GOOD TOTALS: 2,150.25 .00 .00 2,150.25 .00 .00 .00
GREA GreatAmerica Leasing Corp.
112001 10/19/01 11/20 N 109.18 .00 109.18
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
120101 12/01/01 12/20 N 109.18 .00 109.18
---------- ---------- --------- --------- --------- --------- ---------
VENDOR GREA TOTALS: 218.36 .00 .00 109.18 109.18 .00 .00
GREE Greenwood Performance Systems
011029 10/05/01 10/05 N 914.00 .00 914.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR GREE TOTALS: 914.00 .00 .00 .00 914.00 .00 .00
GUAR Guardsmark
1145308 11/03/01 12/03 N 1,277.50 .00 1,277.50
1146307 11/10/01 12/10 N 1,487.50 .00 1,487.50
---------- ---------- --------- --------- --------- --------- ---------
VENDOR GUAR TOTALS: 2,765.00 .00 .00 2,765.00 .00 .00 .00
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
121201 12/12/01 12/12 N 108.28 .00 108.28
---------- ---------- --------- --------- --------- --------- ---------
VENDOR HAVI TOTALS: 108.28 .00 108.28 .00 .00 .00 .00
HUMA Humana
092001 09/20/01 09/20 N 1,516.94 .00 1,516.94
092001-CM 09/20/01 10/01 N 4,241.05- .00 4,241.05-
110101 10/29/01 11/01 N 1,765.69 .00 1,765.69
120101 12/01/01 12/01 N 1,438.02 .00 1,438.02
120101-CM 12/01/01 12/01 N 261.71- .00 261.71-
---------- ---------- --------- --------- --------- --------- ---------
VENDOR HUMA TOTALS: 217.89 .00 .00 1,176.31 1,765.69 2,724.11- .00
IEZZ ▇▇▇▇▇, ▇▇▇▇▇
121801 12/18/01 12/18 N 111.62 .00 111.62
---------- ---------- --------- --------- --------- --------- ---------
VENDOR IEZZ TOTALS: 111.62 .00 111.62 .00 .00 .00 .00
KEYC Key Credit Corporation
105385160 09/08/01 09/30 N 162.21 .00 162.21
---------- ---------- --------- --------- --------- --------- ---------
VENDOR KEYC TOTALS: 162.21 .00 .00 .00 .00 162.21 .00
KINK Kinkos
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
88269 08/29/01 08/29 N 375.91 .00 375.91
88537 10/16/01 11/15 N 163.25 .00 163.25
---------- ---------- --------- --------- --------- --------- ---------
VENDOR KINK TOTALS: 539.16 .00 .00 .00 163.25 .00 375.91
KNOW KnowledgeWire
093001 09/30/01 09/30 N 9,800.00 .00 9,800.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR KNOW TOTALS: 9,800.00 .00 .00 .00 .00 9,800.00 .00
LAMB ▇▇▇▇▇▇▇'▇ Coffee
067424 10/24/01 11/23 N 64.84 .00 64.84
067692 11/20/01 12/19 N 74.53 .00 74.53
067939 12/18/01 01/17 N 79.94 .00 79.94
---------- ---------- --------- --------- --------- --------- ---------
VENDOR LAMB TOTALS: 219.31 .00 79.94 74.53 64.84 .00 .00
LEGA Legacy Partners Management LP
050101-2 05/01/01 05/01 N 10,327.51 .00 10,327.51
120101 12/01/01 12/01 N 7,398.00 .00 7,398.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR LEGA TOTALS: 17,725.51 .00 .00 7,398.00 .00 .00 10,327.51
MEMGR Memphis G'town Fairfield Inn
209-2EM 10/14/01 11/13 N 595.98 .00 595.98
214-2EM 10/19/01 11/18 N 175.02 .00 175.02
---------- ---------- --------- --------- --------- --------- ---------
VENDOR MEMGR TOTALS: 771.00 .00 .00 .00 771.00 .00 .00
MIND ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
093001 09/30/01 09/30 N 13,539.50 .00 13,539.50
103101 10/31/01 10/31 N 4,419.00 .00 4,419.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR MIND TOTALS: 17,958.50 .00 .00 .00 4,419.00 13,539.50 .00
PBCC PBCC
092801 09/28/01 10/18 N 215.00 .00 215.00
102601 10/26/01 10/26 N 330.00 .00 330.00
112801 11/28/01 11/28 N 205.00 .00 205.00
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
4714291-SP 09/24/01 10/10 N 180.78 .00 180.78
---------- ---------- --------- --------- --------- --------- ---------
VENDOR PBCC TOTALS: 930.78 .00 .00 205.00 330.00 395.78 .00
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
007 12/19/01 12/19 N 1,375.11 .00 1,375.11
---------- ---------- --------- --------- --------- --------- ---------
VENDOR ▇▇▇▇ TOTALS: 1,375.11 .00 1,375.11 .00 .00 .▇▇ .▇▇
▇▇▇▇ Sibernetics Marketing Systems
6058 06/25/01 07/24 N 3,507.75 .00 3,507.75
6060 06/27/01 07/26 N 8,757.60 .00 8,757.60
6060-CM 11/30/01 11/30 N 8,757.60- .00 8,757.60-
6067 07/27/01 08/26 N 2,647.40 .00 2,647.40
SO-CM 12/06/01 12/06 N 2,155.15- .00 2,155.15-
---------- ---------- --------- --------- --------- --------- ---------
VENDOR SIBE TOTALS: 4,000.00 .00 2,155.15- 8,757.60- .00 .00 14,912.75
SOUT Southeastern Telecom, Inc.
167140 09/07/01 09/07 N 548.65 .00 548.65
---------- ---------- --------- --------- --------- --------- ---------
VENDOR SOUT TOTALS: 548.65 .00 .00 .00 .00 548.65 .00
SPRI Sprint PCS
081201 08/12/01 09/07 N 377.07 .00 377.07
091101 09/11/01 10/08 N 165.24 .00 165.24
101101 10/11/01 11/06 N 148.37 .00 148.37
---------- ---------- --------- --------- --------- --------- ---------
VENDOR SPRI TOTALS: 690.68 .00 .00 .00 148.37 165.24 377.07
STRA Strategic Learning
4387 12/12/01 12/12 N 623.66 .00 623.66
---------- ---------- --------- --------- --------- --------- ---------
VENDOR STRA TOTALS: 623.66 .00 623.66 .00 .00 .00 .00
SWIS ▇▇▇▇▇▇▇
9185272 11/19/01 11/19 N 16.00 .00 16.00
9274452 12/03/01 01/02 N 16.00 .00 16.00
9358853 12/17/01 12/17 N 16.00 .00 16.00
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ThoughtWare Technologies, Inc.
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
---------- ---------- --------- --------- --------- --------- ---------
VENDOR SWIS TOTALS: 48.00 .00 32.00 16.00 .00 .00 .00
SWPG Southwest Performance Group
21-391 11/27/01 12/26 N 478.45 .00 478.45
---------- ---------- --------- --------- --------- --------- ---------
VENDOR SWPG TOTALS: 478.45 .00 .00 478.45 .00 .00 .00
THEA CitiCapital (SM)
3245986 11/08/01 12/01 N 2,314.16 .00 2,314.16
---------- ---------- --------- --------- --------- --------- ---------
VENDOR THEA TOTALS: 2,314.16 .00 .00 2,314.16 .00 .00 .00
TIME Time Warner Telecom
101501 10/15/01 11/14 N 5,423.59 .00 5,423.59
111501 11/15/01 12/14 N 5,799.32 .00 5,799.32
---------- ---------- --------- --------- --------- --------- ---------
VENDOR TIME TOTALS: 11,222.91 .00 .00 5,799.32 5,423.59 .00 .00
TRUS Trust One Bank
16599 10/22/01 12/01 N 2,943.35 .00 2,943.35
16600 10/22/01 12/01 N 711.22 .00 711.22
16601 10/22/01 12/01 N 556.41 .00 556.41
---------- ---------- --------- --------- --------- --------- ---------
VENDOR TRUS TOTALS: 4,210.98 .00 .00 .00 4,210.98 .00 .00
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ 10/22/01 12/01 N 927.72 .00 927.72
16596 10/22/01 12/01 N 969.92 .00 969.92
16597 10/22/01 10/22 N 339.91 .00 339.91
27700 10/22/01 12/01 N 1,333.32 .00 1,333.32
---------- ---------- --------- --------- --------- --------- ---------
VENDOR UNIL TOTALS: 3,570.87 .00 .00 .00 3,570.87 .00 .00
UNIR Union Planters Bank Trustee
112801 11/28/01 11/28 N 1,177.85 .00 1,177.85
4003068001 10/09/01 11/08 N 625.00 .00 625.00
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ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
---------- ---------- --------- --------- --------- --------- ---------
VENDOR UNIR TOTALS: 1,802.85 .00 .00 1,177.85 625.00 .00 .00
UNIV University of Memphis
909157 05/11/01 05/11 N 3,025.96 .00 3,025.96
---------- ---------- --------- --------- --------- --------- ---------
VENDOR UNIV TOTALS: 3,025.96 .00 .00 .00 .00 .00 3,025.96
UNUM UNUM
091001 09/10/01 09/10 N 1,837.46 .00 1,837.46
101101 10/11/01 11/01 N 1,837.46 .00 1,837.46
101101-CM 10/11/01 10/11 N 3,728.58- .00 3,728.58-
111201 11/12/01 11/12 N 1,837.46 .00 1,837.46
---------- ---------- --------- --------- --------- --------- ---------
VENDOR UNUM TOTALS: 1,783.80 .00 .00 1,837.46 1,891.12- 1,837.46 .00
USLE US LEC Corp.
225129 08/10/01 09/07 N 1,792.28 .00 1,792.28
237864 09/10/01 10/08 N 1,297.95 .00 1,297.95
---------- ---------- --------- --------- --------- --------- ---------
VENDOR USLE TOTALS 3,090.23 .00 .00 .00 .00 1,297.95 1,792.28
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
121701 12/17/01 12/17 N 68.55 .00 68.55
---------- ---------- --------- --------- --------- --------- ---------
VENDOR ▇▇▇▇ TOTALS: 68.55 .00 68.55 .00 .00 .00 .00
VIAC Via Courier
1105012041 11/05/01 12/04 N 25.00 .00 25.00
1119012041 11/19/01 12/18 N 40.00 .00 40.00
1204012041 12/04/01 01/03 N 20.00 .00 20.00
1207012041 12/17/01 01/16 N 40.00 .00 40.00
---------- ---------- --------- --------- --------- --------- ---------
VENDOR VIAC TOTALS: 125.00 .00 60.00 65.00 .00 .00 .00
WARI ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, PLLC
149133 04/23/01 04/23 N 16,159.72 .00 16,159.72
149454 05/31/01 05/31 N 16,758.76 .00 16,758.76
150298 07/23/01 07/23 N 13,181.00 .00 13,181.00
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--------------------------------------------------------------------------------
ACCOUNTS PAYABLE AGED INVOICE REPORT
ALL OPEN INVOICES - AGED BY INVOICE DATE
--------------------------------------------------------------------------------
DATES H
VENDOR/ ---------------------L INVOICE DISCOUNT
INVOICE NO. INVOICE DUE DSCNT D BALANCE AMOUNT CURRENT 30 DAYS 60 DAYS 90 DAYS 120 DAYS
171609 11/07/01 12/07 N 1,330.00 .00 1,330.00
172632 12/06/01 01/05 N 387.97 .00 387.97
172637 12/06/01 01/05 N 7,055.47 .00 7,055.47
---------- ---------- --------- --------- --------- --------- ---------
VENDOR WARI TOTALS: 54,872.92 .00 7,443.44 1,330.00 .00 .00 46,099.48
WEBE WebEx
1001316 11/12/01 12/12 N 275.00 .00 275.00
101533 10/25/01 11/24 N 181.25 .00 181.25
314785 10/06/01 11/05 N 600.75 .00 600.75
319053 11/06/01 12/05 N 600.00 .00 600.00
99611 10/05/01 11/04 N 343.75 .00 343.75
---------- ---------- --------- --------- --------- --------- ---------
VENDOR WEBE TOTALS: 2,000.75 .00 .00 875.00 1,125.75 .00 .00
YULE Yuletide Office Supply
1721811-1 09/19/01 10/18 N 71.38 .00 71.38
17222295-0 09/24/01 10/23 N 10.33 .00 10.33
1723567-0 10/01/01 10/31 N 28.48 .00 28.48
1732504-0 12/04/01 01/03 N 33.69 .00 33.69
1733282-0 12/10/01 01/09 N 141.84 .00 141.84
---------- ---------- --------- --------- --------- --------- ---------
VENDOR YULE TOTALS: 285.72 .00 175.53 .00 .00 110.19 .00
---------- ---------- --------- --------- --------- --------- ---------
REPORT TOTALS: 201,971.38 .00 10,854.02 30,397.47 42,638.32 36,110.60 81,970.97
========== ========== ========= ========= ========= ========= =========
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[LOGO]THOUGHTWARE
Adjustments to Accounts Payable
Schedule 2.19
As of December 31, 2001
Accounts Payable Balance per Schedule 2.19 $201,971.38
Invoices not recorded in Schedule 2.19
SunTrust ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
123101 12/31/2001 10,000.00
Disputed Invoices/Amounts not recorded in Schedule 2.19
University of Memphis
Invoice # Invoice Date
518595 12/31/1999 1,000.00
582401 4/30/2000 1,700.00
629242 8/30/2000 13,723.58
732636 10/30/2000 1,700.00
850421 12/31/2000 850.00
874598 2/28/2001 850.00
884158 3/31/2001 850.00
938939 11/30/2000 850.00
940035 8/30/2000 1,700.00
23,223.58
NETG
170721-CM 7/20/2001 26,500.00
International Data Corporation
122701 12/27/2001 25,000.00
Reversal of credit memos applied against disputed invoices recorded
in Schedule 2.19
Sibernetics Marketing Systems
CM # CM Date
6060-CM 11/30/2001 8,757.60
SO-CM 12/6/2001 2,647.40
11,405.00
Total Adjustments to Schedule 2.19 $96,128.58
Adjusted Schedule 2.19 Total $298,099.96
[LOGO]THOUGHTWARE
Balance Sheet
December 31, 2000
----------- ----------- ----------- ----------- -----------
Assets January February March April May
Current Assets
Cash 11,543.70 25,976.22 33,818.28 20,660.23 10,497.26
Restricted Cash (CD) 0.00 0.00 0.00 0.00 0.00
Accounts Receivable - Net 345,696.42 261,840.45 277,018.02 273,691.26 281,887.72
Pre-Paid Expense & Other Assets 37,063.91 73,011.58 103,442.94 127,364.95 138,287.48
----------- ----------- ----------- ----------- -----------
Total Current Assets $394,304.03 $360,828.25 $414,279.24 $421,716.44 $430,672.46
Fixed Assets
Furniture Fixtures & Equipment 431,889.95 428,829.51 428,829.51 428,829.51 428,829.51
Less: Accumulated Depreciation (83,526.34) (88,453.75) (93,381.19) (98,308.57) (103,234.59)
Computer Purchases 87,107.55 87,107.55 87,107.55 87,107.55 87,107.55
Less: Accumulated Depreciation (59,783.64) (62,039.47) (64,295.35) (66,551.13) (68,806.96)
Leasehold Improvements 0.00 0.00 0.00 0.00 0.00
Less: Accumulated Depreciation (3,069.29) (3,693.91) (4,318.53) (4,943.15) (5,567.77)
Software 1,500.00 16,500.00 24,500.00 30,500.00 45,500.00
Less Accumulated Depreciation 0.00 (83.33) (1,000.00) (2,361.11) (4,055.55)
----------- ----------- ----------- ----------- -----------
Total Fixed Assets $374,118.23 $378,166.60 $377,441.99 $374,273.10 $379,772.19
----------- ----------- ----------- ----------- -----------
Total Assets $768,422.26 $738,994.85 $791,721.23 $795,989.54 $810,444.65
=========== =========== =========== =========== ===========
Liabilities and Equity
Accounts Payable 72,217.05 53,816.65 72,647.04 84,085.26 80,587.10
Deferred Revenue and Accrued Liabilities 111,582.60 148,063.22 217,869.68 312,845.82 354,760.58
Capitalized Leases 65,532.13 63,349.76 61,154.08 60,674.24 58,451.64
Long-Term Debt 270,060.01 257,793.72 245,964.28 204,219.39 210,699.33
Dividend Payable - Preferred 0.00 0.00 0.00 0.00 0.00
----------- ----------- ----------- ----------- -----------
Total Liabilities $519,391.79 $523,023.35 $597,635.08 $661,824.71 $704,498.65
----------- ----------- ----------- ----------- -----------
Equity
Capital Stock 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00
Capital Stock - B -- -- -- -- --
Preferred Stock -- -- -- -- --
Stock Subscriptions -- -- -- -- --
Preferred Dividends -- -- -- -- --
Net Income (35,062.56) (68,121.53) (90,006.88) (149,928.20) (178,147.03)
Retained Earnings 283,093.03 283,093.03 283,093.03 283,093.03 283,093.03
Total Equity $249,030.47 $215,971.50 $194,086.15 $134,164.83 $105,946.00
----------- ----------- ----------- ----------- -----------
Total Liabilities and Equity $768,422.26 $738,994.85 $791,721.23 $795,989.54 $810,444.65
=========== =========== =========== =========== ===========
----------- ------------- ------------- ------------- -------------
Assets June July August September October
Current Assets
Cash 34,197.75 3,862,372.45 3,541,562.04 3,318,449.29 3,108,007.47
Restricted Cash (CD) 0.00 0.00 0.00 0.00 0.00
Accounts Receivable - Net 386,378.88 467,238.69 554,570.44 522,932.60 540,524.59
Pre-Paid Expense & Other Assets 160,249.71 181,624.97 227,272.45 240,551.31 270,673.26
----------- ------------- ------------- ------------- -------------
Total Current Assets $580,826.34 $4,511,236.11 $4,323,404.93 $4,081,933.20 $3,919,205.32
Fixed Assets
Furniture Fixtures & Equipment 429,291.33 429,291.33 433,115.41 435,675.96 438,192.71
Less: Accumulated Depreciation (108,170.46) (113,106.19) (118,042.01) (123,089.64) (128,175.12)
Computer Purchases 87,107.55 90,587.55 91,351.63 91,351.63 91,351.63
Less: Accumulated Depreciation (71,062.84) (73,318.62) (75,715.91) (78,113.26) (80,546.13)
Leasehold Improvements 0.00 0.00 0.00 0.00 0.00
Less: Accumulated Depreciation (6,192.39) (6,817.01) (7,441.63) (8,066.25) (8,690.87)
Software 63,500.00 90,500.00 110,500.00 137,376.91 174,859.26
Less Accumulated Depreciation (6,583.33) (10,111.12) (15,138.88) (21,277.77) (28,909.83)
----------- ------------- ------------- ------------- -------------
Total Fixed Assets $387,889.86 $407,025.94 $418,628.61 $433,857.58 $458,081.65
----------- ------------- ------------- ------------- -------------
Total Assets $968,716.20 $4,918,262.05 $4,742,033.54 $4,515,790.78 $4,377,286.97
=========== ============= ============= ============= =============
Liabilities and Equity
Accounts Payable 86,588.01 57,320.73 77,571.36 100,731.41 140,497.35
Deferred Revenue and Accrued Liabilities 505,014.51 748,445.27 758,676.26 800,002.94 907,134.93
Capitalized Leases 56,452.10 54,548.03 52,739.34 50,807.56 48,861.78
Long-Term Debt 234,941.77 128,055.37 48,613.35 45,290.77 43,594.76
Dividend Payable - Preferred 0.00 35,809.06 0.00 55,054.00 81,721.00
----------- ------------- ------------- ------------- -------------
Total Liabilities $882,996.39 $1,024,178.46 $937,600.31 $1,051,886.68 $1,221,809.82
----------- ------------- ------------- ------------- -------------
Equity
Capital Stock 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00
Capital Stock - B -- -- -- -- --
Preferred Stock -- -- -- -- --
Stock Subscriptions -- -- -- -- --
Preferred Dividends -- -- -- -- --
Net Income (35,062.56) (68,121.53) (90,006.88) (149,928.20) (178,147.03)
Retained Earnings 283,093.03 283,093.03 283,093.03 283,093.03 283,093.03
Total Equity $249,030.47 $215,971.50 $194,086.15 $134,164.83 $105,946.00
----------- ----------- ----------- ----------- -----------
Total Liabilities and Equity $768,422.26 $738,994.85 $791,721.23 $795,989.54 $810,444.65
=========== =========== =========== =========== ===========
------------- -------------
Assets November December
Current Assets
Cash 2,546,390.02 2,341,573.18
Restricted Cash (CD) 0.00 75,000.00
Accounts Receivable - Net 631,884.02 515,195.05
Pre-Paid Expense & Other Assets 392,952.97 137,837.65
------------- -------------
Total Current Assets $3,571,227.01 $3,069,605.88
Fixed Assets
Furniture Fixtures & Equipment 448,529.16 114,312.64
Less: Accumulated Depreciation (133,392.65) (20,866.98)
Computer Purchases 259,542.67 220,963.46
Less: Accumulated Depreciation (87,151.58) (50,629.14)
Leasehold Improvements 3,423.13 0.00
Less: Accumulated Depreciation (9,336.23) 0.00
Software 204,524.42 57,170.26
Less Accumulated Depreciation (38,647.99) (2,800.35)
------------- -------------
Total Fixed Assets $647,490.93 $318,149.89
------------- -------------
Total Assets $4,218,717.94 $3,387,755.77
============= =============
Liabilities and Equity
Accounts Payable 85,305.80 291,376.70
Deferred Revenue and Accrued Liabilities 1,153,106.37 1,298,339.08
Capitalized Leases 189,409.99 183,086.79
Long-Term Debt 41,898.75 41,898.75
Dividend Payable - Preferred 108,388.00 132,332.00
------------- -------------
Total Liabilities $1,578,108.91 $1,947,033.32
------------- -------------
Equity
Capital Stock 14,250.00 266,875.00
Capital Stock - B 3,888,300.11 4,392,325.11
Preferred Stock -- (504,025.00)
Stock Subscriptions -- (125,000.00)
Preferred Dividends (108,388.00) (132,332.00)
Net Income 1,400,837.05) (2,704,404.63)
Retained Earnings 247,283.97 247,283.97
Total Equity $2,640,609.03 $1,440,722.45
------------- -------------
Total Liabilities and Equity $4,218,717.94 $3,387,755.77
============= =============
[LOGO]THOUGHTWARE
Balance Sheet
December 31, 2001
-------------- -------------- -------------- -------------- --------------
Assets January February March April May
Current Assets
Cash 1,773,834.40 1,383,094.21 699,142.57 173,939.22 2,879,909.88
Restricted Cash (CD) 75,000.00 75,000.00 75,000.00 75,000.00 75,000.00
Accounts Receivable - Net 423,103.53 480,936.99 536,045.47 629,393.30 488,263.14
Pre-Paid Expense & Other Assets 153,261.09 164,298.88 206,434.16 323,927.94 321,756.97
-------------- -------------- -------------- -------------- --------------
Total Current Assets $2,425,199.02 $2,103,330.08 $1,516,622.20 $1,202,260.46 $3,764,929.99
Fixed Assets
Furniture Fixtures & Equipment 134,727.81 148,974.49 165,576.48 170,999.18 172,893.89
Less: Accumulated Depreciation (22,655.43) (24,919.77) (27,589.66) (30,116.14) (32,574.10)
Computer Purchases 231,157.46 259,610.09 277,070.09 277,721.02 285,611.70
Less: Accumulated Depreciation (48,802.84) (56,844.58) (65,510.97) (73,279.69) (82,090.09)
Leasehold Improvements 0.00 0.00 5,082.29 5,082.29 26,362.29
Less: Accumulated Depreciation 0.00 0.00 (356.86) (475.81) (2,368.10)
Software 57,170.26 57,170.26 57,170.26 57,170.26 57,170.26
Less Accumulated Depreciation (4,388.41) (5,976.47) (7,564.54) (9,152.60) (10,740.66)
-------------- -------------- -------------- -------------- --------------
Total Fixed Assets $347,208.85 $378,014.02 $403,877.09 $397,948.51 $414,265.19
-------------- -------------- -------------- -------------- --------------
Total Assets $2,772,407.87 $2,481,344.10 $1,920,499.29 $1,600,208.97 $4,179,195.18
============== ============== ============== ============== ==============
Liabilities and Equity
Accounts Payable 118,298.43 60,469.09 147,105.89 251,311.20 284,291.94
Deferred Revenue and Accrued Liabilities 1,217,496.76 1,278,213.70 1,197,126.52 1,197,308.84 1,031,753.23
Capitalized Leases 188,553.08 221,940.11 235,884.10 228,216.01 220,513.03
Long-Term Debt 38,282.34 36,504.62 34,685.19 32,879.21 31,050.71
Dividend Payable - Preferred 161,722.00 215,056.00 241,723.00 268,390.00 295,057.00
-------------- -------------- -------------- -------------- --------------
Total Liabilities $1,724,352.61 $1,812,183.52 $1,856,524.70 $1,978,105.26 $1,862,665.91
-------------- -------------- -------------- -------------- --------------
Equity
Capital Stock 266,875.00 285,625.00 291,875.00 291,875.00 291,875.00
Capital Stock - B 4,392,325.11 4,392,325.11 4,392,325.11 4,392,325.11 4,392,325.11
Preferred Stock (504,025.00) (504,025.00) (504,025.00) (504,025.00) 2,680,975.00
Stock Subscriptions (125,000.00) (125,000.00) (125,000.00) (125,000.00) (125,000.00)
Preferred Dividends (161,722.00) (215,056.00) (241,723.00) (268,390.00) (295,057.00)
Net Income (363,277.19) (707,587.87) (1,292,356.86) (1,707,560.74) (2,171,468.18)
Retained Earnings (2,457,120.66) (2,457,120.66) (2,457,120.66) (2,457,120.66) (2,457,120.66)
Total Equity $1,048,055.26 $669,160.58 $63,974.59 ($377,896.29) $2,316,529.27
-------------- -------------- -------------- -------------- --------------
Total Liabilities and Equity $2,772,407.87 $2,481,344.10 $1,920,499.29 $1,600,208.97 $4,179,195.18
============== ============== ============== ============== ==============
-------------- -------------- -------------- -------------- --------------
Assets June July August September October
Current Assets
Cash 2,215,190.05 1,604,468.40 1,102,367.76 695,381.87 500,711.27
Restricted Cash (CD) 75,000.00 75,000.00 75,000.00 75,000.00 75,000.00
Accounts Receivable - Net 498,184.71 480,368.51 474,468.03 484,491.92 128,432.03
Pre-Paid Expense & Other Assets 212,444.98 330,133.68 240,916.22 256,777.19 336,594.48
-------------- -------------- -------------- -------------- --------------
Total Current Assets $3,000,819.74 $2,489,970.59 $1,892,752.01 $1,511,650.98 $1,040,737.78
Fixed Assets
Furniture Fixtures & Equipment 172,893.89 172,893.89 172,893.89 172,893.89 172,893.89
Less: Accumulated Depreciation (34,915.52) (37,256.94) (39,598.36) (41,939.79) (44,281.21)
Computer Purchases 302,427.09 302,427.09 302,427.09 302,427.09 302,427.09
Less: Accumulated Depreciation (92,826.32) (101,227.07) (109,627.82) (118,028.58) (126,429.33)
Leasehold Improvements 26,362.29 26,362.29 26,362.29 26,362.29 26,362.29
Less: Accumulated Depreciation (2,841.72) (3,315.33) (3,788.95) (4,262.57) (4,736.19)
Software 57,170.26 57,170.26 57,170.26 57,170.26 57,170.26
Less Accumulated Depreciation (12,328.73) (13,916.79) (15,504.85) (17,092.91) (18,680.98)
-------------- -------------- -------------- -------------- --------------
Total Fixed Assets $415,941.24 $403,137.40 $390,333.55 $377,529.68 $364,725.82
-------------- -------------- -------------- -------------- --------------
Total Assets $3,416,760.98 $2,893,107.99 $2,283,085.56 $1,889,180.66 $1,405,463.60
============== ============== ============== ============== ==============
Liabilities and Equity
Accounts Payable 226,034.62 310,393.61 241,485.72 238,547.86 231,242.41
Deferred Revenue and Accrued Liabilities 795,354.94 756,825.37 592,405.38 566,259.97 143,838.00
Capitalized Leases 229,066.33 220,849.79 212,585.22 204,272.32 195,910.82
Long-Term Debt 29,216.18 27,359.83 25,496.31 23,618.14 21,719.23
Dividend Payable - Preferred 343,057.00 391,057.00 439,057.00 487,057.00 535,057.00
-------------- -------------- -------------- -------------- --------------
Total Liabilities $1,622,729.07 $1,706,485.60 $1,511,029.63 $1,519,755.29 $1,127,767.46
-------------- -------------- -------------- -------------- --------------
Equity
Capital Stock 291,875.00 291,875.00 291,875.00 291,875.00 291,875.00
Capital Stock - B 4,392,325.11 4,392,325.11 4,392,325.11 4,392,325.11 4,392,325.11
Preferred Stock 2,680,975.00 2,680,975.00 2,680,975.00 2,680,975.00 2,680,975.00
Stock Subscriptions (125,000.00) (125,000.00) (125,000.00) (125,000.00) (125,000.00)
Preferred Dividends (343,057.00) (391,057.00) (439,057.00) (487,057.00) (535,057.00)
Net Income (2,645,965.54) (3,205,375.06) (3,571,941.52) (3,926,572.08) (3,970,301.31)
Retained Earnings (2,457,120.66) (2,457,120.66) (2,457,120.66) (2,457,120.66) (2,457,120.66)
Total Equity $1,794,031.91 $1,186,622.39 $772,055.93 $369,425.37 $277,696.14
-------------- -------------- -------------- -------------- --------------
Total Liabilities and Equity $3,416,760.98 $2,893,107.99 $2,283,085.56 $1,889,180.66 $1,405,463.60
============== ============== ============== ============== ==============
-------------- --------------
Assets November December
Current Assets
Cash 289,240.87 207,043.26
Restricted Cash (CD) 75,000.00 77,713.15
Accounts Receivable - Net 137,736.45 85,999.22
Pre-Paid Expense & Other Assets 271,994.73 304,704.53
-------------- --------------
Total Current Assets $773,972.05 $675,460.16
Fixed Assets
Furniture Fixtures & Equipment 172,893.89 172,893.89
Less: Accumulated Depreciation (46,622.64) (48,964.05)
Computer Purchases 302,427.09 306,507.09
Less: Accumulated Depreciation (134,830.07) (144,769.97)
Leasehold Improvements 26,362.29 26,362.29
Less: Accumulated Depreciation (5,209.81) (5,683.43)
Software 57,170.26 57,170.26
Less Accumulated Depreciation (20,269.04) (21,857.10)
-------------- --------------
Total Fixed Assets $351,921.97 $341,658.98
-------------- --------------
Total Assets $1,125,894.02 $1,017,119.14
============== ==============
Liabilities and Equity
Accounts Payable 205,423.93 298,099.96
Deferred Revenue and Accrued Liabilities 146,911.04 157,747.30
Capitalized Leases 187,500.44 179,040.87
Long-Term Debt 19,811.39 17,883.54
Dividend Payable - Preferred 583,057.00 631,057.00
-------------- --------------
Total Liabilities $1,142,703.80 $1,283,828.67
-------------- --------------
Equity
Capital Stock 291,875.00 291,875.00
Capital Stock - B 4,392,325.11 4,392,325.11
Preferred Stock 2,680,975.00 2,680,975.00
Stock Subscriptions (125,000.00) (125,000.00)
Preferred Dividends (583,057.00) (631,057.00)
Net Income (4,216,807.23) (4,418,706.98)
Retained Earnings (2,457,120.66) (2,457,120.66)
Total Equity ($16,809.78) ($266,709.53)
-------------- --------------
Total Liabilities and Equity $1,125,894.02 $1,017,119.14
============== ==============
[LOGO]THOUGHTWARE
Statement of Cash Flows
For the Twelve Months Ended December 31, 2000
Jan Feb Mar Apr May
Cash Flows From Operating Activities:
Net Income ($35,062.56) ($33,058.97) ($21,885.35) ($59,921.32) ($28,218.83)
Adjustments to Net Income:
Depreciation Expense 10,218.16 7,891.19 8,724.61 9,168.89 9,500.91
Accounts Receivable - Net (252.81) 83,855.97 (15,177.57) 3,326.76 (8,196.46)
Prepaid Expenses (35,283.43) (35,947.67) (30,431.36) (23,922.01) (10,922.53)
Accounts Payable (1,458.41) (18,400.40) 18,830.39 11,438.22 (3,498.16)
Deferred Revenue and Accrued Liabilities 72,084.41 36,480.62 69,806.46 94,976.14 41,914.76
------------------------------------------------------------------------------------
Total Adjustments to Net Income: 45,307.92 73,879.71 51,752.53 94,988.00 28,798.52
Cash Flows From Financing Activities:
Equity -- -- -- -- --
Long Term Debt (13,919.42) (14,448.66) (14,025.12) (42,224.73) 4,257.34
Preferred Dividend -- -- -- -- --
------------------------------------------------------------------------------------
Total Cash Flows From Financing Activities: (13,919.42) (14,448.66) (14,025.12) (42,224.73) 4,257.34
Cash Flow From Investing
Purchases of Equipment (13,320.04) (11,939.56) (8,000.00) (6,000.00) (15,000.00)
------------------------------------------------------------------------------------
Total Cash Flow From Investing Activities (13,320.04) (11,939.56) (8,000.00) (6,000.00) (15,000.00)
Increase/Decrease in Cash ($16,994.10) $14,432.52 $7,842.06 ($13,158.05) ($10,162.97)
====================================================================================
Beginning Cash Balance 28,537.80 11,543.70 25,976.22 33,818.28 20,660.23
------------------------------------------------------------------------------------
Ending Cash Balance $11,543.70 $25,976.22 $33,818.28 $20,660.23 $10,497.26
====================================================================================
Jun July August September October
Cash Flows From Operating Activities:
Net Income ($20,226.19) ($44,128.16) ($89,649.47) ($285,475.13) ($288,759.95)
Adjustments to Net Income:
Depreciation Expense 10,344.15 11,343.92 12,985.49 14,208.49 15,775.03
Accounts Receivable - Net (104,491.16) (80,859.81) (87,331.75) 31,637.84 (17,591.99)
Prepaid Expenses (21,962.23) (21,375.26) (45,647.48) (13,278.86) (30,121.95)
Accounts Payable 6,000.91 (29,267.28) 20,250.63 23,160.05 39,765.94
Deferred Revenue and Accrued Liabilities 150,253.93 243,430.76 10,230.99 41,326.68 107,131.99
------------------------------------------------------------------------------------
Total Adjustments to Net Income: 40,145.60 123,272.33 (89,512.12) 97,054.20 114,959.02
Cash Flows From Financing Activities:
Equity -- 3,852,491.94 (0.89) (55,054.00) (19,667.00)
Long Term Debt 22,242.90 (108,790.47) (81,250.71) (5,254.36) (3,641.79)
Preferred Dividend -- 35,809.06 (35,809.06) 55,054.00 26,667.00
------------------------------------------------------------------------------------
Total Cash Flows From Financing Activities: 22,242.90 3,779,510.53 (117,060.66) (5,254.36) 3,358.21
Cash Flow From Investing
Purchases of Equipment (18,461.82) (30,480.00) (24,588.16) (29,437.46) (39,999.10)
------------------------------------------------------------------------------------
Total Cash Flow From Investing Activities (18,461.82) (30,480.00) (24,588.16) (29,437.46) (39,999.10)
Increase/Decrease in Cash $23,700.49 $3,828,174.70 ($320,810.41) ($223,112.75) ($210,441.82)
====================================================================================
Beginning Cash Balance 10,497.26 34,197.75 3,862,372.45 3,541,562.04 3,318,449.29
------------------------------------------------------------------------------------
Ending Cash Balance $34,197.75 $3,862,372.45 $3,541,562.04 $3,318,449.29 $3,108,007.47
====================================================================================
November December
Cash Flows From Operating Activities:
Net Income ($494,451.12) ($1,303,567.58)
Adjustments to Net Income:
Depreciation Expense 22,206.50 (73,478.98)
Accounts Receivable - Net (91,359.43) 116,688.97
Prepaid Expenses (122,279.71) 255,115.32
Accounts Payable (55,191.55) 206,070.90
Deferred Revenue and Accrued Liabilities 245,971.44 145,232.71
--------------------------------
Total Adjustments to Net Income: (652.75) 649,628.92
Cash Flows From Financing Activities:
Equity (20,417.00) 103,681.00
Long Term Debt 138,852.20 (6,323.20)
Preferred Dividend 26,667.00 23,944.00
--------------------------------
Total Cash Flows From Financing Activities: 145,102.20 121,301.80
Cash Flow From Investing
Purchases of Equipment (211,615.78) 402,820.02
--------------------------------
Total Cash Flow From Investing Activities (211,615.78) 402,820.02
Increase/Decrease in Cash ($561,617.45) ($129,816.84)
================================
Beginning Cash Balance 3,108,007.47 2,546,390.02
--------------------------------
Ending Cash Balance $2,546,390.02 $2,416,573.18
================================
[LOGO]THOUGHTWARE
Statement of Cash Flows
For the Twelve Months Ended December 31, 2001
Jan Feb Mar Apr May
Cash Flows From Operating Activities:
Net Income ($363,277.19) ($344,310.68) ($584,768.99) ($415,203.88) ($463,907.44)
Adjustments to Net Income:
Depreciation Expense 9,797.55 11,854.14 13,281.22 12,002.21 14,748.69
Accounts Receivable - Net 92,091.52 (57,833.46) (55,108.48) (93,347.83) 141,130.16
Prepaid Expenses (15,423.44) (11,037.79) (42,135.28) (117,493.78) 2,170.97
Accounts Payable (173,078.27) (57,829.34) 86,636.80 104,205.31 32,980.74
Deferred Revenue and Accrued Liabilities (80,842.32) 60,716.94 (81,087.18) 182.32 (165,555.61)
------------------------------------------------------------------------------------
Total Adjustments to Net Income: (167,454.96) (54,129.51) (78,412.92) (94,451.77) 25,474.95
Cash Flows From Financing Activities:
Equity ($29,390.00) (34,584.00) (20,417.00) (26,667.00) 3,158,333.00
Long Term Debt (3,616.41) 31,609.31 12,124.56 (9,474.07) (9,531.48)
Preferred Dividend 29,390.00 53,334.00 26,667.00 26,667.00 26,667.00
------------------------------------------------------------------------------------
Total Cash Flows From Financing Activities: ($3,616.41) $50,359.31 $18,374.56 ($9,474.07) $3,175,468.52
Cash Flow From Investing
Purchases of Equipment (33,390.22) (42,699.31) (39,144.28) (6,073.63) (31,065.39)
------------------------------------------------------------------------------------
Total Cash Flow From Investing Activities (33,390.22) (42,699.31) (39,144.28) (6,073.63) (31,065.39)
Increase/Decrease in Cash ($567,738.78) ($390,780.19) ($683,951.63) ($525,203.35) $2,705,970.64
====================================================================================
Beginning Cash Balance 2,416,573.18 1,848,834.40 1,458,094.21 774,142.57 248,939.22
Ending Cash Balance $1,848,834.40 $1,458,054.21 $774,142.58 $248,939.22 $2,954,909.86
------------------------------------------------------------------------------------
Jun July August September October
Cash Flows From Operating Activities:
Net Income ($474,497.36) ($559,409.52) ($366,566.46) ($354,630.56) ($43,729.23)
Adjustments to Net Income:
Depreciation Expense 15,139.35 12,803.84 12,803.85 12,803.87 12,803.86
Accounts Receivable - Net (9,921.57) 17,816.20 5,900.48 (10,023.89) 356,059.89
Prepaid Expenses 109,311.99 (117,688.70) 89,217.46 (15,860.97) (79,817.29)
Accounts Payable (58,257.32) 84,358.99 (68,907.89) (2,937.86) (7,305.45)
Deferred Revenue and Accrued Liabilities (236,398.29) (38,529.57) (164,419.99) (26,145.41) (422,421.97)
------------------------------------------------------------------------------------
Total Adjustments to Net Income: (180,125.84) (41,239.24) (125,406.09) (42,164.26) (140,680.96)
Cash Flows From Financing Activities:
Equity (48,000.00) (48,000.00) (48,000.00) (48,000.00) (48,000.00)
Long Term Debt 6,718.77 (10,072.89) (10,128.09) (10,191.07) (10,260.41)
Preferred Dividend 48,000.00 48,000.00 48,000.00 48,000.00 48,000.00
------------------------------------------------------------------------------------
Total Cash Flows From Financing Activities: $6,718.77 ($10,072.89) ($10,128.09) ($10,191.07) ($10,260.41)
Cash Flow From Investing
Purchases of Equipment (16,815.39) -- -- -- --
------------------------------------------------------------------------------------
Total Cash Flow From Investing Activities (16,815.39) -- -- -- --
Increase/Decrease in Cash ($664,719.82) ($610,721.65) ($502,100.64) ($406,985.89) ($194,670.60)
====================================================================================
Beginning Cash Balance 2,954,909.88 2,290,190.05 1,679,468.40 1,177,367.76 770,381.87
Ending Cash Balance $2,290,190.06 $1,679,468.40 $1,177,367.76 $770,381.87 $575,711.27
------------------------------------------------------------------------------------
November December
Cash Flows From Operating Activities:
Net Income ($246,505.92) ($201,899.75)
Adjustments to Net Income:
Depreciation Expense 12,803.85 12,869.66
Accounts Receivable - Net (9,304.42) 51,737.23
Prepaid Expenses 64,599.75 (32,709.80)
Accounts Payable (25,818.48) 92,676.03
Deferred Revenue and Accrued Liabilities 3,073.04 10,836.26
------------------------------
Total Adjustments to Net Income: 45,353.74 135,409.38
Cash Flows From Financing Activities:
Equity (48,000.00) (48,000.00)
Long Term Debt (10,318.22) (10,387.42)
Preferred Dividend 48,000.00 48,000.00
------------------------------
Total Cash Flows From Financing Activities: ($10,318.22) ($10,387.42)
Cash Flow From Investing
Purchases of Equipment -- (2,606.67)
------------------------------
Total Cash Flow From Investing Activities -- (2,606.67)
Increase/Decrease in Cash ($211,470.40) ($79,484.46)
==============================
Beginning Cash Balance 575,711.27 364,240.87
Ending Cash Balance $364,240.87 $284,756.41
------------------------------
[LOGO]THOUGHTWARE
Income Statement
For the Twelve Months Ended December 31, 2000
--------------------------- --------------------------
Revenue Actual % Actual %
January February
Workforce License Revenue:
Workforce Learner 226.00 0.5 1,077.00 1.8
Workforce Manager 16,088.54 38.7 19,666.88 33.7
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 0.00 -- 0.00 -
Professional Services 3,299.00 7.9 0.00 -
Other Revenue
Development - HURAA 0.00 -- 0.00 -
Facility Rent 21,910.00 52.8 37,675.00 64.5
Total - Revenue $41,523.54 100.0 $58,418.88 100.0
Cost of Revenue
License Revenue 1,917.38 4.6 1,663.43 2.8
Service Revenue 3,444.07 8.3 14,767.06 25.3
Total Cost of Revenues $5,361.45 12.9 $16,430.49 28.1
Gross Profit $36,162.09 87.1 $41,988.39 71.9
Operating Expenses
General & Administrative 43,680.90 105.2 48,554.64 83.1
Research & Development 1,775.60 4.3 5,186.25 8.9
Sales, Marketing & Business Development 13,360.96 32.2 11,537.31 19.7
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $58,817.46 141.6 $65,278.20 111.7
Total - Operating Income ($22,655.37) (54.6) ($23,289.81) (39.9)
Non - Operating Expenses
Interest Expense 2,190.03 5.3 1,878.91 3.2
Interest Income (1.00) (0.0) (0.94) (0.0)
Depreciation/Amortization 10,218.16 24.6 7,891.19 13.5
Total - Non - Operating Expenses $12,407.19 29.9 $9,769.16 16.7
Pre-Tax Income ($35,062.56) (84.4) ($33,058.97) (56.6)
Taxes 0.00 -- 0.00 -
Net Income ($35,062.56) (84.4) ($33,058.97) (56.6)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($35,062.56) (84.4) ($33,058.97) (56.6)
Depreciation/Amortization 10,218.16 24.6 7,891.19 13.5
Interest Income (1.00) (0.0) (0.94) (0.0)
Interest Expense 2,190.03 5.3 1,878.91 3.2
EBITDA (22,655.37) (54.6) (23,289.81) (39.9)
--------------------------- --------------------------
--------------------------- --------------------------
Revenue Actual % Actual %
March April
Workforce License Revenue:
Workforce Learner 4,095.00 5.7 5,721.00 9.0
Workforce Manager 49,588.54 68.8 46,667.71 73.7
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 0.00 -- 0.00 -
Professional Services 0.00 -- 0.00 -
Other Revenue
Development - HURAA 0.00 -- 0.00 -
Facility Rent 18,410.00 25.5 10,974.99 17.3
Total - Revenue $72,093.54 100.0 $63,363.70 100.0
Cost of Revenue
License Revenue 3,500.35 4.9 3,818.09 6.0
Service Revenue 13,807.68 19.2 28,780.27 45.4
Total Cost of Revenues $17,308.03 24.0 $32,598.36 51.4
Gross Profit $54,785.51 76.0 $30,765.34 48.6
Operating Expenses
General & Administrative 47,933.64 66.5 62,583.55 98.8
Research & Development 3,760.39 5.2 2,839.29 4.5
Sales, Marketing & Business Development 14,508.85 20.1 14,314.23 22.6
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $66,202.88 91.8 $79,737.07 125.8
Total - Operating Income ($11,417.37) (15.8) ($48,971.73) (77.3)
Non - Operating Expenses
Interest Expense 1,744.38 2.4 1,781.70 2.8
Interest Income (1.01) (0.0) (1.00) (0.0)
Depreciation/Amortization 8,724.61 12.1 9,168.89 14.5
Total - Non - Operating Expenses $10,467.98 14.5 $10,949.59 17.3
Pre-Tax Income ($21,885.35) (30.4) ($59,921.32) (94.6)
Taxes 0.00 -- 0.00 -
Net Income ($21,885.35) (30.4) ($59,921.32) (94.6)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($21,885.35) (30.4) ($59,921.32) (94.6)
Depreciation/Amortization 8,724.61 12.1 9,168.89 14.5
Interest Income (1.01) (0.0) (1.00) (0.0)
Interest Expense 1,744.38 2.4 1,781.70 2.8
EBITDA (11,417.37) (15.8) (48,971.73) (77.3)
--------------------------- --------------------------
--------------------------- --------------------------
Revenue Actual % Actual %
May June
Workforce License Revenue:
Workforce Learner 7,579.00 10.3 1,895.00 1.4
Workforce Manager 36,944.38 50.4 62,009.38 46.9
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 0.00 -- 0.00 -
Professional Services 0.00 -- 0.00 -
Other Revenue
Development - HURAA 0.00 -- 49,749.00 37.6
Facility Rent 28,806.34 39.3 18,580.00 14.1
Total - Revenue $73,329.72 100.0 $132,233.38 100.0
Cost of Revenue
License Revenue 4,547.55 6.2 4,793.21 3.6
Service Revenue 14,175.46 19.3 57,893.06 43.8
Total Cost of Revenues $18,723.01 25.5 $62,686.27 47.4
Gross Profit $54,606.71 74.5 $69,547.11 52.6
Operating Expenses
General & Administrative 48,604.46 66.3 57,409.30 43.4
Research & Development 2,547.98 3.5 1,575.71 1.2
Sales, Marketing & Business Development 20,922.98 28.5 18,633.42 14.1
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $72,075.42 98.3 $77,618.43 58.7
Total - Operating Income ($17,468.71) (23.8) ($8,071.32) (6.1)
Non - Operating Expenses
Interest Expense 1,250.39 1.7 1,810.72 1.4
Interest Income (1.18) (0.0) 0.00 -
Depreciation/Amortization 9,500.91 13.0 10,344.15 7.8
Total - Non - Operating Expenses $10,750.12 14.7 $12,154.87 9.2
Pre-Tax Income ($28,218.83) (38.5) ($20,226.19) (15.3)
Taxes 0.00 -- 0.00 -
Net Income ($28,218.83) (38.5) ($20,226.19) (15.3)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($28,218.83) (38.5) ($20,226.19) (15.3)
Depreciation/Amortization 9,500.91 13.0 10,344.15 7.8
Interest Income (1.18) (0.0) 0.00 -
Interest Expense 1,250.39 1.7 1,810.72 1.4
EBITDA (17,468.71) (23.8) (8,071.32) (6.1)
--------------------------- --------------------------
--------------------------- --------------------------
Revenue Actual % Actual %
July August
Workforce License Revenue:
Workforce Learner 16,022.00 10.9 18,698.00 12.9
Workforce Manager 33,071.88 22.4 32,455.21 22.4
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 0.00 -- 0.00 -
Professional Services 0.00 -- 0.00 -
Other Revenue
Development - HURAA 75,229.00 51.1 40,071.00 27.7
Facility Rent 23,000.00 15.6 53,472.00 37.0
Total - Revenue $147,322.88 100.0 $144,696.21 100.0
Cost of Revenue
License Revenue 5,041.73 3.4 5,775.75 4.0
Service Revenue 76,005.01 51.6 29,653.81 20.5
Total Cost of Revenues $81,046.74 55.0 $35,429.56 24.5
Gross Profit $66,276.14 45.0 $109,266.65 75.5
Operating Expenses
General & Administrative 69,225.86 47.0 153,832.42 106.3
Research & Development 4,006.05 2.7 7,062.12 4.9
Sales, Marketing & Business Development 23,908.94 16.2 37,684.20 26.0
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $97,140.85 65.9 $198,578.74 137.2
Total - Operating Income ($30,864.71) (21.0) ($89,312.09) (61.7)
Non - Operating Expenses
Interest Expense 1,922.04 1.3 5,351.89 3.7
Interest Income (2.51) (0.0) (18,000.00) (12.4)
Depreciation/Amortization 11,343.92 7.7 12,985.49 9.0
Total - Non - Operating Expenses $13,263.45 9.0 $337.38 0.2
Pre-Tax Income ($44,128.16) (30.0) ($89,649.47) (62.0)
Taxes 0.00 -- 0.00 -
Net Income ($44,128.16) (30.0) ($89,649.47) (62.0)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($44,128.16) (30.0) ($89,649.47) (62.0)
Depreciation/Amortization 11,343.92 7.7 12,985.49 9.0
Interest Income (2.51) (0.0) (18,000.00) (12.4)
Interest Expense 1,922.04 1.3 5,351.89 3.7
EBITDA (30,864.71) (21.0) (89,312.09) (61.7)
--------------------------- --------------------------
--------------------------- --------------------------
Revenue Actual % Actual %
September October
Workforce License Revenue:
Workforce Learner 20,076.12 13.0 23,670.06 16.2
Workforce Manager 30,655.21 19.9 32,155.21 22.0
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 0.00 -- 0.00 -
Professional Services 0.00 -- 0.00 -
Other Revenue
Development - HURAA 67,230.85 43.5 64,564.99 44.2
Facility Rent 36,440.00 23.6 25,570.00 17.5
Total - Revenue $154,402.18 100.0 $145,960.26 100.0
Cost of Revenue
License Revenue 5,806.75 3.8 7,780.61 5.3
Service Revenue 81,373.01 52.7 86,785.34 59.5
Total Cost of Revenues $87,179.76 56.5 $94,565.95 64.8
Gross Profit $67,222.42 43.5 $51,394.31 35.2
Operating Expenses
General & Administrative 215,060.78 139.3 196,779.73 134.8
Research & Development 22,312.48 14.5 26,943.74 18.5
Sales, Marketing & Business Development 118,503.77 76.8 115,972.82 79.5
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $355,877.03 230.5 $339,696.29 232.7
Total - Operating Income ($288,654.61) (186.9) ($288,301.98) (197.5)
Non - Operating Expenses
Interest Expense 461.93 0.3 750.84 0.5
Interest Income (17,849.90) (11.6) (16,067.90) (11.0)
Depreciation/Amortization 14,208.49 9.2 15,775.03 10.8
Total - Non - Operating Expenses ($3,179.48) (2.1) $457.97 0.3
Pre-Tax Income ($285,475.13) (184.9) ($288,759.95) (197.8)
Taxes 0.00 -- 0.00 -
Net Income ($285,475.13) (184.9) ($288,759.95) (197.8)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($285,475.13) (184.9) ($288,759.95) (197.8)
Depreciation/Amortization 14,208.49 9.2 15,775.03 10.8
Interest Income (17,849.90) (11.6) (16,067.90) (11.0)
Interest Expense 461.93 0.3 750.84 0.5
EBITDA (288,654.61) (186.9) (288,301.98) (197.5)
--------------------------- --------------------------
--------------------------- -----------------------------
Revenue Actual % Actual %
November December
Workforce License Revenue:
Workforce Learner 32,636.12 25.8 30,414.06 29.8
Workforce Manager 36,571.88 28.9 11,021.88 10.8
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 0.00 -- 0.00 -
Professional Services 0.00 -- 0.00 -
Other Revenue
Development - HURAA 47,405.43 37.4 54,977.39 53.9
Facility Rent 10,050.00 7.9 5,540.00 5.4
Total - Revenue $126,663.43 100.0 $101,953.33 100.0
Cost of Revenue
License Revenue 41,570.04 32.8 14,361.48 14.1
Service Revenue 88,061.20 69.5 184,721.23 181.2
Total Cost of Revenues $129,631.24 102.3 $199,082.71 195.3
Gross Profit ($2,967.81) (2.3) ($97,129.38) (95.3)
Operating Expenses
General & Administrative 223,107.24 176.1 665,879.98 653.1
Research & Development 25,555.09 20.2 359,646.28 352.8
Sales, Marketing & Business Development 238,440.16 188.2 264,803.94 259.7
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $487,102.49 384.6 $1,290,330.20 1,265.6
Total - Operating Income ($490,070.30) (386.9) ($1,387,459.58) (1,360.9)
Non - Operating Expenses
Interest Expense 736.73 0.6 941.44 0.9
Interest Income (18,562.41) (14.7) (11,354.46) (11.1)
Depreciation/Amortization 22,206.50 17.5 (73,478.98) (72.1)
Total - Non - Operating Expenses $4,380.82 3.5 ($83,892.00) (82.3)
Pre-Tax Income ($494,451.12) (390.4) ($1,303,567.58) (1,278.6)
Taxes 0.00 -- 0.00 -
Net Income ($494,451.12) (390.4) ($1,303,567.58) (1,278.6)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($494,451.12) (390.4) ($1,303,567.58) (1,278.6)
Depreciation/Amortization 22,206.50 17.5 (73,478.98) (72.1)
Interest Income (18,562.41) (14.7) (11,354.46) (11.1)
Interest Expense 736.73 0.6 941.44 0.9
EBITDA (490,070.30) (386.9) (1,387,459.58) (1,360.9)
--------------------------- -----------------------------
---------------------------------
Revenue Year To Date %
Workforce License Revenue:
Workforce Learner 162,109.36 12.8
Workforce Manager 406,896.70 32.2
Service Revenue:
Customer Support -- 0.0
Training/Education -- -
Professional Services 3,299.00 0.3
Other Revenue
Development - HURAA 399,227.66 31.6
Facility Rent 290,428.33 23.0
Total - Revenue $1,261,961.05 100.0
Cost of Revenue
License Revenue 100,576.37 8.0
Service Revenue 679,467.20 53.8
Total Cost of Revenues $780,043.57 61.8
Gross Profit $481,917.48 38.2
Operating Expenses
General & Administrative 1,832,652.50 145.2
Research & Development 463,210.98 36.7
Sales, Marketing & Business Development 892,591.58 70.7
Equipment Leases (Operating) -- -
Total - Operating Expenses $3,188,455.06 252.7
Total - Operating Income ($2,706,537.58) (214.5)
Non - Operating Expenses
Interest Expense 20,821.00 1.6
Interest Income (81,842.31) (6.5)
Depreciation/Amortization 58,888.36 4.7
Total - Non - Operating Expenses ($2,132.95) (0.2)
Pre-Tax Income ($2,704,404.63) (214.3)
Taxes -- -
Net Income ($2,704,404.63) (214.3)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($2,704,404.63) (214.3)
Depreciation/Amortization 58,888.36 4.7
Interest Income (81,842.31) (6.5)
Interest Expense 20,821.00 1.6
EBITDA (2,706,537.58) (214.5)
---------------------------------
[LOGO]THOUGHTWARE
Income Statement
For the Twelve Months Ended December 31, 2001
------------------------------ ------------------------
Revenue Actual % Actual %
January February
Workforce License Revenue:
Workforce Learner 35,988.92 17.5 37,255.58 10.3
Workforce Manager 73,050.00 35.6 43,850.00 12.1
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 6,800.00 3.3 3,150.00 0.9
Professional Services 11,671.88 5.7 232,161.46 64.1
Other Revenue
Development - HURAA 76,172.29 37.1 43,573.46 12.0
Facility Rent 1,500.00 0.7 2,350.00 0.6
Total - Revenue $205,183.09 100.0 $362,340.50 100.0
Cost of Revenue
License Revenue 10,086.59 4.9 13,586.68 3.7
Service Revenue 78,042.52 38.0 85,462.04 23.6
Total Cost of Revenues $88,129.11 43.0 $99,048.72 27.3
Gross Profit $117,053.98 57.0 $263,291.78 72.7
Operating Expenses
General & Administrative 143,369.57 69.9 223,207.00 61.6
Research & Development 115,495.53 56.3 95,731.77 26.4
Sales, Marketing & Business Development 221,416.88 107.9 280,506.11 77.4
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $480,281.98 234.1 $599,444.88 165.4
Total - Operating Income ($363,228.00) (177.0) ($336,153.10) (92.8)
Non - Operating Expenses
Interest Expense 1,384.18 0.7 1,395.66 0.4
Interest Income (11,132.54) (5.4) (5,092.22) (1.4)
Depreciation/Amortization 9,797.55 4.8 11,854.14 3.3
Total - Non - Operating Expenses $49.19 0.0 $8,157.58 2.3
Pre-Tax Income ($363,277.19) (177.1) ($344,310.68) (95.0)
Taxes 0.00 -- 0.00 -
Net Income ($363,277.19) (177.1) ($344,310.68) (95.0)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($363,277.19) (177.1) ($344,310.68) (95.0)
Depreciation/Amortization 9,797.55 4.8 11,854.14 3.3
Interest Income (11,132.54) (5.4) (5,092.22) (1.4)
Interest Expense 1,384.18 0.7 1,395.66 0.4
EBITDA (363,228.00) (177.0) (336,153.10) (92.8)
------------------------------ ------------------------
----------------------------- ----------------------------
Revenue Actual % Actual %
March April
Workforce License Revenue:
Workforce Learner 37,821.75 13.6 51,818.92 16.0
Workforce Manager 55,175.00 19.8 68,925.00 21.2
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 32,750.00 11.7 0.00 -
Professional Services 95,058.98 34.1 151,736.45 46.7
Other Revenue
Development - HURAA 54,997.36 19.7 50,844.17 15.7
Facility Rent 3,000.00 1.1 1,500.00 0.5
Total - Revenue $278,803.09 100.0 $324,824.54 100.0
Cost of Revenue
License Revenue 13,105.01 4.7 31,629.15 9.7
Service Revenue 137,347.22 49.3 91,020.88 28.0
Total Cost of Revenues $150,452.23 54.0 $122,650.03 37.8
Gross Profit $128,350.86 46.0 $202,174.51 62.2
Operating Expenses
General & Administrative 306,416.52 109.9 183,367.71 56.5
Research & Development 100,236.55 36.0 120,379.08 37.1
Sales, Marketing & Business Development 295,887.30 106.1 304,487.91 93.7
Equipment Leases (Operating) 218.36 0.1 109.18 0.0
Total - Operating Expenses $702,758.73 252.1 $608,343.88 187.3
Total - Operating Income ($574,407.87) (206.0) ($406,169.37) (125.0)
Non - Operating Expenses
Interest Expense 1,530.22 0.5 1,609.53 0.5
Interest Income (4,450.32) (1.6) (4,577.23) (1.4)
Depreciation/Amortization 13,281.22 4.8 12,002.21 3.7
Total - Non - Operating Expenses $10,361.12 3.7 $9,034.51 2.8
Pre-Tax Income ($584,768.99) (209.7) ($415,203.88) (127.8)
Taxes 0.00 -- 0.00 -
Net Income ($584,768.99) (209.7) ($415,203.88) (127.8)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($584,768.99) (209.7) ($415,203.88) (127.8)
Depreciation/Amortization 13,281.22 4.8 12,002.21 3.7
Interest Income (4,450.32) (1.6) (4,577.23) (1.4)
Interest Expense 1,530.22 0.5 1,609.53 0.5
EBITDA (574,407.87) (206.0) (406,169.37) (125.0)
----------------------------- ----------------------------
----------------------------- -----------------------------
Revenue Actual % Actual %
May June
Workforce License Revenue:
Workforce Learner 51,734.83 11.2 58,365.91 11.6
Workforce Manager 68,925.00 15.0 66,075.00 13.1
Service Revenue:
Customer Support 0.00 0.0 0.00 0.0
Training/Education 7,768.00 1.7 0.00 -
Professional Services 284,804.21 61.9 325,760.67 64.6
Other Revenue
Development - HURAA 45,417.80 9.9 52,867.07 10.5
Facility Rent 1,500.00 0.3 1,500.00 0.3
Total - Revenue $460,149.84 100.0 $504,568.65 100.0
Cost of Revenue
License Revenue 47,766.57 10.4 21,093.17 4.2
Service Revenue 104,460.65 22.7 98,122.57 19.4
Total Cost of Revenues $152,227.22 33.1 $119,215.74 23.6
Gross Profit $307,922.62 66.9 $385,352.91 76.4
Operating Expenses
General & Administrative 352,097.81 76.5 350,933.81 69.6
Research & Development 121,731.52 26.5 238,231.61 47.2
Sales, Marketing & Business Development 283,840.23 61.7 256,673.92 50.9
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $757,669.56 164.7 $845,839.34 167.6
Total - Operating Income ($449,746.94) (97.7) ($460,486.43) (91.3)
Non - Operating Expenses
Interest Expense 1,542.15 0.3 1,491.01 0.3
Interest Income (2,130.34) (0.5) (2,619.43) (0.5)
Depreciation/Amortization 14,748.69 3.2 15,139.35 3.0
Total - Non - Operating Expenses $14,160.50 3.1 $14,010.93 2.8
Pre-Tax Income ($463,907.44) (100.8) ($474,497.36) (94.0)
Taxes 0.00 -- 0.00 -
Net Income ($463,907.44) (100.8) ($474,497.36) (94.0)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($463,907.44) (100.8) ($474,497.36) (94.0)
Depreciation/Amortization 14,748.69 3.2 15,139.35 3.0
Interest Income (2,130.34) (0.5) (2,619.43) (0.5)
Interest Expense 1,542.15 0.3 1,491.01 0.3
EBITDA (449,746.94) (97.7) (460,486.43) (91.3)
----------------------------- -----------------------------
----------------------------- -----------------------------
Revenue Actual % Actual %
July August
Workforce License Revenue:
Workforce Learner 42,447.99 25.3 85,760.52 41.7
Workforce Manager 63,575.00 37.9 112,225.00 54.5
Service Revenue:
Customer Support 0.00 0.0 250.00 0.1
Training/Education 1,500.00 0.9 0.00 -
Professional Services 31,883.50 19.0 6,000.00 2.9
Other Revenue
Development - HURAA 26,900.19 16.0 0.00 -
Facility Rent 1,500.00 0.9 1,500.00 0.7
Total - Revenue $167,806.68 100.0 $205,735.52 100.0
Cost of Revenue
License Revenue 37,459.76 22.3 34,685.55 16.9
Service Revenue 115,307.50 68.7 17,687.18 8.6
Total Cost of Revenues $152,767.26 91.0 $52,372.73 25.5
Gross Profit $15,039.42 9.0 $153,362.79 74.5
Operating Expenses
General & Administrative 190,105.10 113.3 196,264.96 95.4
Research & Development 103,272.67 61.5 99,108.61 48.2
Sales, Marketing & Business Development 274,728.93 163.7 218,860.51 106.4
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $568,106.70 338.5 $514,234.08 249.9
Total - Operating Income ($553,067.28) (329.6) ($360,871.29) (175.4)
Non - Operating Expenses
Interest Expense 1,423.79 0.8 1,370.95 0.7
Interest Income (7,885.39) (4.7) (8,479.63) (4.1)
Depreciation/Amortization 12,803.84 7.6 12,803.85 6.2
Total - Non - Operating Expenses $6,342.24 3.8 $5,695.17 2.8
Pre-Tax Income ($559,409.52) (333.4) ($366,566.46) (178.2)
Taxes 0.00 -- 0.00 -
Net Income ($559,409.52) (333.4) ($366,566.46) (178.2)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($559,409.52) (333.4) ($366,566.46) (178.2)
Depreciation/Amortization 12,803.84 7.6 12,803.85 6.2
Interest Income (7,885.39) (4.7) (8,479.63) (4.1)
Interest Expense 1,423.79 0.8 1,370.95 0.7
EBITDA (553,067.28) (329.6) (360,871.29) (175.4)
----------------------------- -----------------------------
----------------------------- -----------------------------
Revenue Actual % Actual %
September October
Workforce License Revenue:
Workforce Learner 50,220.42 38.9 38,844.08 33.3
Workforce Manager 77,525.00 60.1 77,525.00 66.4
Service Revenue:
Customer Support 250.00 0.2 250.00 0.2
Training/Education 200.00 0.2 0.00 -
Professional Services 750.00 0.6 200.00 0.2
Other Revenue
Development - HURAA 0.00 -- 0.00 -
Facility Rent 0.00 -- 0.00 -
Total - Revenue $128,945.42 100.0 $116,819.08 100.0
Cost of Revenue
License Revenue 24,146.76 18.7 31,351.88 26.8
Service Revenue 50,960.21 39.5 12,116.36 10.4
Total Cost of Revenues $75,106.97 58.2 $43,468.24 37.2
Gross Profit $53,838.45 41.8 $73,350.84 62.8
Operating Expenses
General & Administrative 172,305.03 133.6 99,508.24 85.2
Research & Development 85,081.10 66.0 41,765.05 35.8
Sales, Marketing & Business Development 141,191.63 109.5 (35,884.74) (30.7)
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $398,577.76 309.1 $105,388.55 90.2
Total - Operating Income ($344,739.31) (267.4) ($32,037.71) (27.4)
Non - Operating Expenses
Interest Expense 1,310.35 1.0 1,243.39 1.1
Interest Income (4,222.97) (3.3) (2,355.73) (2.0)
Depreciation/Amortization 12,803.87 9.9 12,803.86 11.0
Total - Non - Operating Expenses $9,891.25 7.7 $11,691.52 10.0
Pre-Tax Income ($354,630.56) (275.0) ($43,729.23) (37.4)
Taxes 0.00 -- 0.00 -
Net Income ($354,630.56) (275.0) ($43,729.23) (37.4)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($354,630.56) (275.0) ($43,729.23) (37.4)
Depreciation/Amortization 12,803.87 9.9 12,803.86 11.0
Interest Income (4,222.97) (3.3) (2,355.73) (2.0)
Interest Expense 1,310.35 1.0 1,243.39 1.1
EBITDA (344,739.31) (267.4) (32,037.71) (27.4)
----------------------------- -----------------------------
----------------------------- -----------------------------
Revenue Actual % Actual %
November December
Workforce License Revenue:
Workforce Learner 30,066.17 27.0 33,478.33 29.9
Workforce Manager 77,525.00 69.7 76,025.00 68.0
Service Revenue:
Customer Support 250.00 0.2 250.00 0.2
Training/Education 0.00 -- 0.00 -
Professional Services 3,350.00 3.0 2,075.00 1.9
Other Revenue
Development - HURAA 0.00 -- 0.00 -
Facility Rent 0.00 -- 0.00 -
Total - Revenue $111,191.17 100.0 $111,828.33 100.0
Cost of Revenue
License Revenue 20,716.29 18.6 31,603.91 28.3
Service Revenue 39,880.69 35.9 22,229.16 19.9
Total Cost of Revenues $60,596.98 54.5 $53,833.07 48.1
Gross Profit $50,594.19 45.5 $57,995.26 51.9
Operating Expenses
General & Administrative 188,399.90 169.4 134,205.43 120.0
Research & Development 58,966.86 53.0 38,922.07 34.8
Sales, Marketing & Business Development 36,923.55 33.2 74,734.04 66.8
Equipment Leases (Operating) 0.00 -- 0.00 -
Total - Operating Expenses $284,290.31 255.7 $247,861.54 221.6
Total - Operating Income ($233,696.12) (210.2) ($189,866.28) (169.8)
Non - Operating Expenses
Interest Expense 1,187.98 1.1 2,239.41 2.0
Interest Income (1,182.03) (1.1) (3,075.60) (2.8)
Depreciation/Amortization 12,803.85 11.5 12,869.66 11.5
Total - Non - Operating Expenses $12,809.80 11.5 $12,033.47 10.8
Pre-Tax Income ($246,505.92) (221.7) ($201,899.75) (180.5)
Taxes 0.00 -- 0.00 -
Net Income ($246,505.92) (221.7) ($201,899.75) (180.5)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($246,505.92) (221.7) ($201,899.75) (180.5)
Depreciation/Amortization 12,803.85 11.5 12,869.66 11.5
Interest Income (1,182.03) (1.1) (3,075.60) (2.8)
Interest Expense 1,187.98 1.1 2,239.41 2.0
EBITDA (233,696.12) (210.2) (189,866.28) 169.8
----------------------------- -----------------------------
-----------------------------------
Revenue Year To Date %
Workforce License Revenue:
Workforce Learner 553,803.42 18.6
Workforce Manager 860,400.00 28.9
Service Revenue:
Customer Support 1,250.00 0.0
Training/Education 52,168.00 1.8
Professional Services 1,145,452.15 38.5
Other Revenue
Development - HURAA 350,772.34 11.8
Facility Rent 14,350.00 0.5
Total - Revenue $2,978,195.91 100.0
Cost of Revenue
License Revenue 317,231.32 10.7
Service Revenue 852,636.98 28.6
Total Cost of Revenues $1,169,868.30 39.3
Gross Profit $1,808,327.61 60.7
Operating Expenses
General & Administrative 2,540,181.08 85.3
Research & Development 1,218,922.42 40.9
Sales, Marketing & Business Development 2,353,366.27 79.0
Equipment Leases (Operating) 327.54 0.0
Total - Operating Expenses $6,112,797.31 205.3
Total - Operating Income ($4,304,469.70) (144.5)
Non - Operating Expenses
Interest Expense 17,728.62 0.6
Interest Income (57,203.43) (1.9)
Depreciation/Amortization 153,712.09 5.2
Total - Non - Operating Expenses $114,237.28 3.8
Pre-Tax Income ($4,418,706.98) (148.4)
Taxes 0.00 -
Net Income ($4,418,706.98) (148.4)
Earning Before Interest, Taxes, Depreciation
and Amortization
Net Income ($4,418,706.98) (148.4)
Depreciation/Amortization 153,712.09 5.2
Interest Income (57,203.43) (1.9)
Interest Expense 17,728.62 0.6
EBITDA (4,304,469.70) (144.5)
-----------------------------------