<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-21295
THINKING TOOLS, INC.
-----------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 77-0436410
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Park Avenue Ste 3900
New York, New York 10166
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 808-7474
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
<PAGE>
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- KSB or any amendment to
this Form 10-KSB.
The Registrant's revenues for its most recent fiscal year were $92,283.
As of April 13, 2000, 9,684,237 shares of common stock (the "Common Stock") of
the Registrant were outstanding. The aggregate market value of the shares of
Common Stock held by non-affiliates of the Registrant, based on a closing sale
price of the Common Stock on the OTC Bulletin Board on April 13, 2000 of $3.12
per share, was approximately $24,084,141.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
DOCUMENTS INCORPORATED BY REFERENCE. No documents are incorporated by reference
into this Report except those Exhibits so incorporated as set forth in the
Exhibit Index.
2
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act.
The executive officers and directors as of April 28, 2000 are as
follows:
Name Age Position
- ---- ---- --------
Mr. Fred Knoll 45 Chairman of the Board, Director
Mr. Moshe Zarmi 62 President, Chief Executive Officer, Director
Mr. Marc Cooper 38 Director
Ms. Esther Dyson 49 Director
Mr. Frederick Gluck 65 Director
Dr. Ted Prince 53 Director
Mr. Fran Saldutti 52 Director
Fred Knoll has been a member of the board of directors since September
1994 and Chairman of the Board since 1996. From 1987 to the present, Mr. Knoll
has been the principal of Knoll Capital Management, L.P., a venture capital firm
specializing in the information technology industry. From 1985 to 1987, Mr.
Knoll was an investment manager for General American Investors, responsible for
the technology portfolio, and served as the United States representative on
investments in leveraged buy-outs and venture capital for Murray Johnstone, Ltd.
of Glasgow, Scotland. From 1983 to 1985, Mr. Knoll served as manager of venture
investments for Robert Fleming, Inc., a U.K. merchant bank in New York and was
responsible for managing a venture capital fund as well as managing a team whose
responsibility was to identify public investment opportunities. Mr. Knoll also
held investment positions with the Capital Group (Capital Research/Capital
Guardian) from 1982 to 1983. During the 1970's, Mr. Knoll worked in sales and
marketing management for Data General and Wang Laboratories, Inc. and as a
computer engineer at Computer Sciences Corporation. Mr. Knoll is a director of
numerous companies, including Hello Network, a video Internet technology
company, and ISurfTV Corporation, an Internet company. Mr. Knoll holds a B.S. in
Computer Science from M.I.T. and an M.B.A. from Columbia University in Finance
and International Business.
Moshe Zarmi has been President, Chief Executive Officer, and a director
of Thinking Tools, Inc. since February 12, 1998. From July 1997 to December
1997, Mr. Zarmi was a consultant to us and joined us as Chief Operating Officer
on January 1, 1998. Mr. Zarmi has 30 years experience, primarily in high
technology industries. From February 1993 to January 1997, Mr. Zarmi was CEO of
Geotest, a leading Automated Test Equipment company based in Southern
California. His extensive business experience includes a tenure at Israel
Aircraft Industries (IAI), where he held various positions in finance and
administration, as well as head of US marketing and sales. Mr. Zarmi also served
as President of ATG, the Canadian subsidiary of IAI. Additionally, Mr. Zarmi
headed his own company which specialized in technology transfer and worked
mainly with Israeli high technology companies doing business in the United
States. Mr. Zarmi attended Tel Aviv University and holds a MBA from Columbia
University.
3
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Marc S. Cooper has been a member of the board of directors since
January 1997. Mr. Cooper has been a Managing Director of Peter J. Solomon
Company since June 1999. Prior to that, he served as Vice Chairman of Barington
Capital Group, L.P. from January 1998 to June 1999 and as the Executive Vice
President - Director of Investment Banking and Research for Barington Capital
Group, L.P. from March 1992 until January 1998. From April 1989 to March 1992,
Mr. Cooper was a partner of Scharf Brothers, a private merchant bank involved in
acquisitions of domestic and international industrial and technology companies.
From April 1987 to April 1989, Mr. Cooper was a Vice President in the corporate
finance department of Kidder Peabody & Co., Inc., where he was involved in
structuring and negotiating a wide variety of merchant banking and merger and
acquisition transactions. From 1982 to 1987, Mr. Cooper was an associate in
investment banking at Dean Witter Reynolds, Inc. Mr. Cooper received an M.B.A.
from the New York University Graduate School of Business Administration, and a
B.S. in Management and Economics from New York University.
Esther Dyson has been a member of the board of directors since October
1994. From 1983 to 1997 Ms. Dyson served as president of EDventure Holdings, and
now is EDventure Holdings chairman. EDventure Holdings is a diversified company
focusing on emerging information technology worldwide and on the emerging
computer markets of Central and Eastern Europe. Since 1997, Ms. Dyson has been
chairman of the Electronic Frontier Foundation. Ms. Dyson is a member of the
board of directors of the Global Business Network, ComputerLand Poland and
Cygnus Solutions, and she is a member of the advisory board of Perot Systems.
She is a limited partner in the Maryfield Software Fund. Ms. Dyson has also
written articles on industry topics for the Harvard Business Review, The New
York Times, The New York Times Magazine, WIRED Magazine and Forbes Magazine,
among others.
Frederick W. Gluck has been a member of the board of directors since
October 1994. He is currently serving as a consultant to McKinsey & Company,
Inc. Mr. Gluck served as vice-chairman and a director of Bechtel Group, Inc. and
as a member of the Board of Directors of Bechtel Enterprises, Inc. from 1995 to
1998. He also served as a member of both companies' executive committees. Prior
to joining Bechtel, Mr. Gluck spent more than 25 years with McKinsey & Company,
and was ultimately its managing director. Mr. Gluck serves on the Harvard
Business School Board of Directors of the Associates, the Management Education
Council of the Wharton School, the U.S./ Hong Kong Economic Cooperation
Committee, the Council on Foreign Relations and the Board of the International
Executive Service Corps. Mr. Gluck is also a member of the Board of Directors of
several public and private companies including ACT Networks, Inc.
4
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Ted Prince has been a member of the board of directors since October
1994. Since 1992, Dr. Prince has been the President of Perth Ventures, Inc., an
investment banking and public relations firm which he founded in 1992. Perth
Ventures specializes in the emerging information technology area. Since 1995,
Dr. Prince has been the Chairman and CEO of INSCI Corporation. Dr. Prince is
also an author, publisher and speaker in the area of emerging information
technologies and market trends. He is the author and publisher of The Technology
Fundamentalist, a national newsletter focusing on emerging computer technologies
and market trends. Dr. Prince has founded several information technology
companies including CP International, a company specializing in text retrieval
software, and Harwell Computer Power, a startup in the same field. From 1984 to
1992, he served as President and CEO of several companies, including the
national computer services company, Computer Power Group. From 1979 to 1984, Dr.
Prince was the Chief Information Officer of the Australian Social Security
Agency where he was responsible for designing the new national social welfare
system.
Fran Saldutti has been a member of the board of directors since October
1994. Mr. Saldutti has been, since 1995, a managing general partner of Ardent
Research Partners, L.P., a limited partnership founded in 1992 to invest
exclusively in the information technology markets. From 1990 through February
1995, Mr. Saldutti served as senior technology analyst for Amerindo Investment
Advisers. From 1984 through 1986 he served as Senior Vice President and Director
of Research for Gartner Securities and from 1986 to 1988 as Director of
Technology Research for L.F. Rothschild. Mr. Saldutti moved to the buy side in
1989 as senior technology analyst with Merrill Lynch Asset Management's Sci/Tech
Fund. From 1975 to 1989 Mr. Saldutti either produced, sold or directed
technology research for several leading technology brokerage firms. Mr. Saldutti
maintains board directorships in other technology companies, including Kraft
Kennedy, Lesser, a LAN industry systems integrator, and Meta Group, a market
research firm specializing in information technology, on which he also serves on
the compensation committee. He is a member of the Software and Services Splinter
Group of the New York Society of Securities Analysts.
In addition, Mort Meyerson is an advisor to us. Mr. Meyerson is
Chairman and CEO of 2M Companies, Inc., a private investment firm. Mr. Meyerson
was Chairman of Perot Systems from 1992 to 1998. From 1979 to 1986 he was
President and Chief Executive Officer of EDS Information Systems. Mr. Meyerson
has had extensive experience in the software industry, in running large
technology companies and in investing in, growing and capitalizing emerging
technology companies.
5
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our Directors, executive officers, and persons who own more than 10% of
a registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our shares and other equity securities. Directors, officers and
greater than 10% shareholders are required to furnish us with copies of all
Section 16(a) forms that they file. As of the date hereof, none of the
above-mentioned individuals and 10% holders have filed the requisite reports
during the year ended December 31, 1999. As of the date hereof, we are assisting
such individuals to file such reports promptly. All information required to be
filed in such reports has been disclosed, however, in this Form 10-KSB/A.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth compensation paid for the last three
fiscal years ended December 31, 1999 to those persons who were, at December 31,
1999, (i) the chief executive officer and (ii) our two other most highly
compensated executive officers, who were our only other executive officers who
received over $100,000 in compensation during this time period (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and Principal Year Salary($) Bonus($) Other Annual Securities All Other
Position Compensation ($) Underlying Compensation
Options/SARs
<S> <C> <C> <C> <C> <C> <C>
Fred Knoll (1) 1999 -- 1,102,700 (2)
Chairman 1998 $140,450(3)
1997 $ 36,000(3)
Moshe Zarmi (4) CEO & 1999 $ 22,000 -- -- 750,000 (5) --
President 1998 $157,500 -- -- -- --
1997 --
John Hiles (5) 1999 $ 18,000 -- -- -- --
1998 $144,000 -- -- -- --
1997 $158,758
</TABLE>
6
<PAGE>
(1) Mr. Knoll has been our Chairman since 1996. Since October 1994 Mr. Knoll
has provided executive and related consulting services to us.
(2) In December 1999, Mr. Knoll received an aggregate of 200,000 options to
purchase shares of Common Stock at a purchase price of $.50 per share;
100,000 of these options vest immediately, and the remaining 100,000 of
these options vest one year from the date of issuance. In December 1999,
Mr. Knoll received five year warrants to purchase 549,800 shares of Common
Stock, at an exercise price of $.50 per share. Also, in December 1999, Mr.
Knoll converted accrued salary of $176,450 owed to him by us for options to
purchase 352,900 shares of Common Stock, at a purchase price of $.50 per
share. In March 2000, Mr. Knoll received 200 shares of Series B Preferred
Stock convertible into 200 shares of Common Stock.
(3) The compensation reflected in the table accrued to Mr. Knoll and was
converted in December 1999 into options to purchase 352,900 shares of
Common Stock, at an exercise price of $.50 per share.
(4) Mr. Zarmi joined the Company in December 1997. Mr. Zarmi become Chief
Executive Officer and President in February 1998. However, during the
period from February 1999 to December 10, 1999, Mr. Zarmi was not employed
by the Company. As a result, all options issued prior to such time to Mr.
Zarmi have been forfeited. Mr. Zarmi is currently our Chief Executive
Officer and President.
(5) In December 1999, Mr. Zarmi received options to purchase an aggregate of
200,000 shares of Common Stock, at a purchase price of $.50 per share;
100,000 of these options vest immediately, and the remaining 100,000 of
these options vest one year from the date of issuance. In December 1999,
Mr. Zarmi received five year warrants to purchase 550,000 shares of Common
Stock, at an exercise price of $.50 per share.
(6) Mr. Hiles was our President from August 1996 through November 1996 and our
Chief Technology Officer and Secretary from August 1996 through April 1999.
Mr. Hiles resigned as a Director of the Company in October 1999.
7
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name Number of Percent of Total Exercise or Base Expiration Date
Securities Options/SARs Price ($/sh)
Underlying Granted to
Options/SARs Employees in
Granted Fiscal Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Moshe Zarmi 200,000 40% $.50 12/10/2009
550,000 $.50 12/10/2004
- ---------------------------------------------------------------------------------------------------------
Fred Knoll 200,000 60% $.50 12/10/2009
549,800 $.50 12/10/2004
352,900 $.50 12/10/2009
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Aggregated Option Exercises during 1999 and Year End 1999 Option Values
The following table shows the values of options held by the Named
Executive Officers as of December 31, 1999. No options were exercised by the
Named Executive Officers during 1999.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 1999 at Fiscal December 31, 1999(1)
---------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Moshe Zarmi 650,000 100,000 $1,625,000 $250,000
Fred Knoll 1,002,700 100,000 $2,506,750 $250,000
John Hiles -- -- -- --
- ---------------
(1) Based on a closing price of the Common Stock on the NASD OTC Bulletin Board
of $3.00 per share on December 31, 1999.
Stock Option Grants
We strive to distribute stock option awards broadly throughout the
organization. Stock option awards are based on the individual's position and
contribution to us. Our long term performance ultimately determines compensation
from stock options because stock option value is entirely dependent on the long
term growth of our Common Stock price.
Compensation Committee
The Compensation Committee of the Board of Directors is responsible for
determining the compensation of our executive officers and to administer our
Plan. Messrs. Prince and Saldutti, who are disinterested directors, comprise the
Compensation Committee.
General Policy Regarding Stock Options.
Stock options are currently our sole long term compensation vehicle.
The stock options are intended to provide employees with sufficient incentive to
manage from the perspective of an owner with an equity stake in the business.
In determining the size of individual option grants, the Compensation
Committee considers the aggregate number of shares available for grant, the
number of individuals to be considered for an award of stock options, and the
range of potential compensation levels that the option awards may yield. The
number and timing of stock option grants to executive officers are decided by
the Compensation Committee based on its subjective assessment of the performance
of each grantee. In determining the size and timing of option grants, the
Compensation Committee weighs any factors it considers relevant and gives such
factors the relative weight it considers appropriate under the circumstances
then prevailing. While an ancillary goal of the Compensation Committee in
awarding stock options is to increase the stock ownership of our management, the
Compensation Committee does not, when determining the amount of stock options to
award, consider the amount of stock already owned by an officer. The
Compensation Committee believes that to do so could have the effect of
inappropriately or inequitably penalizing or rewarding executives based upon
their personal decisions as to stock ownership and option exercises.
8
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Arrangements with Directors and Executive Officers
Our Directors do not receive any cash compensation for their
participation on the board. On December 10,1999, our Board of Directors received
the following option grants: (i) options to purchase 110,000 shares of Common
Stock at an exercise price of $.50 per share, vesting immediately were issued to
each of Esther Dyson, Frederick Gluck, Ted Prince, Fran Saldutti and Marc
Cooper; (ii) options to purchase 100,000 shares of Common Stock, at an exercise
price of $.50 per share vesting immediately were issued to each of Mr. Knoll and
Mr. Zarmi; (iii) options to purchase 100,000 shares of Common Stock at an
exercise price of $.50 per share vesting May 15, 2000 were issued to Marc
Cooper; and (iv) options to purchase 100,000 shares of Common Stock at an
exercise price of $.50 per share, vesting one year from the date of issuance
were issued, to each of Mr. Cooper, Ms. Dyson, Mr. Gluck, Mr. Prince, Mr.
Saldutti, Mr. Knoll and Mr. Zarmi.
In addition to annual salary, in connection with his employment, Mr.
Zarmi received in 1998 (i) options under our 1996 Stock Option Plan to purchase
230,000 shares of Common Stock at $2.50 per share, such option vesting in equal
annual installments over four years; and (ii) options under our 1997 Stock
Option Plan to purchase 190,000 shares of Common Stock at $4.50 per share, such
option vesting in equal installments over four years. Mr. Zarmi was not employed
by us from February 1999 to December 10, 1999. As a result, Mr. Zarmi forfeited
all such stock options issued under the Plans. In December 1999, Messrs. Zarmi
and Knoll each received warrants to purchase 550,000 and 549,800 shares of
Common Stock, respectively, at an exercise price of $.50 per share. In March
2000, Mr. Knoll received 200 shares of Series B Preferred Stock Convertible into
200 Shares of Common Stock.
From October 1997 through December 1999, Mr. Knoll provided certain
executive and related consulting services to us as requested by us, including,
serving as Chairman of the Board. From October 1, 1997 through December 31,
1998, Mr. Knoll accrued compensation for consulting on various aspects of our
business and negotiating certain contractual and employment arrangements. The
compensation was based on a rate of $150,000 per annum, plus reimbursement of
expenses. In December 1999, Mr. Knoll converted such accrued compensation of
$176,450 owed to him for options to purchase 352,900 shares of Common Stock, at
a purchase price of $.50 per share. Mr. Knoll received no cash compensation for
services rendered during 1999, except for certain reimbursements for expenses.
9
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 13, 2000, certain
information known to us with respect to the beneficial ownership of our voting
securities by (i) each person who is known by us to own of record or
beneficially more than 5% of the outstanding Common Stock, (ii) each of our
directors and Named Executive Officers, and (iii) all our directors and
executive officers as a group. Except as otherwise indicated, the stockholders
listed in the table have sole voting and investment powers with respect to the
shares indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percentage of Class (1)
Beneficial Owner Beneficial Ownership
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thinking Technologies, L.P. (2) 4,544,534 (3) 44%
- -----------------------------------------------------------------------------------------------------------
Mr. Fred Knoll (4) 5,547,234 (5)(11) 49%
- -----------------------------------------------------------------------------------------------------------
Mr. Marc Cooper (6) 210,000 (7)(11)(12) 2.1%
- -----------------------------------------------------------------------------------------------------------
Ms. Esther Dyson (8) 135,000 (7)(9)(11) 1.4%
- -----------------------------------------------------------------------------------------------------------
Mr. Frederick Gluck (10) 135,000 (7)(9)(11) 1.4%
- -----------------------------------------------------------------------------------------------------------
Dr. Ted Prince (13) 135,000 (7)(9)(11) 1.4%
- -----------------------------------------------------------------------------------------------------------
Mr. Fran Saldutti (14) 135,000 (7)(9)(11) 1.4%
- -----------------------------------------------------------------------------------------------------------
Mr. Moshe Zarmi (15) 650,000 (11)(16) 6.3%
- -----------------------------------------------------------------------------------------------------------
Bruce Galloway (17) 672,500 (18) 6.9%
- -----------------------------------------------------------------------------------------------------------
Digital Creative Development
Corp. (19) 700,000 (20) 7.2%
- -----------------------------------------------------------------------------------------------------------
All directors and Executive
officers as a group (7 persons) 6,947,234 54.7%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* The foregoing table does not reflect the (a) 1,148,798.5 shares of Series A
Preferred Stock, $.001 par value per share beneficially owned by Tritium
Network, Inc. and the (b) 200 shares of Series B Preferred Stock, $.001 par
value per share beneficially owned by Fred Knoll. The shares of the Series A
Preferred Stock are convertible into an aggregate of 11,487,985 shares of
Common Stock at such time as we have a sufficient number of shares of Common
Stock authorized to convert such shares of Series A Preferred Stock, and the
Series B Preferred Stock is convertible into 200 shares of Common Stock, at
any time at the option of the holder.
(1) Percentage of ownership is based on 9,684,237 shares of Common Stock
outstanding. For each beneficial owner, shares of Common Stock subject to
convertible securities exercisable within 60 days of the date of this Form
10-KSB/A are deemed outstanding for computing the percentage of such
beneficial ownership.
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(2) The address of Thinking Technologies, L.P. is 200 Park Avenue, Suite
3900, New York, New York 10166.
(3) Includes (i) 468,242 shares of Common Stock issuable upon the exercise
of warrants issued in July 1996 to Thinking Technologies, L.P.
("Technologies"), at an exercise price of $1.07 per share, which
warrants expire in December 2006; and (ii)156,250 shares of Common
Stock issuable upon the exercise of warrants issued in August 1996 to
Technologies, at an exercise price of $3.90 per share, which warrants
expire in August 2001.
(4) The address of Mr. Knoll is c/o Knoll Capital Management, 200 Park
Avenue, Suite 3900, New York, New York 10166.
(5) Includes (i) the 4,544,534 shares of Common Stock beneficially owned by
Technologies, of which Knoll Capital Management is the General Partner.
Knoll Capital Management is an affiliate of Mr. Knoll; (ii) warrants to
purchase 549,800 shares of Common Stock at $.50 per share; (iii)
options to purchase 352,900 shares of Common Stock at $.50 per share;
and (iv) options to purchase 100,000 shares of Common Stock at $.50 per
share.
(6) The address of Mr. Cooper is c/o Peter J. Solomon Company, 767 Fifth
Avenue, New York, New York 10153.
(7) Includes options to purchase 110,000 shares of Common Stock at $.50 per
share issued to each non-affiliated director.
(8) The address of Ms. Dyson is c/o EDventure Holdings, Inc., 104 Fifth
Avenue,10th Floor, New York, New York 10011-6987.
(9) Includes options to purchase 14,741 shares of Common Stock exercisable
at $.79 per share and options to purchase 10,259 shares of Common Stock
exercisable at $1.00 per share.
(10) The address of Mr. Gluck is c/o McKinsey & Co., 400 South Hope Street,
Los Angeles, California 90071.
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(11) Excludes options to purchase 100,000 shares of Common Stock at $.50 per
share, which options vest on December 10, 2000. .
(12) Includes options to purchase 100,000 shares of Common Stock at $.50 per
share, which options vest on May 15, 2000.
(13) The address of Dr. Prince is 10 West 74th Street, #2F, New York, New
York 10023.
(14) The address of Mr. Saldutti is /co Ardent Research Partners, 153 East
53rd Street, Suite 4800, New York, New York 10022.
(15) The address of Mr. Zarmi is 215 Frankel Boulevard, Merrick, New York
11566.
(16) Includes (i) warrants to purchase 550,000 shares of Common Stock at
$.50 per share and (ii) options to purchase 100,000 shares of Common
Stock at $.50 per share.
(17) The address of Mr. Galloway is c/o Burnham Securities, 1325 Sixth
Avenue, New York, New York 10019.
(18) Includes (i) 5,000 shares of Common Stock held by the Sara Galloway
IRA; (ii) 257,500 shares of Common Stock held by the Bruce Galloway
IRA; (iii) an aggregate of 10,000 shares of Common Stock held by minor
children of Bruce Galloway; and (iv) 200,000 shares owned by Jacombs
Investments, Inc. ("Jacombs"). Mr. Galloway is the principal
shareholder and President of Jacombs.
(19) The address of Digital Creative Development Corp. is c/o Ralph
Sorrentino, 67 Irving Place North, 4th Floor, New York, New York 10003.
(20) Includes the 100,000 shares of Common Stock held by Ralph Sorrentino.
Mr. Sorrentino is the President and Chief Executive Officer of Digital
Creative Corp.
To our knowledge, (i) Gem Management Limited is the beneficial owner of
777,518 shares of Common Stock, which constitutes 8% of the outstanding shares
of our Common Stock; and (ii) Global e-Markets is the beneficial owner of
2,450,000 shares of Common Stock underlying five year warrants exercisable at
$.50 per share, issued to Global e-Markets in December 1999, which constitutes
20.2% of the outstanding shares of our Common Stock.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1998, we granted Thinking Technologies, L.P.
("Technologies") the right to purchase units (each, a "Bridge Unit") for $1,000
per Bridge Unit (the "1998 Bridge Financing"). Each Bridge Unit consisted of a
Secured Convertible Note in the principal amount of $1,000 and earning interest
at a rate of 10% per annum (each, a "Bridge Note") and a warrant to purchase 200
shares of the Common Stock at an exercise price of $0.20 per share with no
vesting period (each, a "Bridge Warrant"). Each Bridge Note was convertible into
5,000 shares of the Common Stock, and upon conversion of each Bridge Note, a
Bridge Warrant was to be terminated without any further consideration.
Technologies purchased approximately 393 Bridge Units for an aggregate purchase
price of $392,992.14 (including accrued interest and certain expenses incurred
by Technologies in an amount equal to $93,000). As of December 31, 1999,
Technologies had converted all of the 393 Bridge Notes into 1,964,961 shares of
our Common Stock. There are no Bridge Units currently outstanding. The general
partner of Technologies is Knoll Capital Management, an affiliate of Mr. Knoll,
who is our Chairman. Mr. Mort Meyerson, an advisor to us, is a limited partner
in Technologies.
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<PAGE>
In July 1999, we sold 150 units (the "Gem Units") to Gem Management
Limited ("Gem") for an aggregate purchase price of $150,000 (the "Gem
Financing"). Each Gem Unit consisted of an Unsecured Convertible Note in the
principal amount of $1,000 and earning interest at a rate of 10% per annum
(each, a "Gem Note") and a warrant to purchase 30 shares of our Common Stock at
an exercise price of $0.20 per share with no vesting period (each, a "Gem
Warrant"). Each Gem Note was convertible into 5,000 shares of Common Stock,
and upon conversion of each Gem Note a Gem Warrant was to be terminated without
any further consideration. As of December 31, 1999, Gem had converted
approximately 155.5 Gem Notes (including accrued interest in an amount equal to
$5,500) into 777,518 shares of Common Stock. There are no Gem Units currently
outstanding. Proceeds of the Gem Financing were used for working capital and
general corporate purposes.
Effective as of December 10, 1999, Mr. Knoll converted accrued salary
of $176,450 owed to him by us for options to purchase 352,900 shares of Common
Stock, at a purchase price of $.50 per share. Also, effective as of December 10,
1999, we issued (a) warrants to Mr. Knoll to purchase 549,800 shares of Common
Stock at an exercise price of $.50 per share; and (b) warrants to Mr. Zarmi to
purchase 550,000 shares of Common Stock at an exercise price of $.50 per share.
On December 10, 2000, we issued warrants to Global e-Markets to purchase an
aggregate of 2,450,000 shares of Common Stock at a purchase price of $.50 per
share. In December 1999, certain investors, including Bruce Galloway and Digital
Creative Development Corporation, subscribed to purchase an aggregate of
1,600,000 shares of Common Stock at a purchase price of $.50 per share. The
purchase was consummated in March 2000.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Exhibit Description
No.
(2)(a) Voting Agreement dated as of March 7, 2000 by and among Thinking Tools,
Inc., Thinking Technologies, L.P., Fred Knoll, Tritium Network, Inc.
and the stockholders of Tritium whose names appear on the signature
pages of the agreement (7)
(2)(b) Asset Purchase Agreement and Plan of Reorganization dated as of March
7, 2000 by and among Thinking Tools, Inc., StartFree.com, Inc., Tritium
Network, Inc. and Michael W. Lee (7)
3.1 Certificate of Incorporation of Thinking Tools, Inc. (1)
3.2 By-Laws of Thinking Tools, Inc. (1)
13
<PAGE>
4.1 Form of Underwriter's Option Agreement(1)
4.2 1996 Stock Option Plan (1)
4.3 Form of Stock Certificate (2)
4.4 Form of Private Placement Investors' Warrant (1)
4.5 Technologies Warrant (2)
4.6 Form of Private Placement Note (1)
4.7 Form of Lock-Up Agreement (2)
4(a) Certificate of the Designations, Powers, Preferences and Rights of the
Series A Convertible Preferred Stock of Thinking Tools, Inc. (7)
4(b) Certificate of the Designations, Powers, Preferences and Rights of the
Series B Convertible Preferred Stock of Thinking Tools, Inc. (7)
4.8 1997 Stock Option Plan (3)
4.9 AdSmart Warrant
10.1 Form of Consulting Agreement (1)
10.2 Technologies Agreement between the Company and Technologies dated
September 26, 1994 (2)
10.3 Consent, Waiver and Amendment between the Company and Technologies
dated August 31, 1996 (2)
10.4 Lease between the Company and KI Monterey Research, Inc. dated August
19, 1994, as amended (2)
10.5 Representation Agreement between AdSmart Corporation and Tritium
Network, Inc. dated June 11, 1999
10.6 Consent to Assignment and Amendment of Representation Agreement between
AdSmart Corporation and Tritium Network, Inc. dated February 25, 2000
16.1 Letter on change in certifying accountant (4)
16.2 Letter on change in certifying accountant (5)
16.3 Letter on change in certifying accountant (6)
27.1 Financial Data Schedule
14
<PAGE>
- --------------------------
(1) Incorporated herein by reference to the our Registration Statement on Form
SB-2 (Registration No. 33-11321), as filed with the Securities and Exchange
Commission (the "Commission") on September 3, 1996 (the "Registration
Statement").
(2) Incorporated herein by reference to Amendment No. 1 to the Registration
Statement, as filed with the Commission on October 11, 1996.
(3) Incorporated herein by reference to Exhibit A of our Proxy Statement, dated
November 13, 1997.
(4) Incorporated herein by reference to our Current Report on Form 8-K, as
filed with the Commission on March 7, 1997, and Amendment No. 1 thereto on
Form 8-K/4, as filed with the Commission on March 14, 1997.
(5) Incorporated herein by reference to our Current Report on Form 8-K, as
filed with the Commission on July 23, 1999, and Amendment No. 1 thereto on
Form 8-K/A, as filed with the Commission on July 30, 1999.
(6) Incorporated herein by reference to our Current Report on Form 8-K, as
filed with the Commission on August 17, 1999.
(7) Incorporated herein by reference to our Current Report on Form 8-K, as
filed with the Commission on March 21, 2000.
(b) Reports on Form 8-K
We filed with the Commission a Current Report on Form 8-K on March 21,
2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on our behalf
by the undersigned, thereunto duly authorized.
Dated: May 1, 2000 THINKING TOOLS, INC.
By: /s/ Moshe Zarmi
---------------
Name: Moshe Zarmi
Title: President and Chief Executive
Officer, Director
15
<PAGE>
THINKING TOOLS, INC.
YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
THINKING TOOLS, INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Page
Number
INDEPENDENT AUDITORS' REPORT............................................F-2-3
FINANCIAL STATEMENTS
Balance Sheets...................................................F-4
Statements of Operations.........................................F-5
Statements of Shareholders' Deficiency...........................F-6
Statements of Cash Flows.........................................F-7
Notes to Financial Statements.................................F-8-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Thinking Tools, Inc.:
We have audited the accompanying balance sheets of Thinking Tools, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thinking Tools, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DRUKER, RAHL & FEIN
Hamilton, New Jersey
March 15, 2000
F-1
<PAGE>
THINKING TOOLS, INC.
BALANCE SHEETS
December 31, 1999 and 1998
(In thousands, except share and per share amounts)
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 112 $ 2
Accounts receivable -- 53
------------ ------------
Total current assets 112 55
PROPERTY AND EQUIPMENT, Net 10 56
OTHER ASSETS
Deposits and other assets 64 12
------------ ------------
TOTAL ASSETS $ 186 $ 123
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 232 $ 282
Accrued expenses 203 638
Notes payable -- 85
Deferred revenues -- 22
Current portion of capital lease obligations -- 3
------------ ------------
Total current liabilities 435 1,030
LONG TERM DEPOSITS 5 10
------------ ------------
Total liabilities 440 1,040
------------ ------------
COMMITMENTS AND CONTINGENCIES
INVESTOR ADVANCE 100 --
------------ ------------
SHAREHOLDERS' DEFICIENCY
Preferred stock, $.001 par value;
3,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock, $.001 par value;
20,000,000 shares authorized;
shares issued and outstanding;
7,384,237 at 1999 and 4,641,758
at 1998 ` 7 5
Additional paid-in capital 16,010 11,288
Deferred Stock Compensation (875) --
Accumulated deficit (15,496) (12,210)
------------ ------------
Total shareholders' deficiency (354) (917)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $ 186 $ 123
============ ============
See notes to financial statements.
F-2
<PAGE>
THINKING TOOLS, INC.
BALANCE SHEETS
December 31, 1999 and 1998
(In thousands, except per share amounts)
1999 1998
------------ ------------
REVENUES
Product $ 92 $ 358
------------ ------------
OPERATING EXPENSES
Selling, general and administrative 2,981 2,215
Research and development 121 1,427
------------ ------------
Total operating expenses 3,102 3,642
------------ ------------
LOSS FROM OPERATIONS (3,010) (3,284)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (276) --
Interest income -- 48
Other expense -- (248)
------------ ------------
Total other expense (276) (200)
------------ ------------
NET LOSS $ (3,286) $ (3,484)
============ ============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.67) $ (0.75)
============ ============
SHARES USED IN CALCULATION OF NET
LOSS PER SHARE $ 4,870 $ 4,642
============ ============
See notes to financial statements.
F-3
<PAGE>
THINKING TOOLS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Total
Common Stock Additional Deferred Shareholders'
--------------------------- Paid-in Stock Accumulated Equity
Shares Amount Capital Compensation Deficit (Deficiency)
---------- ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
January 1, 1998 4,641,758 $ 5 $ 11,288 $ (198) $ (8,726) $ 2,369
Amortization of
deferred stock
compensation -- -- -- 198 -- 198
Net loss -- -- -- -- (3,484) (3,484)
---------- ---------- ---------- ------------ ----------- -------------
BALANCES,
December 31, 1998 4,641,758 5 11,288 -- (12,210) (917)
Interest attributable
to beneficial
conversion feature -- -- 247 -- -- 247
Conversion of notes
payable into
common stock 2,742,479 2 546 -- -- 548
Stock compensation
relating to
warrants -- -- 1,375 -- -- 1,375
option grants -- -- 2,554 (875) -- 1,679
Net Loss -- -- -- -- (3,286) (3,286)
---------- ---------- ---------- ------------ ----------- -------------
BALANCES,
December 31, 1999 7,384,237 $ 7 $ 16,010 $ (875) $ (15,496) $ (354)
========== ========== ========== ============ =========== =============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THINKING TOOLS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands)
1999 1998
------------ ------------
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES
Net Loss $ (3,286) $ (3,484)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 1 80
Impairment of assets -- 113
Loss on sale of property and equipment -- 26
Stock Compensation Expense 2,877 198
Interest expense and interest attributable
to beneficial conversion feature on bridge
notes payable converted to stock 277 --
Cancelation of accrued employee bonuses (261) --
Changes in assets and liabilities:
Accounts Receivable 53 (45)
Prepaid expenses and other assets (64) 150
Accounts payable (50) 82
Accrued Expenses 41 273
Deferred Revenues (22) 22
------------ ------------
Net cash provided (used) by operating activities (434) (2,585)
------------ ------------
CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES
Proceeds from sale of equipment 13 --
Purchases of property and equipment -- (7)
------------ ------------
Net cash provided (used) by investing activities 13 (7)
------------ ------------
CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES
Advance from investor 100 --
Principal payments on notes payable -- (88)
Proceeds from issuance of convertible bridge notes 434 85
Principal payments on capital lease obligations (3) (10)
Proceeds from long term deposits -- 10
------------ ------------
Net cash provided (used) by financing
activities 531 (3)
------------ ------------
Net Increase (Decrease) in cash 110 (2,595)
------------ ------------
CASH AND EQUIVALENTS, beginning of year 2 2,597
------------ ------------
CASH AND EQUIVALENTS, end of year $ 112 $ 2
============ ============
SUPPLEMENTAL, SCHEDULE OF NONCASH OPERATING,
INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible bridge notes to stock
Proceeds of issuance $ 519 $ --
Accumulated interest 29 --
Interest attributable to beneficial
conversion feature 247 --
Grant of stock option to satisfy liability
for consulting compensation 177 --
Equipment given in satisfaction of liabilities 32 --
See notes to financial statements.
F-5
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
1. BUSINESS AND BASIS OF PRESENTATION
Business - Thinking Tools, Inc. (the "Company") was incorporated in Delaware on
August 8, 1996, as a wholly-owned subsidiary of Thinking Tools, Inc., a
California corporation (the "Predecessor Corporation"). On August 28, 1996, the
Predecessor Corporation was merged with and into the Company. References herein
to the "Company" include the Predecessor Corporation.
The Company was formed on December 30, 1993, to purchase certain assets of the
Business Simulation Division (the "Division") of Maxis, Inc., a leading computer
game company and creator of the simulation game SimCity(TM). Through the
purchase agreement with Maxis, Inc., the Company acquired the Division's
equipment, staff, work-in-progress, customers, prospective customers, software
tools, libraries and processes. The Company's products included SimRefinery, a
refinery simulation product, SimHealth, a health care reform simulation product
and TelSim, a local telephone exchange simulation product.
The Company commenced operations in December 1993 to develop and market business
simulation software. From its inception until March 1999, the Company was
engaged in research and development activities and organizational efforts,
including the development of its initial products, recruiting personnel, and
establishing marketing and manufacturing capabilities and raising capital. The
Company commenced commercial activities in January 1994, but to date has not
generated substantial revenues from the sale of its products.
In September 1997, the Company introduced Think 2000, the first simulation
product that the Company internally funded and brought to a broader market. The
Company made a significant investment in the development and commercialization
of Think 2000, but changes in market conditions for products relating to the
Year 2000 issue and the Company's failure to successfully commercialize Think
2000 had a material adverse effect on the Company.
From November 1998 through December, 1999, the Company received approximately
$369,000 of proceeds of a secured convertible note to Thinking Technologies,
L.P. and approximately $150,000 of proceeds from the issuance of an unsecured
convertible note to Gem Management Ltd. These amounts have been used for working
capital and pursuing strategic business combinations.
The Company acquired substantially all of the assets and assumed specific
liabilities of Tritium Network, Inc. ("Tritium") on March 7, 2000, through the
issuance of preferred stock. Concurrently, working capital financing needed for
the acquired operations has been provided by proceeds of the sale of the
Company's common stock to an investor of $1,150,000 on March 7, 2000. (See
Note 14.)
F-6
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
1. BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Basis of Presentation - The Company's financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. As shown in the accompanying
financial statements, the Company incurred a net loss of $3,286,000 for the year
ended December 31, 1999, and as of December 31, 1999, had an accumulated deficit
of $15,496,000. Further, current liabilities exceed current assets by $323,000.
Management has redirected the Company's strategy to reposition itself to serve
as a technology holding company. The Company acquired Tritium (See Note 14) and
intends to continue to locate and enter into transactions with existing, public
or privately-held companies that, in management's view, have growth potential
and may be involved in the software or technology industry. To that end, the
Company is currently engaged in negotiations with several candidates. The
Company's continued existence is dependent on its ability to negotiate
additional acquisitions, to raise additional financing and to develop successful
future operations. Management believes that the actions presently being taken to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Product Revenues - The Company generally recognizes revenue for software product
sales upon delivery of the software and at the time at which all criteria for
revenue recognition have been met in accordance with American Institute of
Certified Public Accountants Statement of Position 97-2 "Software Revenue
Recognition." For multiple-element arrangements involving either licensing of a
product or post-delivery customer support, a portion of the revenue based upon
the fair value of the respective element is deferred and recognized ratably over
the life of the license or technical support period.
F-7
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity date of three months or less to be cash
equivalents.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentration of credit risk are cash and equivalents and
accounts receivable. Risks associated with cash and equivalents are mitigated by
banking with credit-worthy institutions. The Company performs an ongoing
evaluation of its customers' creditworthiness and generally requires no
collateral.
Property and Equipment - Property and equipment are stated at the lower of cost
or fair value. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets of three to seven years. Leasehold
improvements are amortized over the shorter of the estimated useful lives or the
underlying lease term. The Company evaluates the recoverability of long-lived
assets on an on-going basis.
As of December 31, 1998, certain property and equipment were deemed to be
impaired and were written down to their fair value. An impairment loss of
approximately $113,000 has been charged to research and development expenses and
other expenses in 1998.
Research and Development - Research and development costs are charged to expense
as incurred, while software development costs incurred between the establishment
of technological feasibility and general production release are capitalized.
Since the Company's development process generally results in the establishment
of technological feasibility concurrent with general production release, no
software development costs were capitalized in 1999 or 1998.
Income Taxes - The Company records income taxes using the asset and liability
approach, whereby deferred tax assets, net of valuation allowances, and
liabilities are recorded for the future tax consequences of temporary
differences between financial statement and tax bases of assets and liabilities
and for the benefit of net operating loss carry forwards.
F-8
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Compensation - The Company accounts for stock-based awards granted to
directors and employees based on the intrinsic value method in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees."
Net Loss Per Share - The Company follows Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share." Due to the Company's net loss,
all convertible securities, options and warrants are antidilutive; hence both
basic and diluted loss per share are computed based on the weighted average
number of shares of common stock outstanding during the period.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 are as follows (in
thousands):
1999 1998
------------ ------------
Equipment $ 26 $ 71
Furniture and fixtures 3 3
------------ ------------
Total property and equipment 29 74
Accumulated depreciation and amortization (19) (18)
------------ ------------
Property and equipment, net $ 10 $ 56
============ ============
At December 31, 1998, property and equipment included assets leased under
capital leases of approximately $3,000, net of accumulated amortization of
$4,000. At December 31, 1999, there were no property and equipment under capital
leases.
F-9
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
4. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
------------ ------------
Lease abandonment costs $ 58 $ 75
Legal and professional fees 80 79
Payroll and related benefits -- 292
Advance of acquisition costs by Tritium 58 --
Consulting fee due to related party -- 177
Other 7 15
------------ ------------
$ 203 $ 638
============ ============
5. LEASES
The Company leased office space in San Jose and Monterey, California under two
noncancelable operating leases. The San Jose office lease expires in 2001 and
the Monterey office lease expired September 1999. The Company consolidated its
locations and sub-leased the San Jose office in March 1998, prior to expiration
of the lease. This resulted in a lease abandonment accrual of $75,000 at
December 31, 1998. Lease abandonment costs for remaining lease obligations of
$58,000 are included in accrued expenses at December 31, 1999.
Future minimum rental commitments for the San Jose facility at December 31,
1999, are as follows (in thousands):
Years Ending December 31,
2000 $ 71
2001 30
----------
$ 101
==========
F-10
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
5. LEASES (CONTINUED)
The minimum future rental commitments have not been reduced by approximately
$90,000 of sublease rentals to be received in the future under non-cancelable
subleases.
Total rent expense was approximately $38,000 and $184,000, including lease
abandonment accruals, for the years ended December 31, 1999 and 1998,
respectively.
6. INCOME TAXES
Due to the Company's history of net losses, the Company has fully reserved its
net deferred tax benefits and, consequently, its tax provision (benefit) is nil.
Calculations for deferred tax assets and liabilities at December 31, 1999 and
1998, are as follows (in thousands):
1999 1998
------------ ------------
Deferred tax assets
Net operating loss carry forwards $ 4,161 $ 3,868
Tax credits 261 261
Accruals and reserves not currently deductible 70 308
Stock compensation 1,144 -
------------ ------------
Total deferred tax assets 5,636 4,437
Less valuation allowance (5,636) (4,437)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
As of December 31, 1999, the Company has net operating loss carryforwards of
$10,403,000 and $10,532,000 for federal and state purposes, respectively. As of
December 31, 1999, the Company also has tax credit carryforwards of $261,000 and
$133,000 for federal and state purposes. The losses expire beginning in 2009 and
2002, respectively. Federal and State of California tax laws impose significant
restrictions on the utilization of net operating loss carryforwards in the event
of a change in ownership as defined by the Internal Revenue Service Code Section
382. In addition, in order to realize the benefits of the state net operating
loss and tax credit carryforwards, the Company will have to re-establish its
business presence in the State of California.
F-11
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
7. NOTES PAYABLE
In November 1998, the Company approved a bridge financing offer from Thinking
Technologies, L.P ("Technologies"), under which Technologies was granted the
right to purchase up to $350,000 of Senior Secured Convertible Notes due within
90 days at 10% interest per annum, and warrants to purchase shares of common
stock of the Company. Each $1,000 note was convertible into 5,000 shares of
Common Stock, with expiration of the warrants upon conversion. During 1999, the
Board approved an increase in the Bridge financing offer to Thinking
Technologies to include expenses incurred on behalf of the Company and
accumulated interest. Thinking Technologies advanced the Company cash and
accumulated interest of $392,992 through December 31, 1999. These advances were
converted to 1,964,961 shares of the Company's common stock at the exercise
price of $.20 per share from November 16, 1999 through December 31, 1999. All
warrants expired with the conversions.
In July 1999, the Company borrowed $150,000 from Gem Management by issuing an
additional unsecured convertible note, with interest of 10% per annum and with
warrants to purchase common stock. The note was convertible into shares of
Common Stock at $.20 per share. The note and $5,554 of accumulated interest were
converted into 777,518 shares of the Company's common stock at the exercise
price of $.20 per share on November 16, 1999. All warrants expired with the
conversion.
For the year ended December 31, 1999, the Company recorded noncash interest
expense of approximately $247,000 in connection with the beneficial conversion
feature of the warrants issued in the bridge financing and approximately $29,000
in connection with accumulated interest on the notes. Interest expense was
approximately $200 for the year ended December 31, 1998.
8. INVESTOR ADVANCE
In December 1999, in connection with the Tritium acquisition, an investor
advanced $100,000 to the Company (See Note 14).
9. SHAREHOLDERS' DEFICIENCY
Stock Issuance
As discussed in Note 7, the Company has issued 1,964,961 and 777,518 shares of
common stock at an exercise price of $.20 per share under a bridge financing
offer to Thinking Technologies, L.P. and a convertible note to Gem Management,
Ltd., respectively.
F-12
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
9. SHAREHOLDERS' DEFICIENCY (CONTINUED)
Warrants
The Company consumated a series of financing transactions in 1996. Warrants were
issued to Thinking Technologies, L.P. to purchase 468,242 shares of common stock
at an exercise price of $1.07 per share, expiring December 2006. Warrants to
purchase 456,250 shares of the Company's common stock at $3.90 per share
(156,250 to Thinking Technologies, L. P. and 300,000 to its Underwriter),
expiring August 2001, were also issued. In addition, in October and November
1996, the Company completed its initial public offering and issued 1,610,000
shares of common stock at $6.50 per share for net proceeds of approximately
$8,470,000. In connection with its initial public offering, the Company sold
options to purchase 140,000 common shares to its underwriter for $.001 per
option. These options are exercisable for a period of five years at an exercise
price equal to 160% of the initial public offering price ($10.40 per share). The
underwriter's 300,000 warrants and 140,000 options are subject to anti-dilution
adjustments.
On December 10, 1999, in connection with the acquisition of Tritium, the Company
issued 2,450,000 stock warrants at an exercise price of $.50 per share to an
acquisition consultant as compensation for services provided. These warrants
vested on March 7, 2000, and expire in December 2004. At December 31, 1999, the
Company determined the fair value of these warrants at $.50 per share. The fair
value is based on the November 1999 commitment by accredited investors to
purchase a comparable block of 2,000,000 shares of common stock at $.50 per
share and then again in March 2000 for an additional 300,000 shares at $.50 per
share. Therefore, at the interim valuation date, December 31, 1999, no value has
been assigned to these warrants. The warrants are subject to anti-dilution
adjustments. (See Note 14.)
On December 10, 1999, the Company's Chairman of the Board and its Chief
Executive Officer were granted warrants to purchase 549,800 and 550,000 shares
of common stock, respectively, at an exercise price of $.50 per share. The
warrants were issued as compensation for services rendered in facilitating the
Tritium acquisition. The warrants were vested on December 10, 1999, and are
exercisable until December 2004. The warrants are subject to adjustment as
provided therein. For the year ended December 31, 1999, the Company recorded
noncash compensation expense under APB 25 of $1,375,000 in connection with the
issuance and vesting of these warrants.
F-13
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
9. SHAREHOLDERS' DEFICIENCY (CONTINUED)
Stock Options
Plans
Under the Company's 1996 and 1997 Stock Option Plans (the "Plans"), options to
purchase up to an aggregate of 976,000 shares of common stock may be granted to
officers, directors, employees or consultants. The Plans provide for issuing
both incentive stock options and nonqualified stock options, which must be
granted at fair market value at the date of grant, as determined by the Plan
administrator. Options granted under the Plans become exercisable as determined
by the Board of Directors and must be exercised within ten years. Options
granted are forfeited 90 days after an employee's separation from the Company.
Due to the shutdown of operations in March 1999, all of the stock options
granted to employees under the Plans that were outstanding at December 31, 1998,
have been forfeited; however, the 41,036 stock options granted under the Plans
to four Board members at an exercise price of $1.00 per share remain outstanding
at December 31, 1999.
Other
In 1995, options were issued outside of the Plans to directors
and an unaffiliated person to purchase 58,964 shares and 15,000 shares at an
exercise price of $.79 and $1.00 per share, respectively.
On December 10, 1999, the Board of Directors granted options outside of the
Plans to Board members and employees for purchase of 1,690,000 shares of common
stock at an exercise price of $.50 per share. With the exception of 100,000
options vesting in May 2000 and 700,000 options vesting in December 2000, these
options vested upon issuance.
The Board of Directors also granted options outside of the Plans to the
Company's Chairman of the Board to purchase 352,900 shares of common stock at an
exercise price of $.50 per share in lieu of cash compensation owed for services
of approximately $176,000 as of December 31, 1998. These options were issued and
vested as of December 10, 1999.
For the year ended December 31, 1999, the Company recorded noncash compensation
expense under APB 25 of $1,679,000 in connection with the issuance and vesting
of options and noncash deferred stock compensation of $875,000 in connection
with the issuance of options that vest in December 2000.
F-14
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
9. SHAREHOLDERS' DEFICIENCY (CONTINUED)
A summary of the status of the Company's stock options as of December 31, 1999
and 1998, and the changes during the years ended December 31, 1999 and 1998, is
presented below:
Range of
Number of Exercise
Shares Prices
--------- --------------
Outstanding at January 1, 1998 534,000 $ .794 - 5.000
Granted 535,500 $2.500 - 5.000
Exercised -- $ --
Forfeited (461,000) $ 0.794
---------
Outstanding at December 31, 1998 608,500 $ .794 - 5.000
Granted 2,042,900 $ 0.500
Exercised -- $
Forfeited (493,500) $ .794 - 5.000
---------
Outstanding at December 31, 1999 2,157,900 $ .50 - 1.000
=========
Weighted-average fair value of options
granted and remaining exercisable
through year ended December 31, 1999 $ 1.52
=========
Weighted-average fair value of options
granted and remaining exercisable
through year ended December 31, 1998 $ 1.43
=========
F-15
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
9. SHAREHOLDERS' DEFICIENCY (CONTINUED)
The following table summarizes information about fixed stock options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------------------ ----------------------------
Number Weighted-
Outstanding average Weighted- Number Weighted-
Range of at Remaining average Outstanding at average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1999 Life Price 1999 Price
- ---------- ------------ ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1.00 56,036 6.6 years 1.00 56,036 1.00
0.79 58,964 5.6 years 0.79 58,964 0.79
0.50 2,042,900 9.9 years 0.50 1,342,900 0.50
------------ --------------
2,157,900 1,457,900
============ ==============
</TABLE>
As discussed in Note 2, the Company accounts for its stock-based awards to
directors and employees using the intrinsic value method in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method for stock based
awards to directors and employees as of the beginning of fiscal 1995. Under SFAS
123, the fair value of the stock-based awards is calculated through the use of
the minimum value method for all periods prior to the initial public offering,
and subsequently through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock option price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the minimum and Black-Scholes option pricing models with the
following weighted average assumptions: expected life of 30 to 40 months; stock
volatility, 61% subsequent to the initial public offering in 1996; risk-free
interest rates, approximately 6%; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1999 and 1998 awards had been amortized to expense over the vesting period of
the awards, pro forma net loss would have been $3,827,000 ($.79 per share) in
1999 and $3,705,000 ($.80 per share) in 1998.
F-16
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
10. MAJOR CUSTOMERS
Revenues were negligible during 1999 with 82% of sales occurring during the
first quarter of 1999. One customer accounted for 31% of revenue.
Three customers accounted for 15%, 13% and 10% each of software revenues for the
year ended December 31, 1998. One of these customers accounted for 50% and one
other customer accounted for 47% of the accounts receivable at December 31,
1998.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the financial statements as of December 31,
1999 and 1998 for cash and equivalents and notes payable approximate their
respective fair values due to the short maturities of those instruments.
12. ADVERTISING COSTS
Advertising costs, except for costs associated with direct-response advertising,
are charged to operations when incurred. The costs of direct-response
advertising are capitalized and amortized over the period during which future
benefits are expected to be received. Advertising expense was $428,000 for the
year ended December 31, 1998. There was no advertising expense for the year
ended December 31, 1999.
13. RELATED PARTY TRANSACTIONS
The Company's Chairman of the Board controls Thinking Technologies, L.P., which
owned approximately 53% and 42% of the Company's outstanding common stock as of
December 31, 1999 and 1998, respectively, and as of December 31, 1999, owns
warrants to purchase 624,492 additional shares of common stock. As of December
31, 1999, Mr. Knoll, as an individual, owns options for 352,900 shares and
warrants for 549,800 shares of common stock as compensation for his services.
(See Note 9).
14. SUBSEQUENT EVENTS
Subsequent Events
On March 6, 2000, the Company formed a wholly owned subsidiary, StartFree.com,
Inc., a Delaware corporation. On March 7, 2000, StartFree.com, Inc. acquired
substantially all of the assets and assumed specified liabilities of Tritium.
The specified liabilities included the $500,000 bridge note
F-17
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
14. SUBSEQUENT EVENTS (CONTINUED)
to Tritium (see below). The consideration for the acquisition was paid through
the issuance of 1,148,798.5 shares of a new Series A convertible preferred
stock. The preferred stock is convertible into 11,487,985 shares of Thinking
Tools common stock when the Company files with the Secretary of State of the
State of Delaware to increase the authorized number of shares to at least
35,000,000 shares.
Tritium was an internet service provider based in Cincinnati, Ohio at the time
of the acquisition transaction. Tritium provided free internet service for
subscribers in exchange for the display of advertisements on the lower portion
of the subscriber's screen. AdSmart Corporation agreed to provide internet-based
advertising and to pay royalties to Tritium based upon the number of individual
advertisements viewed. In addition, one supplier provides connectivity for its
internet network services. These agreements have been assumed by StartFree.com,
Inc. and continue in effect.
Presently, the Company anticipates that the acquisition of the assets and
specified liabilities of Tritium will be accounted for under the purchase method
of accounting for business combinations. In connection with the accounting for
this transaction, a substantial amount of goodwill is expected to be recorded.
The Company anticipates that the amortization of such goodwill will
substantially impact upon the results of operations in future years.
In connection with the acquisition, in November 1999, the Company entered into a
financing arrangement for $1,000,000 with certain investors, which included the
bridge note to Tritium, for 2,000,000 shares of the Company's common stock at
$.50 per share. Upon approval by the Company's Board of Directors of the
acquisition on December 10, 1999, the investor advanced $100,000 to the Company
and $500,000 under a bridge note to Tritium. Concurrently, the investor advanced
$500,000 under a bridge note to Tritium. On the closing date of the acquisition
the outstanding bridge note was repaid through applying the amount owed to the
purchase of the shares, investors provided the remaining $400,000 under the
agreement and 2,000,000 shares of the Company's stock were issued. Investors
also purchased 300,000 additional shares of common stock at $.50 per share;
yielding an additional $150,000 of financing to the Company.
In connection with the Tritium acquisition, the Company issued warrants to an
acquisition consultant to purchase 2,450,000 shares of the Company's common
stock exercisable at $.50 per share. These warrants were issued on December 10,
1999, and vested on March 7, 2000, when all contractual obligations had been
met. The warrants are subject to anti-dilution adjustments. (See Note 9.)
F-18
<PAGE>
THINKING TOOLS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
14. SUBSEQUENT EVENTS (CONTINUED)
In addition, in connection with the Tritium acquisition, the Company contributed
a warrant to purchase 1,262,275 shares of its common stock to the capital of
StartFree.com, Inc. in order for StartFree.com, Inc. to deliver the warrant to
AdSmart Corporation ("AdSmart") in connection with its advertising agreement
with AdSmart. As of March 7, 2000, AdSmart can exercise warrants for 500,400
shares of common stock. The remainder will vest upon the occurrence of certain
events. The warrants are exercisable at $.01 per share. The warrants are subject
to anti-dilution adjustments.
In connection with the Tritium acquisition, the Company will effect an increase
in the authorized common and preferred stock to 75,000,000 and 5,000,000 shares,
respectively. In addition, 200 shares of Series B Convertible Preferred Stock,
$.001 par value per share were issued to the Company's Chairman of the Board.
The Series B Preferred Stock has certain voting control rights until March 7,
2005.
F-19
<PAGE>
Exhibit 4.9
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THINKING TOOLS, INC. OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THINKING TOOLS, INC. TO THE EFFECT THAT REGISTRATION
UNDER THE SECURITIES ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS
WARRANT OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT.
WARRANT TO PURCHASE COMMON STOCK
OF
THINKING TOOLS, INC.
This is to Certify That, FOR VALUE RECEIVED, AdSmart Corporation, or
assigns ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from StartFree.com, Inc., a Delaware corporation ("Company"), 1,262,275
fully paid, validly issued and nonassessable shares of Common Stock, par value
$.001 per share ("Common Stock"), of Thinking Tools, Inc. ("Thinking Tools") at
a price of $.01 per share (the "Exercise Price"). The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price".
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised until May __, 2005 as follows:
(i) 500,400 shares of Common Stock are exercisable as of the date of this
Warrant, (ii) an additional 584,399 shares of Common Stock are exercisable on
the earlier of (y) 61 days after the date that the shares of Series A Preferred
Stock of Thinking Tools owned by Tritium Network, Inc. are converted into Common
Stock or (z) two years after the date of this Warrant; and (iii) an additional
177,476 shares of Common Stock are exercisable from time to time upon the
written request of the Holder if, as a result of such exercise, the Holder
beneficially own in excess of five percent (5%) or more of the outstanding
Common Stock; provided, however, that if the date of the exercise of this
Warrant falls on a day on which banking institutions in the State of New York
are authorized by law to close, then the date of such exercise shall be on the
next succeeding day which shall not be such a day. This Warrant may be exercised
by presentation and surrender hereof to the Company at its principal office,
with the Purchase Form annexed hereto duly executed and accompanied by payment
of the Exercise Price for the number of Warrant Shares
<PAGE>
specified in such form. As soon as practicable after each such exercise of the
Warrant, but not later than seven (7) days from the date of such exercise, the
Company shall cause to be delivered to the Holder a certificate or certificate
for the Warrant Shares issuable upon such exercise, registered in the name of
the Holder or its designee. If this Warrant should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation, cause to be
executed and delivered a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the Warrant Shares purchasable thereunder. Upon
receipt by the Company of this Warrant at its office in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Thinking Tools shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(2) Subject to Section (a)(1) of this Warrant, at any time during
the period that this Warrant is exercisable in accordance with Section (a)(1)
of this Warrant, the Holder may, at its option, exchange this Warrant, in whole
or in part (a "Warrant Exchange"), into the number of Warrant Shares determined
in accordance with this Section (a)(2), by surrendering this Warrant at the
principal office of the Company accompanied by a notice stating such Holder's
intent to effect such exchange, the number of Warrant Shares to be exchanged
and the date on which the Holder requests that such Warrant Exchange occur
(the "Notice of Exchange"). The Warrant Exchange shall take place on the date
specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. Thinking Tools shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, Thinking
Tools shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market, the current market value
shall be the last reported
2
<PAGE>
sale price of the Common Stock on such exchange or market on the last
business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices
for such day on such exchange or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq Small Cap Market, the
current Market Value shall be the average of the closing bid and asked
prices for such day on such market and if the Common Stock is not so
traded, the current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this
Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of Thinking Tools
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of Thinking Tools.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. This Warrant is not
transferable (other than by will or pursuant to the laws of descent and
distribution). Upon surrender of this Warrant to the Company at its principal
office with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, cause to
be executed and delivered a new Warrant in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be cancelled. This
Warrant may be divided or combined with other warrants which carry the same
rights upon presentation hereof at the principal office of the Company together
with a written notice specifying the names and denominations in which new
Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as
used herein includes any Warrants into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will cause
to be executed and delivered a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in Thinking Tools, either at law or
equity, and the rights of
3
<PAGE>
the Holder are limited to those expressed in the Warrant and are not enforceable
against the Thinking Tools except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case Thinking Tools shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that
it shall equal the price determined by multiplying the Exercise Price
by a fraction, the denominator of which shall be the number of shares
of Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsection (1) above, the number of
Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(3) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments
which by reason of this Subsection (3) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, Thinking Tools shall be entitled,
but shall not be required, to make such changes in the Exercise Price,
in addition to those required by this Section (f), as it shall
determine, in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by
Thinking Tools shall not result in any Federal Income tax liability to
the holders of Common Stock or securities convertible into Common Stock
(including Warrants).
4
<PAGE>
(4) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly but no later than 10 days after any request
for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer
agent, if any. Thinking Tools may retain a firm of independent
certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by Thinking Tools) to make any
computation required by this Section (f), and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
(5) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of Thinking
Tools, other than Common Stock, thereafter the number of such other
shares so receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (1) to (3), inclusive above.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of the Secretary or an Assistant Secretary
at Thinking Tools' principal office and with its stock transfer agent, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, cause a copy by certified
mail of such certificate to be mailed to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if Thinking Tools shall pay any dividend or make any
distribution upon the Common Stock or (ii) if Thinking Tools shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of Thinking
Tools, reclassification of the capital stock of Thinking Tools, consolidation or
merger of Thinking Tools with or into another corporation, sale, lease or
transfer of all or substantially all of the property and assets of Thinking
Tools to another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of Thinking Tools shall be effected, then in any such
case, the Company shall cause to be mailed by certified mail to the Holder, at
least fifteen days prior the date specified in (x) or (y) below, as the case may
be, a notice containing a brief description of the proposed action and stating
the date on which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation
5
<PAGE>
or winding up is to take place and the date, if any is to be fixed, as of which
the holders of Common Stock or other securities shall receive cash or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of Thinking Tools, or in case of any consolidation or merger of
Thinking Tools with or into another corporation (other than a merger with a
subsidiary in which merger Thinking Tools is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the class issuable upon exercise
of this Warrant) or in case of any sale, lease or conveyance to another
corporation of the property of Thinking Tools as an entirety, Thinking Tools
shall, as a condition precedent to such transaction, cause effective provisions
to be made so that the Holder shall have the right thereafter by exercising this
Warrant at any time prior to the expiration of the Warrant, to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of Thinking Tools other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
6
<PAGE>
THINKING TOOLS, INC.
By: ______________________________
Name:
Title:
Dated: ____________, 2000
Attest:
_______________________________
Secretary
STARTFREE.COM, INC.
By: ______________________________
Name:
Title:
Attest:
_______________________________
Secretary
Dated: ____________, 2000
Attest:
_______________________________
Secretary
7
<PAGE>
PURCHASE FORM
Dated ____________, 2000
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of _______ in payment of the actual exercise price thereof.
----------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________
(Please typewrite or print in block letters)
Address ______________________________
Signature _____________________________
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers
unto
Name _____________________________
(Please typewrite or print in block letters)
Address ____________________________
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ___________ as attorney, to transfer the same on the
books of Thinking Tools, Inc. with full power of substitution in the premises.
Date ____________, 2000
Signature ___________________
<PAGE>
Exhibit 10.5
ADSmart Corporation
Representation Agreement
------------------------
THIS REPRESENTATION AGREEMENT (the "Agreement") is made on this 11th
day of June, 1999 (the "Effective Date"), by and between ADSmart Corporation
("ADSmart") with its principal place of business located at 100 Brickstone
Square, 5th Floor, Andover, MA 01810 and Tritium Network ("TN") with its
principal place of business located at 10050 Montgomery Road, Suite 340,
Cincinnati, OH 45242.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ADSmart and TN agree to the
following:
1. ADSmart Responsibilities.
(a) Representation. ADSmart will provide advertising sales representation and
consultation services (collectively the "Representation Services") on behalf of
TN's web site(s) (the "Website") set forth in Attachment A ("Attachment A") and
made a part of this Agreement. In connection with such Representation Services,
ADSmart shall actively promote the Website and solicit advertising for the
Website.
(b) Exclusivity. ADSmart is appointed the exclusive outside sales representative
for TN's entire Allocated Inventory as defined in section 2(a) below for the
initial Term and all Renewal Terms of this Agreement, as defined below.
(c) Management Services. ADSmart will provide the following management services
("Management Services"):
(i) Collect advertising creative ("Creative") from advertisers or ad
agencies ("Advertisers") that will be displayed on the Website.
(ii) Provide pipeline reports (the "Pipeline Reports") every two (2) weeks,
which outline advertising schedule, including costs, number of impressions
and outstanding proposals to Advertisers.
(iii) Update TN on the progress and demand of the Internet advertising
marketplace.
(iv) Consult with TN on marketing and advertising opportunities.
(d) Ad Serving & Tracking:
(i) Banners. TN will utilize banner serving through ADSmart. There will be
no charge by ADSmart for this service. ADSmart shall have exclusive control
of the Allocated banner Inventory allocated to ADSmart by TN as defined in
2(a) below and ADSmart shall have reasonable discretion over the content and
nature of the banners that can be sold to cover banner serving and
bandwidth cost. ADSmart will not run any advertising campaign on the
Website, which TN reasonably determines to be offensive to TN or its
customers or inconsistent with TN's editorial policy.
(ii) Specific Requests. If TN requests specific paid or non-paid campaigns
to be placed as part of the Allocated Inventory to ADSmart, TN shall pay
ADSmart $.55 net per thousand impressions, for paid or non-paid open
inventory banner serving, auditing and reporting. ADSmart will deduct fees
<PAGE>
ADSmart Corporation
Representation Agreement
------------------------
for banner serving from checks being sent to TN for advertising revenue. If
TN requests banners to be served for its own internal purposes, using the
cost listed above, the amount of banner impressions will not exceed ten
percent (10%) of the monthly Allocated Inventory exclusively allocated to
ADSmart by TN as defined in 2(a) below.
(iii) Internal Inventory. For the remaining internal inventory ("Open
Inventory" as defined in 2a below), the same fees will apply should TN
choose to utilize ADSmart's banner serving technologies. Otherwise, there
will be no ad serving charges for those ads served directly by TN utilizing
internal TN servers.
2. TN's Responsibilities.
(a) Impressions. TN will exclusively allocate 75% of all available banner
advertising impressions ("Impressions") per month to ADSmart (the "Allocated
Inventory"). Impressions shall be a cross section of all available Impressions
on the Website. TN will make reasonable efforts to ensure that the Impressions
committed to ADSmart are available and notify ADSmart immediately in the event
that any major increase or decrease in Impressions is foreseen. The remaining
25% inventory (the "Open Inventory") shall remain the property of TN and may be
utilized at the discretion of TN for those purposes TN deems appropriate. Any
sales of Open Inventory will be achieved by either TN internal sales or provided
exclusively to ADSmart by TN under the same terms as Allocated Inventory.
(b) Website Information. Upon execution of this Agreement. TN will provide
ADSmart with the following information: available demographic and psychographic
(interest and behavioral) information regarding Website audience, Website
description by section, advertising and sponsorship opportunities, technical
specifications relating to advertising, marketing information, and contact
information. TN agrees to keep all information provided to ADSmart current and
will advise ADSmart on new opportunities with its Website and new services
offered by TN.
(c) Tracking. TN will provide ADSmart with a detailed inventory projection
analysis of the Website's traffic, including visitor and page view totals for
its primary sections.
(d) Editorial Policy. TN will provide ADSmart with its Website editorial policy.
(e) Fulfillment of Advertising Campaigns. TN shall use its best efforts to
fulfill all advertising campaigns obtained by ADSmart in a timely manner.
(f) In-House Sales. ADSmart acknowledges that TN's in-house sales force will
continue its advertising sales efforts concurrently with this agreement for only
the Open Inventory and ADSmart and TN agree to work together to prevent
duplication of sales efforts and to inform the other of targeted advertisers. To
facilitate this process, TN shall provide ADSmart with a report every two (2)
weeks, which contains the same information provided by ADSmart to TN in
ADSmart's Pipeline Report.
<PAGE>
ADSmart Corporation
Representation Agreement
------------------------
(g) Advertiser Exclusions. ADSmart shall not pursue any Advertiser listed on
Attachment B ("Attachment B") and made a part of this Agreement.
3. Marketing Material.
(a) Highlighting and Approval. ADSmart will highlight the Website in its World
Wide Web site on the Internet located at www.adsmart.net and within its media
kit. TN will have the right to review in advance and approve the final version
of the media kit.
(b) Marketing Materials. TN agrees and acknowledges that ADSmart may market and
promote the Website to potential Advertisers, by such means as it deems
appropriate, including, without limitation, listing the in directories, trade
publications, ADSmart proposals and presentations, advertisements, and other
promotional opportunities.
(c) Promotional Material. TN agrees to provide ADSmart with reasonable amounts
of TN's promotional materials.
(d) Press Releases. Both parties must approve all press releases or
announcements referring to any ADSmart/TN agreement before they are released
to the press or any third party.
(e) Registry as Agent. TN authorizes ADSmart Corporation to register as TN's
agent in all relevant periodicals, directories, and other marketing sources
identified by ADSmart and approved in advance by TN within the scope of and
during the Initial Term and all Renewal Terms of this Agreement.
4. Compensation.
(a) Commission. For the Representation Services and Management Services
provided by ADSmart, TN agrees to pay ADSmart a thirty five (35%) percent
commission on all new advertising revenues invoiced and collected by
ADSmart arising out of the advertisements placed upon the Website by
ADSmart during the term of this Agreement, less credits, refunds and sales
or use taxes.
(b) Guarantee. Adsmart also agrees to pay TN a minimum CPM on all banner
impressions served by Adsmart on behalf on TN. The actual minimum CPM will
be determined at the end of each month, based on TN's banner click-through
performance list in Attachment C ("Attachment C").
(c) Stock Consideration. ADSmart and TN will negotiate in good faith the
issuance by TN to ADSmart, at ADSmart's request, an affiliate of ADSmart,
of Common Stock of TN (the "Shares") representing up to 9.9% of the
outstanding shares of capital stock of TN. The parties anticipate that the
Shares would be issued (i) in partial consideration for the execution of
this Agreement, (ii) only upon satisfaction of the terms set forth in
Attachment D and (iii) upon approval in writing of both parties after
satisfactory due diligence is completed and other terms, including
customary representations and warranties of the parties and registration
rights, have been agreed to by the parties.
<PAGE>
5. Billing.
(a) Collection. ADSmart will invoice and collect all advertising revenue from
Advertisers on behalf of TN.
(b) Billing. Billing by ADSmart is calculated using gross invoice amount, equal
to CPM in effect at the time of signature of the Insertion Order, multiplied by
the number of impressions delivered divided by one thousand. The net invoice
amount is the gross invoice amount less an advertiser 15% agency commission
(where applicable when an outside advertising agency- or the like- may have been
involved in the sale). The invoice sent by ADSmart to the Advertiser will
include both a gross invoice amount and the net invoice amount in applicable
situations. ADSmart shall pay TN the amount for each campaign calculated from
the net invoice amount billed to the Advertiser (i.e., the amount that we are
actually due to receive from the Advertiser), less ADSmart's Commission, as
set forth in Section 4 above.
(c) Reports. ADSmart will provide written details of ADSmart generated activity
on the Website. These reports will, at a minimum, summarize (i) the ADSmart ad
campaigns that ran and how long they ran, (ii) the number of Impressions
delivered.
(d) Payment. ADSmart shall remit amounts due to TN within fifteen (15) business
days from when we are in receipt of payment or within sixty (60) days from
the end of the campaign, whichever occurs first.
6. Confidential Information. "Confidential Information" means all information
identified in written or oral format by the Disclosing Party as confidential,
trade secret or proprietary information, and, if disclosed orally,
summarized in written format within thirty (30) days of disclosure.
Confidential information shall also include the terms and conditions of this
Agreement. "Disclosing Party" is the party disclosing Confidential Information,
"Receiving Party" is the party receiving Confidential Information. The Receiving
Party shall not use the Confidential Information except to carry out the
purposes of this Agreement, or disclose the Confidential information to any
third party other than persons in the direct employ of the Receiving Party who
have a need to have access to and knowledge of the Confidential Information
solely for the purpose authorized above. Each party shall take appropriate
measures by instruction and agreement prior to disclosure to such employees to
assure against unauthorized use or disclosure. The Receiving Party shall have
no obligation with respect to information which (i) was rightfully in
possession of or known to the Receiving Party without any obligation of
confidentially prior to receiving it from the Disclosing Party; (ii) is, or
subsequently becomes, legally and publicly available without breach of this
Agreement; (iii) is rightfully obtained by the Receiving Party from a source
other than the Disclosing Party without any obligation of confidentiality; or
(iv) is disclosed by the Receiving Party under a valid order created by a court
or government agency, provided that
<PAGE>
the Receiving Party provides prior written notice to the Disclosing Party of
such obligation and the opportunity to oppose such disclosure. All Confidential
information shall remain confidential except a) in connection with any filing
with any governmental body including the US securities laws and any applicable
rules and regulations of any stock exchange or quotation system; b) in
a confidential disclosure made in connection with a contemplated financing,
merger, acquisition, consolidation or sale of capital stock of either party.
Upon written demand of the Disclosing Party, the Receiving Party shall cease
using the Confidential Information and return the Confidential Information and
all copies, notes or extracts thereof to the Disclosing Party within seven (7)
days of receipt of notice.
7. TN's Representations and Warranties. TN represents and warrants that (i) it
has full power and authority to enter into this Agreement, (ii) this Agreement
does not conflict with any other agreement or commitment made by TN, (iii) it
shall not do anything to harm or bring into disrepute or disparage ADSmart or
any Advertiser, (iv) the Website is year 2000 compliant, and (v) it will use
its best efforts to provide its services in accordance with the terms of this
Agreement and in accordance with industry standards, and (vi) all of the
outstanding shares of Common Stock of TN are duly and validly authorized and
issued, fully paid and nonassessable and were not issued and are not now in
violation of or subject to any preeemptive rights. The Shares when issued and
delivered in accordance with this Agreement, will be duly and validly issued and
outstanding, fully paid and nonassessable and will not have been issued in
violation of or be subject to any preemptive rights.
8. ADSmart's Representations and Warranties. ADSmart represents and warrants
that (i) it has full power and authority to enter into this Agreement, (ii) this
Agreement does not conflict with any other agreement or commitment made by
ADSmart, (iii) it shall not do anything to harm or bring into disrepute or
disparage TN, and (iv) it will use its best efforts to provide its services in
accordance with the terms of this Agreement and inaccordance with industry
standards.
9. Warranty Disclaimer. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES
PROVIDED IN THIS AGREEMENT, BOTH PARTIES MAKE NO REPRESENTATION OR WARRANTY
EXPRESS OR IMPLIED WITH RESPECT TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT
LIMITATION, NETWORK FAILURES, THIRD-PARTY AD SERVING DIFFICULTIES, THE SOFTWARE
PROGRAMS, SERVICES PROVIDED HEREUNDER, OR ANY OUTPUT OR RESULTS THEREOF. BOTH
PARTIES SPECIFICALLY DISCLAIMS TO EACH OTHER ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10. Indemnification. Each party agrees to indemnify, defend, and hold harmless
the other party, and its successors, officers, directors, employees, agents and
assigns, from and against any and all third party actions, causes of action,
claims, demands, costs, liabilities, expenses and damages arising out of or in
connection with any claim which, if true, would be a breach of the warranties,
representations, and covenants set forth in this Agreement. ADSmart is not a
party to and has no liability for any and all problems which may arise in
<PAGE>
connection with the Website, including, without limitation, failure to fulfill
an advertising insertion order obtained as part of the Representation Services.
11. Limitation of Liability. Both parties will be limited to total liability
arising out of this Agreement or the services provided hereunder, whether based
on contract, tort or otherwise, to not exceed the compensations or commissions
paid to ADSmart for ad campaigns run on TN's behalf or $50,000, whichever is
less.
12. Exclusion of Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL,
INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES. INCLUDING, BUT NOT LIMITED TO,
LOSS OF DATA, LOSS OF USE, OR LOSS OF PROFITS ARISING HEREUNDER OR FROM THE
PROVISION OF SERVICES, INCLUDING ADVERTISING ON TN'S WEBSITE, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
13. Term and Termination.
(a) Basic Provisions. This Agreement shall have an initial term thirty months
(the "Initial Term") and shall automatically renew for periods of one year
thereafter (each, a "Renewal Term"), unless either party provides ninety (90)
days written notice of their intent to terminate the Agreement immediately prior
to any renewal.
(b) Breach and Cure. In the event a party is given notice that it is in material
breach of this agreement, it shall have thirty (30) days from receipt to cure
its breach in all material respects. On the failure so to cure, the
non-breaching party may terminate this agreement. In the event of termination
pursuant to this section, all revenue due TN (minus all ad-serving fees &
compensations due ADSmart) prior to termination will be paid in accordance with
this Agreement.
(c) Content. ADSmart may, in its sole discretion, decide to terminate this
Agreement after 180 days notice if ADSmart feels that continuing to represent
TN's Website conflicts with ADSmart's standards, the standards being set by
other websites in ADSmart's network and TN does not resolve this difference
after the initial notice. Examples of this include: pornography, excessive
violence, abusive and/or foul language, or a pattern of neglect on the Website
such that it appears TN is not updating it regularly, or has abandoned it
altogether. This section will not apply to TN's access service where the
content and website destination is determined by the user.
(d) Ad Serving Performance: TN's viability will depend on ADSmart and as such
seeks to create a strategic alliance enhanced with equity compensation. Should
ADSmart fail to deliver the minimum CPM or minimum sell-through of the
Allocated inventory, TN will have the option to either open the contract to
another ad network for redistribution of the Allocated Inventory or immediately
terminate this agreement.
(e) For a period of six (6) months following the expiration or earlier
termination of this agreement, ADSmart shall continue to be entitled to its
commission for advertising revenue generated from any and all advertisers
initially obtained by ADSmart and placed as a paying advertiser on TN.
<PAGE>
14. Non-Competition. Both parties agree that during the Initial Term and all
Renewal Terms of this Agreement and for a period of six (6) months following the
expiration or earlier termination of the Agreement, neither party shall retain
the services of any of the other party's employees, including, without
limitation, as a full or part-time employee or independent contractor.
15. Miscellaneous. Sections 4, 6, 7, 8, 9, 10, 11, 12, 13, 13(d), 14, 15 and
Attachment D shall service expiration or earlier termination of this Agreement.
Nothing in this Agreement shall be deemed to create a partnership or joint
venture between the parties and neither ADSmart nor TN shall hold itself out as
the agent of the other, except for that specified in this Agreement. Neither
party shall be liable to the other for delays or failures in performance
resulting from causes beyond the reasonable control of that party, including,
but not limited to, acts of God, labor disputes or disturbances, material
shortages or rationing, riots, acts of war, governmental regulations,
communication or utility failures, or casualties. Any notice required or
permitted to be given by either party under this Agreement shall be in writing
and shall be personally delivered or sent by a reputable overnight mail service
(e.g., Federal Express), or by first class mail (certified or registered).
Failure by either party to enforce any provision of this Agreement will not be
deemed a waiver of future enforcement of that or any other provision. Any
waiver, amendment or other modification of any provision of this Agreement will
be effective only if in writing and signed by the parties. If for any reason a
court of competent jurisdiction finds any provision of this Agreement to be
unenforceable, that provision of the Agreement will be enforced to the maximum
extent permissible so as to effect the intent of the parties, and the remainder
of this Agreemment will continue in full force and effect. This agreement shall
be interpreted under the laws of the Commonwealth of Massachusetts, and the
parties submit to the exclusive jurisdiction of the courts of the Commonwealth
of Massachusetts, including the federal courts located there. Headings used in
this Agreement are for ease of reference only and shall not be used to interpret
any aspect of this Agreement. This Agreement, including all attachments which
are incorporated herein by reference, constitutes the entire agreement between
the parties with respect to the subject matter hereof, and supersedes and
replaces all prior and contemporaneous understandings or agreements, written or
oral regarding such subject matter.
IN WITNESS OF THE FOREGOING, the parties have caused the Agreement to be
signed as of the Effective Date set forth above.
ADSMART CORPORATION Tritium Network
By: /s/ John Federman By: /s/ Michael Lee
------------------- -----------------
Name: John Federman Name: Michael Lee
----------------- ---------------
Title: CEO Title: CEO
---------------- --------------
Date: Date: July 19, 1999
----------------- ---------------
<PAGE>
Attachment A:
Definition "Website"
This Attachment dated July 19, 1999 supersedes any previous drafted Attachment.
Representation by ADSmart for TN includes the following Website(s) and internet
services:
Site Name:
www.tritium.com registration page
--------------- -----------------
www.tritium.com start page
Service Name:
Tritium Network free access services
ADSmart Corporation
Representation Agreement
Attachment B:
No Contact List
This Attachment dated July 19, 1999 supersedes any previous drafted Attachment.
ADSmart is not to contact any of the following accounts on behalf of TN, unless
TN formally notifies ADSmart in writing:
6/21/99: TN will currently defer any and all existing accounts to ADSmart. TN
will notify ADSmart on any future internal account relationships and will list
them accordingly as part of this Attachment.
<PAGE>
ADSmart Corporation
Representation Agreement
Attachment C:
Click to CPM Guarantee
This Attachment dated July 19, 1999 supersedes any previous drafted Attachment.
ADSmart agress to pay Tritium Network a minimum Gross CPM, listed below, based
on average banner click-through performance calculated at the end of each month.
Guarantee CPM Scale
Click % Guarantee
Scale
- ------ --------
1.00% $3.00
0.92% $2.75
0.83% $2.50
0.75% $2.25
0.67% $2.00
0.58% $1.75
0.50% $1.50
0.42% $1.25
0.33% $1.00
Conditions:
1) Creative material must be renewed at a maximum of 60 days.
2) Creative material over 60 days will be considered "old" and not able to
achieve the same click rates as "new" material - material less than 60 days.
3) Click rates above apply only to the New Material.
<PAGE>
ADSmart Corporation
Representation Agreement
Attachment D:
Equity Earn Out
This Attachment dated June___, 1999 supersedes any previous drafted Attachment.
The following outlines ADSmart's equity earn out, subject to the provisions of
Section 4(c) of this Agreement, for the Shares:
1} On the first day of each calendar quarter (commencing at such time agreed
to by the parties) (the "stock issuance date"). TN will issue to ADSmart,
without payment of any cash consideration by ADSmart, 140,000 of the Shares
(as adjusted for stock splits, stock dividends and similar changes in
capitalization of TN), provided that ADSmart has paid to TN all amounts
that first become due and are required to be paid by ADSmart to TN under
Section 5(d) of this Agreement during each of the three calendar months
immediately preceding the stock issuance date. The consideration for the
Shares will be the entering into and performance rendered by ADSmart under
this Agreement. The terms of the Attachment D shall survive termination of
this Agreement.
2) If ADSmart has not paid to TN the full amount due under Section 5(d) of
the Agreement during any calendar month in a fiscal quarter, then on the
next stock issuance date, TN will issue to ADSmart, in lieu of issuing
140,000 of the Shares (as adjusted as further described above) pursuant to
paragraph (1) above, such number of Shares equal to the product of 140,000
(as adjusted as further described above) multiplied by a fraction, the
numerator of which shall be the number of calendar months in the fiscal
quarter immediately preceding the stock issuance date that ADSmart paid to
TN all amounts due under Section 5(d) of the Agreement, and the denominator
of which is three. For purposes of this Agreement, amounts which TN
believes were owed by ADSmart and not paid will be considered unpaid only
for the month they were due and not for successive months.
3) If, in accordance with paragraph 2 above, there is a dispute with respect
to amounts owed by ADSmart by TN under the Agreement for any particular
calendar month, and that dispute is resovled after the stock issuance date
for such month, TN will issue on the next succeeding stock issuance date,
in addition to the Shares that would otherwise be issued on such stock
issuance date, such number of Shares (as adjusted as further described
above) as had been withheld in connection with the dispute.
4) Notwithstanding any other provision of this Agreement, on any stock
issuance date, the number of Shares to be issued to ADSmart under this
Agreement will be reduced to the extent required so that after such
issuance ADSmart beneficially owns no more than 9.9% of the outstanding
shares of TN common stock.
<PAGE>
Exhibit 10.6
February 25, 2000
AdSmart Corporation
100 Brick Stone Square
Andover, MA 01810
Re: Consent to Assignment and
Amendment to Agreement
Ladies and Gentlemen:
Reference is made to the AdSmart Corporation Representation Agreement (the
"Agreement") by and between AdSmart Corporation ("AdSmart") and Tritium Network,
Inc. (the "Company").
The undersigned has been advised that, in connection with the sale by the
Company of substantially all its assets, to StartFree.com, Inc.("StartFree"), a
Delaware corporation and a wholly-owned subsidiary of Thinking Tools, Inc., a
Delaware corporation, the Company intends to assign the Agreement to StartFree.
In connection therewith, the Agreement shall be amended to provide that AdSmart
shall upon completion of the transaction, be entitled to receive from Thinking
Tools, Inc. , in lieu of the Equity Earnout set forth on Attachment D (which
currently entitles AdSmart to receive up to 9.9% of the outstanding shares of
Common Stock of the Company), a Warrant to purchase up to 1,262,275 shares of
Common Stock of Thinking Tools, Inc. (subject to adjustment for any stock split,
stock dividend or similar change in capitalization), at an exercise price of
$0.01 per share. The Warrant shall be exercisable as set forth on Exhibit A
hereto. The capitalization of Thinking Tools, Inc. is as set forth on Schedule
1. The Warrant will contain a net exercise provision, will not contain any
provisions that are not in the ordinary course and will be in a form acceptable
to ADSmart or its assignee.
In consideration of the mutual covenants set forth in the Agreement and for
other good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, the undersigned hereby agrees as follows:
The undersigned consents to the assignment and amendment of the Agreement in
connection with the transactions described above and on the terms set forth
herein and confirms that, except for the amendment described above, all other
terms and conditions of the Agreement shall remain in full force and effect.
<PAGE>
Tritium and Thinking Tools each represents and warrants that other than the
Press Reelease attached hereto as Exhibit B, it will not disclose this agreement
or the relationship between Adsmart and Tritium and/or Thinking Tools without
the prior written consent of ADSmart (which may be given by email) except as
otherwise required by law.
By signing below, each party represents and warrants that he or she has full
power and authority to enter into this letter agreement and to perform its
obligations hereunder.
Very truly yours,
Tritium Network, Inc.
By:
-----------------------------
Name:
Title:
Thinking Tools, Inc.
By:
-----------------------------
Name:
Title:
Agreed and Accepted:
By:
-----------------------------
Name:
Title:
<PAGE>
Exhibit A
All of the numbers are subject to adjustment in the event of any stock split,
stock dividend or other adjustment to capitalization.
(i) The Warrant will be exercisable for 500,400 shares as of the date of
the Warrant.
(ii) The Warrant will be exercisable for 584,399 additional shares on the
earlier of (a) the date that is 61 days after the date that Tritium's
shares of Series A Preferred Stock are converted, or (b) two years
after the date of the Warrant.
(iii) The Warrant will be exercisable from time to time upon the written
request of ADSmart or its assignee for up to an additional 177,476
shares at such time that beneficial ownership of such shares by ADSmart
or its assignee would not result in ADSmart or its assignee
beneficially owning 5% or more of the outstanding common stock of
Thinking Tools.
ADSmart or its assignee shall have the right to reduce the number of shares
issuable under this Warrant at its discretion.
