<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as Permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CBT GROUP PUBLIC LIMITED COMPANY
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[_] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------
(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule, or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CBT GROUP PUBLIC LIMITED COMPANY
900 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 94063
May 4, 1999
Dear holders of CBT ordinary shares:
As you may know, pursuant to a Share Purchase Agreement dated as of
November 30, 1998, as amended and restated as of March 30, 1999, we have
agreed to acquire Knowledge Well Group Limited and Knowledge Well Limited, two
private companies formed under the laws of Ireland (collectively, "Knowledge
Well") in a Share Exchange. As a result of the Share Exchange, we will acquire
all outstanding shares in the capital of Knowledge Well in exchange for
approximately 4,018,395 CBT ordinary shares. These CBT ordinary shares had a
value of approximately $43.2 million as of the date of the signing of the
Share Purchase Agreement, and a value of approximately $62.3 million as of
April 30, 1999). We will also assume all outstanding options to acquire
Knowledge Well shares. The acquisition of the shares and the assumption of the
options are more fully described in the enclosed proxy statement. We will not
recognize any tax gain or loss as a result of the Share Exchange. Neither will
you. Upon the closing of the Share Exchange, current shareholders of Knowledge
Well will own approximately 9% of our issued and outstanding shares.
Because of the interests of William G. McCabe and Gregory M. Priest in the
Share Exchange, we have formed an Independent Committee of our board of
directors to assess the merits of the transaction. At the time we contemplated
entering into the Share Exchange, Mr. McCabe was the Chairman of our board of
directors and a member of our management committee. Mr. McCabe is also a
principal shareholder and option holder of Knowledge Well. As a result of the
Share Exchange, Mr. McCabe will receive 2,792,355 CBT ordinary shares and his
Knowledge Well options will become exercisable for 546,361 CBT ordinary
shares. In addition, at the time we contemplated entering into the Share
Exchange, Mr. Priest was a member of our board of directors and a member of
our management committee. Mr. Priest is also a principal shareholder and
option holder of Knowledge Well. As a result of the Share Exchange, Mr. Priest
will receive 325,073 CBT ordinary shares and his Knowledge Well options will
become exercisable for 143,184 CBT ordinary shares. The Independent Committee
has carefully considered the terms and conditions of the Share Exchange. The
Independent Committee has determined that the Share Exchange is fair and in
our best interests and the best interests of our shareholders and has
unanimously approved the Share Purchase Agreement, the Share Exchange and the
issuance of CBT ordinary shares pursuant to the Share Exchange. The
Independent Committee of our board of directors unanimously recommends that
you approve the Share Purchase Agreement, the Share Exchange and the issuance
of CBT ordinary shares pursuant to the Share Exchange.
We intend to complete the Share Exchange on or about June 3, 1999. In order
to assure that your shares are voted on this important matter, you are
requested to complete and sign your proxy card and return it in the enclosed
envelope on or before May 27, 1999.
Separately, our board of directors has approved an amendment to our 1994
Share Option Plan to increase the total number of shares reserved for issuance
thereunder by 2,000,000 ordinary shares to attract, motivate and retain our
employees. Our board of directors has determined that this amendment is in our
best interests and the best interests of our shareholders and has unanimously
approved it. Our board of directors unanimously recommends that you approve
the amendment to increase the number of ordinary shares issuable under the
1994 Share Option Plan.
<PAGE>
Enclosed in this package is our proxy statement soliciting your approval. I
urge you to read and consider these materials carefully. Please complete, sign,
date and return your proxy card in the enclosed envelope.
On behalf of our board of directors, thank you for your continued support.
Sincerely,
Elizabeth K. Roemer
Vice President and General Counsel
<PAGE>
CBT GROUP PUBLIC LIMITED COMPANY
NOTICE OF EXTRAORDINARY GENERAL MEETING
TO BE HELD ON JUNE 3, 1999
To CBT shareholders:
Notice Is Hereby Given that an EXTRAORDINARY GENERAL MEETING of
shareholders of CBT Group Public Limited Company, a corporation organized
under the laws of Ireland ("CBT"), will be held at The Shelbourne Hotel, St.
Stephens Green, Dublin 2, Ireland on June 3, 1999 at 11:00 a.m. for the
purpose of passing the following resolutions, both of which will be proposed
as ordinary resolutions:
1. THAT the Share Purchase Agreement dated November 30, 1998, as
amended and restated as of March 30, 1999, made between CBT, Knowledge Well
Limited ("KWL"), Knowledge Well Group Limited ("KWGL"), and the
shareholders of KWL and KWGL in the form produced to the Meeting and
initialled by the Chairman for the purposes of identification (a copy of
which was included in the proxy statement circulated to all the members of
CBT on May 5, 1999) relating to the acquisition by CBT of all of the shares
in the capital of each of KWL and KWGL (collectively "Knowledge Well") in
exchange for ordinary shares of IR9.375p each in the capital of CBT
("ordinary shares") (or American Depositary Shares representing such
ordinary shares) and the assumption of all outstanding options to purchase
shares in the capital of Knowledge Well (the "Share Exchange"), such Share
Exchange and the issuance of ordinary shares (or American Depositary Shares
representing such ordinary shares) pursuant to such Share Exchange be, and
they each hereby are, approved.
2. THAT the 1994 Share Option Plan (the "1994 Plan") be and it is hereby
amended to increase the total number of shares reserved for issuance
thereunder by 2,000,000 ordinary shares of IR9.375p each and that the
directors of CBT be and they are hereby authorized to do such acts and
things as they may consider necessary or expedient to establish and carry
into effect the increase in the number of shares available for issuance
under the 1994 Plan.
By Order of the Board
Jennifer M. Caldwell
Secretary
May 4, 1999
Registered Office:
Belfield Office Park
Clonskeagh
Dublin 4
Ireland
<PAGE>
NOTES:
1. The foregoing items of business are more fully described in the proxy
statement accompanying this Notice. You are urged to read the proxy
statement carefully.
2. Those persons whose names appear in the Register of Members of CBT
("Members") on the date materials are dispatched to shareholders are
entitled to receive notice of the Meeting or any adjournment thereof. In
addition, Members on the date of the Meeting are entitled to attend and
vote at the Meeting. Notwithstanding the foregoing, Members who are also
shareholders of Knowledge Well Limited or Knowledge Well Group Limited
shall not be entitled to vote at the Meeting.
3. CBT, at the request of The Bank of New York, as Depositary for the ordinary
shares underlying and represented by the American Depository Shares
("ADSs"), has set May 3, 1999 as the Record Date for the determination of
those holders of ADSs (collectively, the "ADS Holders") entitled to give
instructions for the exercise of voting rights at the Meeting or any
adjournment thereof. ADS Holders may not vote at the Meeting; however, the
Depositary has the right to vote all of the ordinary shares represented by
ADSs, subject to certain limitations. Voting of the ADSs is more fully
described in the proxy statement accompanying this Notice.
4. A Member entitled to attend and vote at the Meeting may appoint a proxy or
proxies to attend, speak and vote in his, her or its place. A proxy need
not be a Member of the Company. To be valid, proxy forms must be deposited
with CBT's Registrars, Bank of Ireland, Registrar Department, P.O. Box
4044, 4th Floor, Hume House, Ballsbridge, Dublin 4, Ireland, not later than
11:00 a.m. on May 27, 1999. Completion of the proxy form does not preclude
a Member from attending the Meeting and from speaking and voting thereat.
YOUR VOTE IS IMPORTANT.
TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY FORM AS PROMPTLY AS POSSIBLE
AND RETURN IT IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE
RETURNED A PROXY.
<PAGE>
CBT GROUP PUBLIC LIMITED COMPANY
900 CHESAPEAKE DRIVE
REDWOOD CITY, CALIFORNIA 94063
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PROXY STATEMENT
----------------
EXTRAORDINARY GENERAL MEETING
The enclosed proxy is solicited on behalf of CBT Group Public Limited
Company for use at an Extraordinary General Meeting of Shareholders to be held
at The Shelbourne Hotel, St. Stephens Green, Dublin 2, Ireland on June 3, 1999
at 11:00 a.m., local time, or at any adjournment thereof, for the purposes set
forth in the accompanying Notice of Extraordinary General Meeting. These proxy
solicitation materials were first mailed on or about May 5, 1999 to all
ordinary shareholders of CBT entitled to attend and vote at the Extraordinary
General Meeting. At the Extraordinary General Meeting shareholders will be
asked to consider and, if thought fit, to pass the following resolutions, both
of which will be proposed as ordinary resolutions:
1. THAT the Share Purchase Agreement dated November 30, 1998 as amended
and restated as of March 30, 1999 and made between CBT, Knowledge Well
Limited ("KWL"), Knowledge Well Group Limited ("KWGL"), and the
shareholders of KWL and KWGL in the form produced to the Meeting and
initialled by the Chairman for the purposes of identification (a copy of
which was included in the proxy statement circulated to all the members of
CBT on May 5, 1999) relating to our acquisition of all of the shares in the
capital of each of KWL and KWGL (collectively "Knowledge Well") in exchange
for ordinary shares of IR9.375p each of CBT ("ordinary shares") (or
American Depositary Shares representing such ordinary shares) and the
assumption of all outstanding options to purchase shares in the capital of
Knowledge Well (the "Share Exchange"), such Share Exchange and the issuance
of ordinary shares (or American Depositary Shares representing such
ordinary shares) pursuant to such Share Exchange be, and they each hereby
are, approved.
2. THAT the 1994 Share Option Plan (the "1994 Plan") be and it is hereby
amended to increase the total number of shares reserved for issuance
thereunder by 2,000,000 ordinary shares of IR9.375p each and that our
directors be and they are hereby authorized to do such acts and things as
they may consider necessary or expedient to establish and carry into effect
the increase in the number of shares available for issuance under the 1994
Plan.
An Independent Committee of our board of directors has unanimously approved
the Share Purchase Agreement, the Share Exchange and the issuance of CBT
ordinary shares (or American Depositary Shares representing such ordinary
shares) pursuant to the Share Exchange and recommends that shareholders vote
"FOR" the resolution to approve the Share Purchase Agreement, the Share
Exchange and the issuance of ordinary shares (or American Depositary Shares
representing such ordinary shares) pursuant to the Share Exchange. In
addition, our board of directors has unanimously approved the amendment to the
1994 Share Option Plan to increase the number of shares reserved for issuance
thereunder by 2,000,000 ordinary shares, and recommends that shareholders vote
"FOR" the resolution to effect such amendment.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION........................................ 1
TRADEMARKS ................................................................ 2
FORWARD-LOOKING STATEMENTS ................................................ 2
QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE............................. 3
QUESTIONS AND ANSWERS ABOUT THE INCREASE IN SHARES AUTHORIZED UNDER THE
1994 PLAN................................................................. 6
SUMMARY.................................................................... 7
General ................................................................. 7
Proposal One: Approval of the Share Exchange ............................ 7
Proposal Two: Approval of the Increase in Number of Shares under the 1994
Share Option Plan....................................................... 11
COMPARATIVE PER SHARE PRICE DATA........................................... 12
SELECTED HISTORICAL AND SELECTED PRO FORMA COMBINED FINANCIAL DATA ........ 13
EXTRAORDINARY GENERAL MEETING.............................................. 15
Record Date for Voting of American Depositary Shares .................... 15
Quorum; Voting of Ordinary Shares ....................................... 15
Voting of ADSs........................................................... 16
Solicitation of Proxies ................................................. 18
Revocability of Proxies ................................................. 18
Shareholder Proposals to be Presented at Next Annual General Meeting .... 18
Vote Required............................................................ 18
RISK FACTORS............................................................... 19
Risk Relating to CBT and CBT Shareholders................................ 19
Risks Relating to the Share Exchange..................................... 19
Risks Relating to Knowledge Well......................................... 19
APPROVAL OF THE SHARE EXCHANGE AND RELATED TRANSACTIONS.................... 25
Proposal................................................................. 25
Vote Required............................................................ 25
Reasons for the Share Exchange .......................................... 25
</TABLE>
<TABLE>
<S> <C>
Material Contacts and Independent Committee Deliberations............... 27
Fairness Opinion of the Financial Advisor to the Independent Committee.. 29
Interests of Certain Persons in the Share Exchange ..................... 34
Government and Regulatory Approvals..................................... 35
Accounting Treatment.................................................... 36
Rights of the Security Holders of the Company........................... 36
TERMS OF THE SHARE EXCHANGE .............................................. 37
TAX CONSEQUENCES.......................................................... 42
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 43
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS........ 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CBT..... 49
CBT MANAGEMENT AND EXECUTIVE COMPENSATION................................. 51
BUSINESS OF KNOWLEDGE WELL................................................ 61
SELECTED COMBINED FINANCIAL DATA OF KNOWLEDGE WELL........................ 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF KNOWLEDGE WELL............................................. 71
APPROVAL OF AN INCREASE IN NUMBER OF SHARES UNDER THE 1994 SHARE OPTION
PLAN..................................................................... 75
General................................................................. 75
Vote Required........................................................... 75
Summary of the 1994 Plan................................................ 75
Tax Information......................................................... 76
Participation in the 1994 Plan.......................................... 77
OTHER MATTERS............................................................. 77
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ANNEX A
AMENDED AND RESTATED SHARE PURCHASE AGREEMENT............................. A-1
ANNEX B
AMENDED AND RESTATED DECLARATION OF REGISTRATION RIGHTS................... B-1
ANNEX C
AMENDED AND RESTATED ESCROW AGREEMENT..................................... C-1
ANNEX D
FORM OF LOCK-UP AGREEMENT................................................. D-1
ANNEX E
FAIRNESS OPINION.......................................................... E-1
</TABLE>
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC under
the Exchange Act. You may read and copy this information at the following
locations of the SEC:
Public Reference New York Regional Office Chicago Regional
Room 7 World Trade Center Office
450 Fifth Street, Suite 1300 500 West Madison
N.W. New York, NY 10048 Street
Room 1024 Suite 1400
Washington, DC 20549 Chicago, IL 60661
You may obtain copies of this information by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. Further information on the operation of the SEC's Public
Reference Room in Washington, D.C. can be obtained by calling the SEC at 1-800-
SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy
statements and other information about issuers, such as CBT, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
us at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington,
DC 20006.
The SEC allows us to "incorporate by reference" information into this proxy
statement. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement. This document incorporates by reference the documents set forth
below that we have previously filed with the SEC and documents that we may file
with the SEC between the date of this proxy statement and the date of the
Extraordinary General Meeting. These documents contain important information
about us and our financial results.
. Amendment No. 1 to Annual Report on Form 10-K for fiscal year ended
December 31, 1998
. Annual Report on Form 10-K for fiscal year ended December 31, 1998
. Quarterly Report on Form 10-Q for fiscal quarter ended March 31,
1998
. Current Report on Form 8-K dated June 12, 1998
. Quarterly Report on Form 10-Q for fiscal quarter ended June 30, 1998
. Current Report on Form 8-K dated September 29, 1998
. Current Report on Form 8-K dated October 1, 1998
. Current Report on Form 8-K dated October 5, 1998
. Quarterly Report on Form 10-Q for fiscal quarter ended September 30,
1998
. Current Report on Form 8-K dated December 10, 1998
. Current Report on Form 8-K dated February 1, 1999
. The description of our ordinary shares contained in our registration
statement on Form 8-A filed on March 9, 1995, as amended on April
10, 1995
. The description of our subscription rights contained in our
registration statement on Form 8-A filed on October 5, 1998
You can obtain any of the documents incorporated by reference in this
document from us, or from the SEC through the SEC's web site at the address
described above. Documents incorporated by reference are available from us
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy statement.
You can obtain documents incorporated by reference in this proxy statement by
requesting them in writing or by telephone from us at 900 Chesapeake Drive,
Redwood City, California 94063; telephone (650) 817-5900.
1
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE SHARE PURCHASE AGREEMENT, THE
SHARE EXCHANGE, THE ISSUANCE OF CBT ORDINARY SHARES (OR AMERICAN DEPOSITARY
SHARES REPRESENTING SUCH ORDINARY SHARES) PURSUANT TO THE SHARE EXCHANGE, AND
THE AMENDMENT OF THE 1994 SHARE OPTION PLAN. NEITHER CBT NOR KNOWLEDGE WELL
HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
THAT WHICH IS CONTAINED IN THIS PROXY STATEMENT.
THIS PROXY STATEMENT IS DATED MAY 4, 1999. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN SUCH DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT TO CBT
SHAREHOLDERS NOR THE ISSUANCE OF CBT ORDINARY SHARES (OR AMERICAN DEPOSITARY
SHARES REPRESENTING SUCH ORDINARY SHARES) IN CONNECTION WITH THE ACQUISITION
OF KNOWLEDGE WELL BY CBT SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
----------------
TRADEMARKS
This proxy statement contains trademarks of CBT and Knowledge Well and may
contain other trademarks.
----------------
FORWARD-LOOKING STATEMENTS
We and Knowledge Well have made forward-looking statements in this document
that are subject to certain risks and uncertainties. Forward-looking
statements include the information concerning possible or assumed future
results of operations of us and Knowledge Well as well as statements preceded
by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," or similar expressions. You should understand that
certain important factors, in addition to those discussed elsewhere in this
document and in the documents that we incorporate by reference, could affect
our future results and could cause those results to differ materially from
those expressed in our forward-looking statements. In connection with these
forward-looking statements, you should carefully review the risks set forth in
this proxy statement under "Risk Factors," as well as those in the documents
that we incorporate by reference.
----------------
All information contained in this proxy statement with respect to CBT has
been provided by us. All information contained in this proxy statement with
respect to Knowledge Well has been provided by Knowledge Well.
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE SHARE EXCHANGE
Q: What is the Share Exchange about?
A: We are proposing to acquire Knowledge Well in a share-for-share
transaction. We are seeking the approval of our shareholders of the Share
Purchase Agreement between us, Knowledge Well and the shareholders of
Knowledge Well, and of the agreements related to the Share Purchase
Agreement that further set forth the terms of the acquisition of Knowledge
Well. In this proxy statement, we refer to this transaction as the Share
Exchange.
Q: What kind of business and financial results does Knowledge Well have?
A: Knowledge Well develops, markets and sells interactive software which
allows individuals to pursue business, management and professional
education, degrees and/or other credentials from home or work. Knowledge
Well is in an early stage of development, and from inception through March
31, 1999, Knowledge Well recognized an aggregate of approximately $220,000
of revenue. Currently, Knowledge Well's future business and financial
results substantially depend upon a software development contract with
Kansas State University. This contract will allow users of Knowledge Well
software to pursue college credits and/or degrees granted by Kansas State
University. Knowledge Well has released three KSU undergraduate business
degree courses to KSU faculty members for use by such faculty members in
their classes. However, Knowledge Well does not expect to make such
courses generally commercially available until late 1999. Knowledge Well
will market the degree products developed under its agreement with KSU to
individuals who are not KSU students but who would like to acquire KSU
credits and/or study towards a KSU degree. Knowledge Well has also
developed non-credit business courses with subject matter derived from the
KSU relationship. These courses are currently shipping.
Q: Why is CBT acquiring Knowledge Well?
A: We are acquiring Knowledge Well to:
. gain access to new market opportunities through Knowledge Well's
development resources;
. take advantage of revenue and marketing synergies, including offering
broader and stronger product lines across an expanded customer base;
. gain access to the library of courseware developed by Knowledge Well;
. obtain the benefits of Knowledge Well's existing relationship with
Kansas State University; and
. employ the experience, skills and expertise of Knowledge Well's
management.
Q: What is CBT paying for the acquisition?
A: We will issue CBT ordinary shares to the shareholders of Knowledge Well in
exchange for their ordinary shares of Knowledge Well. In addition, we will
assume the obligations of Knowledge Well under all outstanding options to
purchase ordinary shares of Knowledge Well such that, after the closing of
the Share Exchange, all such options will be exercisable for CBT ordinary
shares. As a result, at the closing of the Share Exchange we will issue to
the shareholders of Knowledge Well an aggregate of 4,018,395 CBT ordinary
shares (or American Depositary Shares representing such ordinary shares).
If all assumed options vest and are exercised, we will issue to the option
holders of Knowledge Well an additional 818,814 CBT ordinary shares (or
American Depositary Shares representing such ordinary shares) in exchange
for payment by the option holders of the aggregate option exercise price.
As a result, we could issue a total of as many as 4,837,209 shares in
connection with the Share Exchange.
3
<PAGE>
Q: Will CBT issue ordinary shares or American Depositary Shares in the Share
Exchange?
A: We have promised to try to set up an additional American Depositary
Receipt Facility at The Bank of New York prior to the closing of the Share
Exchange. If we are able to set up the additional American Depositary
Receipt Facility prior to the closing of the Share Exchange, the
shareholders of Knowledge Well will receive American Depositary Shares
instead of CBT ordinary shares.
Like our existing restricted and unrestricted American Depositary Shares,
each American Depositary Share that would be issued under the additional
American Depositary Receipt Facility would represent one CBT ordinary
share. Therefore, if American Depositary Shares are issued in the Share
Exchange, your equity interest in CBT will be no lesser or greater than if
CBT ordinary shares are issued in the Share Exchange.
To simplify the discussion of the Share Exchange, this proxy statement
generally refers to the security to be received by the shareholders of
Knowledge Well as "CBT ordinary shares." However, this does not change the
fact that it is possible that the shareholders of Knowledge Well will
receive American Depositary Shares instead of CBT ordinary shares in the
Share Exchange.
Q: What is the escrow fund?
A: The escrow fund is similar to a security deposit and will consist of
402,000 CBT ordinary shares that will be issued in exchange for ordinary
shares of Knowledge Well outstanding immediately prior to the closing of
the Share Exchange.
Knowledge Well and the shareholders of Knowledge Well made a number of
factual representations, covenants and agreements in the Share Purchase
Agreement. If any of these representations, covenants or agreements are
breached, then we can, subject to certain limitations, make claims against
the escrow fund for monetary losses that we incur as a result of these
breaches. If we recover any money from the escrow fund, then the number of
CBT ordinary shares that the shareholders of Knowledge Well will receive
upon distribution of the escrow fund will be reduced by their proportional
share of such claim.
Q: When will the escrow fund be distributed?
A: The CBT ordinary shares held in the escrow fund (less any CBT ordinary
shares used to satisfy claims, as described above) will be distributed on
the second anniversary of the closing of the Share Exchange.
Q: What if the monetary losses that CBT incurs as a result of breaches of
representations, covenants or agreements of Knowledge Well or the
shareholders of Knowledge Well exceeds the amount of the escrow fund?
A: We can, subject to certain limitations, make claims against the individual
shareholders of Knowledge Well for monetary losses that exceed the escrow
fund. However, we cannot recover from an individual shareholder more than
that shareholder received in the Share Exchange or more than that
shareholder's pro rata share of any loss we suffer.
Q: When do you expect the Share Exchange to be completed?
A: We are working towards completing the Share Exchange as quickly as
possible. We expect to complete the Share Exchange in June, 1999.
Q: What are the tax consequences of the Share Exchange?
A: The Share Exchange will not cause any tax gain or loss recognition to us
or our shareholders.
Q: Will my rights as a CBT shareholder change as a result of the Share
Exchange?
A: No.
4
<PAGE>
Q: Why is there an Independent Committee of the Board of Directors approving
the Share Purchase Agreement and the Share Exchange?
A: William G. McCabe and Gregory M. Priest, are principal shareholders and
former officers of Knowledge Well. John M. Grillos is a small shareholder
in Knowledge Well. They are also current members of our board of directors
and our former and/or current officers. Because of their economic interest
in Knowledge Well, these individuals did not participate in our decision
making process with respect to the Share Purchase Agreement and the Share
Exchange. Instead, an Independent Committee consisting of John P. Hayes,
James S. Krzywicki and Patrick J. McDonagh, each a director of CBT who is
not affiliated with Knowledge Well, considered and approved the Share
Purchase Agreement, the Share Exchange and the issuance of CBT ordinary
shares pursuant to the Share Exchange.
Q: Is approval of the Share Purchase Agreement, the Share Exchange and the
issuance of CBT ordinary shares pursuant to the Share Exchange conditioned
on approval of the amendment to the 1994 Plan?
A: No, they are two separate and independent proposals. Therefore, you can
approve both of the proposals, one of the proposals, or neither of the
proposals.
Q: What more do I need to know?
A: Read this proxy statement carefully and sign and date the enclosed proxy
card and return it in the enclosed return envelope.
The Independent Committee of our board of directors unanimously recommends
that you approve the Share Purchase Agreement, the Share Exchange and the
issuance of CBT ordinary shares pursuant to the Share Exchange.
5
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE INCREASE IN SHARES AUTHORIZED UNDER THE 1994 PLAN
Q: What is the amendment to the 1994 Share Option Plan about?
A: We are proposing to amend the 1994 Plan to increase the number of our
ordinary shares reserved for issuance under the plan by 2,000,000 shares.
Q: How many shares are currently reserved for issuance under the 1994 Plan?
A: As of the record date, there were 7,247,036 CBT ordinary shares reserved
for issuance under the 1994 Plan.
Q: Why does CBT believe it is important to increase the number of shares
reserved for issuance under the 1994 Plan?
A: As of the Record Date, options to purchase a total of 3,379,228 CBT
ordinary shares were outstanding and options to purchase a total of
1,649,799 CBT ordinary shares remained available for future grant under
the 1994 Plan. We rely heavily on our 1994 Plan to attract, motivate and
retain high quality executives and key personnel. Accordingly, our board
of directors believes that it is in our best interests to increase the
number of shares reserved for issuance under the 1994 Plan so that we may
continue to provide ongoing incentives to our employees in the form of
options to purchase ordinary shares in amounts consistent with past
practices.
Q: Is the amendment to the 1994 Share Option Plan conditioned on approval of
the Share Purchase Agreement, the Share Exchange and the issuance of CBT
ordinary shares pursuant to the Share Exchange?
A: No, they are two separate and independent proposals. Therefore, you can
approve both of the proposals, one of the proposals, or neither of the
proposals.
Q: What do I need to do?
A: Read this proxy statement carefully and sign and date the enclosed proxy
card and return it in the enclosed return envelope.
Our board of directors unanimously recommends that you approve the
amendment to increase the number of ordinary shares issuable under the
1994 Plan.
6
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
proposals, you should carefully read the entire proxy statement and the
documents to which we have referred. See "Where You Can Find More Information".
In connection with the Share Exchange, in particular, we have attached the
Share Purchase Agreement as Annex A to this document. We encourage you to read
the Share Purchase Agreement. It is the legal document that governs the Share
Exchange.
General
- -------
Record Date for Voting (page 15)
Holders of CBT ordinary shares whose names appear in the Register of Members
maintained by our Registrar on the date these materials are mailed to them will
receive notice of the Extraordinary General Meeting. Holders of CBT ordinary
shares on the date of the Extraordinary General Meeting may vote pursuant to
this proxy statement.
The Bank of New York, as depositary for the outstanding CBT ADSs, has the
right, subject to certain limitations, to vote all of the CBT ordinary shares
represented by ADSs. However, The Bank of New York must cast its votes in
accordance with the instructions received from the holders of ADSs representing
such ordinary shares if such holders give instructions. The close of business
on May 3, 1999 was the record date for determining which holders of CBT ADSs
are entitled to instruct The Bank of New York as to how to vote the ordinary
shares represented by the ADSs held by such holders on that date. At the record
date, there were a total of 44,520,579 CBT ordinary shares issued and
outstanding, of which 44,520,579 were represented by ADSs.
Voting (page 15)
You will have one vote for each CBT ordinary share that you own on the date
of the Extraordinary General Meeting. If you owned CBT ADSs on the record date,
you will have the right to instruct The Bank of New York to vote one CBT
ordinary share in accordance with your instructions for each CBT ADS that you
owned on the record date.
The affirmative vote of the holders of a majority of the CBT ordinary shares
represented in person or by proxy and voting at the Extraordinary General
Meeting, excluding the holders who are also shareholders of Knowledge Well, is
required to approve Proposal One. The affirmative vote of the holders of a
majority of the CBT ordinary shares represented in person or by proxy and
voting at the Extraordinary General Meeting is required to approve Proposal
Two.
Proposal One: Approval of the Share Exchange:
- ---------------------------------------------
Business of Knowledge Well (page 59)
Knowledge Well provides software that delivers business, management and
professional education courses. Knowledge Well delivers the software components
of its courses over intranets and local area networks and on CD-ROMs. Students
can easily access these interactive courses via basic, industry-standard
computers. For students pursuing a degree, the software will be supplemented
with internet access to faculty and other students. Knowledge Well aims to
provide a self-paced education and training solution which allows students to
obtain degrees and/or other credentials from outside the college campus.
Knowledge Well has entered into a co-development relationship with Kansas
State University ("KSU") to develop and market degree and non-degree courses of
study, including educational software that may be authorized for full college
credit at KSU toward KSU bachelor and advanced degrees. The initial degree
program that Knowledge Well intends to build under this relationship will be a
bachelor's degree in business. Knowledge Well has released three KSU
undergraduate business degree courses to KSU faculty members for use by such
faculty members in their classes. However, Knowledge Well does not expect to
make such courses generally commercially available until late 1999. Knowledge
Well will market the degree products developed under its agreement with KSU to
individuals who are not
7
<PAGE>
KSU students but who would like to acquire KSU credits and/or study towards a
KSU degree. Knowledge Well has released 59 not-for-credit courses on business
and management topics, primarily created from material received from Knowledge
Well's relationship with KSU.
Knowledge Well Limited was incorporated in Ireland on August 7, 1996. Its
principal executive office is at Blackrock Business Park, Carysfort Avenue,
Blackrock, County Dublin, Ireland. The phone number from the United States at
that address is 011-353-1-296-3557 and the facsimile number is 011-353-1-296-
3565.
Knowledge Well Group Limited was incorporated in Ireland on May 1, 1997. Its
principal executive office is at Blackrock Business Park, Carysfort Avenue,
Blackrock, County Dublin, Ireland. The phone number from the United States at
that address is 011-353-1-296-3557 and the facsimile number is 011-353-1-296-
3565.
Knowledge Well Limited and Knowledge Well Group Limited are "sister"
companies in that they have substantially identical shareholders. In addition,
a given shareholder's percentage ownership in one company is substantially
identical to that shareholder's percentage ownership of the other company. As a
result of the Share Exchange, we will acquire both companies. In this proxy
statement, we refer to Knowledge Well Limited and Knowledge Well Group Limited
collectively as "Knowledge Well."
Risk Factors (page 19)
The proposed Share Exchange involves risks, including, among others:
. difficulties in the integration process; and
. substantial expenses.
Moreover, Knowledge Well's business also involves operating risks.
Terms of the Share Purchase Agreement
(page 37 and Annex A)
CBT, Knowledge Well and the shareholders of Knowledge Well have entered into
a Share Purchase Agreement. The Share Purchase Agreement is attached to this
proxy statement as Annex A. It proposes that we acquire all of the outstanding
ordinary shares of Knowledge Well from the shareholders of Knowledge Well in
exchange for our ordinary shares and assume all the options outstanding under
Knowledge Well's employee stock plans. We urge you to read the Share Purchase
Agreement carefully, as it is the legal document governing the transaction.
Closing. The Share Exchange will take place no later than five business days
following satisfaction or waiver of the conditions of closing, including
approval by the holders of a majority of the CBT ordinary shares represented in
person or by proxy and voting at the Extraordinary General Meeting (excluding
the holders who are also shareholders of Knowledge Well).
Acquisition Price. We will issue CBT ordinary shares to the shareholders of
Knowledge Well in exchange for their ordinary shares of Knowledge Well and we
will assume all outstanding options to purchase ordinary shares of Knowledge
Well. As a result, at the closing of the Share Exchange we will issue to the
shareholders of Knowledge Well an aggregate of 4,018,395 CBT ordinary shares
(or American Depositary Shares representing such ordinary shares). If all
assumed options vest and are exercised, we will issue to the option holders of
Knowledge Well an additional 818,814 CBT ordinary shares (or American
Depositary Shares representing such ordinary shares) in exchange for payment by
the option holders of the aggregate option exercise price. As a result, we
could issue a total of as many as 4,837,209 shares in connection with the Share
Exchange. Specifically, we will pay to each Knowledge Well shareholder for each
Knowledge Well ordinary share sold: such number of CBT ordinary shares as is
equal to the Exchange Ratio. The "Exchange Ratio" means the quotient obtained
by dividing (x) 4,837,209 by (y) the sum of (1) the total number of Knowledge
Well ordinary shares in issue immediately prior to the closing of the Share
Exchange plus (2) the total number of shares of Knowledge Well of any class
issuable upon exercise of all options, warrants and similar rights outstanding
immediately prior to the closing of the Share Exchange. In addition, we will
assume the options outstanding under Knowledge Well's employee stock plans,
appropriately adjusted to reflect the Exchange Ratio. Although the total
8
<PAGE>
number of ordinary shares that we may issue will not exceed 4,837,209, the
Exchange Ratio will change to the extent that options, warrants or similar
rights to acquire Knowledge Well shares are exercised prior to the Closing. As
of April 5, 1999, the Exchange Ratio was 0.1635 CBT shares for each Knowledge
Well share.
Treatment of Employee Equity Benefit Plans. As mentioned above, we will
assume the options outstanding under Knowledge Well's employee stock plans.
Additional American Depositary Receipt Facility. We have promised to try to
set up an additional American Depositary Receipt Facility at The Bank of New
York prior to the closing of the Share Exchange. If we do, then Knowledge Well
shareholders will receive CBT ADSs rather than CBT ordinary shares. Each ADS
that may be issued to Knowledge Well shareholders would represent one CBT
ordinary share. In this proxy statement, we generally refer to the securities
to be received by Knowledge Well shareholders in the Share Exchange as "CBT
ordinary shares", however, as discussed above, it is possible that they will
receive CBT ADSs in the Share Exchange. If American Depositary Shares are
issued in the Share Exchange, your equity interest in CBT will be no lesser or
greater than if CBT ordinary shares are issued in the Share Exchange.
Representation and Warranties. The shareholders of Knowledge Well made a
number of factual representations to us. These representations survive until
two years after the closing of the Share Exchange. However, the tax
representations last until six years after the closing of the Share Exchange.
Escrow and Indemnification. We will deposit 402,000 of the CBT ordinary
shares to be issued to the Knowledge Well shareholders into an escrow fund. If
Knowledge Well or the shareholders of Knowledge Well breach their
representations, covenants or agreements, then we can, subject to certain
limitations, make a claim against the escrow fund and the shareholders of
Knowledge Well.
Conduct of Knowledge Well's Business Prior to the Closing. In addition to
specific restrictions, Knowledge Well shall carry on its business as usual
until the closing of the Share Exchange or termination of the Share Purchase
Agreement.
No Solicitation. Knowledge Well may not solicit acquisition offers from
another party and shall notify us of any unsolicited offers.
Conditions to the Share Exchange. A number of conditions have to be
satisfied or waived for the parties to close the Share Exchange, including
approval of the Share Purchase Agreement, the Share Exchange and the issuance
of CBT ordinary shares pursuant to the Share Exchange by the holders of a
majority of the CBT ordinary shares represented in person or by proxy and
voting at the Extraordinary General Meeting (excluding the holders who are also
shareholders of Knowledge Well.)
Reasons for the Share Exchange (page 25)
The Independent Committee believes that the Share Exchange will benefit us
for the following reasons:
. Access to significant development resources and products providing new
market opportunities in a potentially large and rapidly expanding
segment of the education market;
. Revenue and marketing synergies, including the ability to offer broader
and stronger product lines than either company can offer on its own, as
well as permit our and Knowledge Well's sales forces to market Knowledge
Well's products to our significant customer base;
. Access to the library of courseware already developed by Knowledge Well;
. Access to Knowledge Well's existing relationship with Kansas State
University; and
. The experience, skills and expertise of Knowledge Well's management.
Opinion of Financial Advisor
(page 29 and Annex E)
In deciding to approve the Share Exchange, the Independent Committee of our
board of directors
9
<PAGE>
considered an opinion dated November 29, 1998 from its financial advisor,
Lehman Brothers. This opinion stated that the Exchange Ratio to be paid in the
Share Exchange was fair on such date, from a financial point of view, to us.
This opinion is attached as Annex E. You are urged to read the entire Lehman
Brothers opinion carefully.
Ownership of CBT following the Share Exchange (page 35)
Based upon our capitalization as of May 3, 1999, the shareholders and
optionholders of Knowledge Well will hold approximately 9% of the total number
of equivalent ADSs issued and outstanding after consummation of the Share
Exchange. This percentage assumes that Knowledge Well shareholders and
optionholders will exercise all options to purchase CBT ordinary shares,
including options to purchase ordinary shares of Knowledge Well that we will
assume in the Share Exchange, exercisable within 60 days of the date of the
Extraordinary General Meeting. In addition, after the closing of the Share
Exchange we may grant options to certain employees of Knowledge Well that
become our employees after the Share Exchange. We do not know the aggregate
number of options that we will grant to these individuals.
Accounting Treatment (page 36)
We intend to account for the Share Exchange under the purchase method of
accounting in accordance with generally accepted accounting principles.
Tax Consequences (page 42)
No tax gain or loss will be recognized by us or our shareholders as a result
of the Share Exchange.
Regulatory Approvals (page 35)
The Share Exchange is subject to the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended (the "HSR Act"). CBT and William G. McCabe have each
made the notifications required under the HSR Act, and have furnished certain
information to the Federal Trade Commission and the Antitrust Division of the
Department of Justice. Certain aspects of the Share Exchange must also comply
with federal and state securities laws.
The Share Exchange has been notified to the Irish Minister for Enterprise,
Trade and Employment under the Mergers, Take-Overs and Monopolies (Control)
Act, 1978 (as amended) and the Minister has informed us in writing that he has
decided not to make an order under Section 9 of that Act in relation to the
Share Exchange.
Interests of Certain Persons in the Share Exchange (page 34)
Certain shareholders and former officers of Knowledge Well are also current
members of our board of directors and/or our former or current officers and
will derive substantial economic gain from the Share Exchange. These
individuals did not participate in our decision making process with respect to
approving the Share Exchange.
The Independent Committee recognized these interests and determined that
they neither supported nor detracted from the fairness of the Share Exchange.
Registration Rights (page 41 and Annex B)
We have agreed to use our reasonable best efforts to cause the CBT ordinary
shares to be issued pursuant to the Share Exchange to be registered under the
Securities Act and have agreed to prepare and file with the SEC a registration
statement covering all of such CBT ordinary shares within 30 days after the
closing of the Share Exchange to permit the resale of all such CBT ordinary
shares. We have further agreed to maintain the effectiveness of the related
registration statement for two years following the closing of the Share
Exchange.
Lock-Up Agreements (page 41 and Annex D)
Certain shareholders of Knowledge Well, including Messrs. McCabe and Priest,
have agreed from the closing of the Share Exchange to October 1, 1999, not to
dispose of any CBT ordinary shares issued in the Share Exchange or upon
exercise of options assumed by us in connection with the Share Exchange without
the prior written consent of the members of our board of directors who are not
10
<PAGE>
former shareholders of Knowledge Well. Additionally, these individuals have
agreed from October 1, 1999 to October 1, 2000, not to dispose of more than 50%
of these CBT ordinary shares without the prior written consent of the members
of our board of directors who are not former shareholders of Knowledge Well.
Independent Committee Recommendation (page 25)
On November 29, 1998, the Independent Committee of our board of directors
unanimously approved the Share Exchange, subject to shareholder approval at the
Extraordinary General Meeting. The Independent Committee of our board of
directors unanimously recommends that you approve the Share Purchase Agreement,
the Share Exchange and the issuance of CBT ordinary shares pursuant to the
Share Exchange.
Forward-Looking Statements May Prove Inaccurate (page 2)
CBT and Knowledge Well have made forward-looking statements in this document
that are subject to certain risks and uncertainties. Forward-looking statements
include the information concerning possible or assumed future results of
operations of CBT and Knowledge Well as well as statements preceded by,
followed by or that include the words "believes," "expects," "anticipates,"
"intends," or similar expressions. You should understand that certain important
factors, in addition to those discussed elsewhere in this document and in the
documents which we incorporate by reference, could affect the future results of
CBT and Knowledge Well and could cause those results to differ materially from
those expressed in our forward-looking statements.
Proposal Two: Approval of the Increase in Number
- ------------------------------------------------
of Shares under the 1994 Share Option Plan
- ------------------------------------------
Summary of the 1994 Share Option Plan (page 73)
The 1994 Share Option Plan permits the granting of options to purchase
ordinary shares. Options granted under the 1994 Plan may be either "incentive
stock options" as defined in the U.S. Internal Revenue Code of 1986 or
nonstatutory share options. The purposes of the 1994 Plan are to attract and
retain the best available personnel, provide additional incentives to our
current employees and consultants and promote the success of our business.
Board Recommendation (page 73)
On January 18, 1999, our board of directors approved, subject to shareholder
approval at the Extraordinary General Meeting, an amendment to the 1994 Plan to
increase the number of ordinary shares reserved for issuance under the 1994
Plan by 2,000,000 ordinary shares. Our board of directors unanimously
recommends that you approve the amendment to the 1994 Plan.
11
<PAGE>
COMPARATIVE PER SHARE PRICE DATA
Comparative Per Share Data
The following table shows actual ("historical") per share information and
information as if CBT and Knowledge Well had been combined for the periods
shown ("pro forma combined"), calculated by applying the Exchange Ratio of
0.1635 CBT shares for each Knowledge Well share. The historical data is based
on our historical consolidated financial statements and the historical combined
financial statements of Knowledge Well included elsewhere in this proxy
statement or incorporated by reference in this proxy statement. You should read
this data together with our historical consolidated financial statements, the
historical combined financial statements of Knowledge Well and related notes
thereto. The data presented does not indicate what Knowledge Well/CBT's future
results of operations will be or the actual results that would have occurred if
the Share Exchange had occurred at the beginning of the periods indicated. No
adjustment has been included for any anticipated cost savings or other
synergies. See "Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
Knowledge Well CBT Knowledge Well
Combined Pro Forma Combined Pro
CBT Historical Historical Combined(1) Forma Equivalent
-------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Book value per share(2):
December 31, 1998(3).. $ 3.49 $ 0.20 $ 4.32 $ 0.71
Basic earnings per
share(2):
Year ended December
31, 1998(3).......... $ 0.38 $ (0.49) $ 0.10 $ 0.02
Diluted earnings per
share(2):
Year ended December
31, 1998(3).......... $ 0.36 $ (0.49) $ 0.09 $ 0.01
</TABLE>
- --------
(1) See "--Selected Unaudited Pro Forma Financial Information."
(2) Figures in the "CBT Historical," "CBT Pro Forma Combined" and "Knowledge
Well Combined Pro Forma Equivalent" columns are per share. Figures in the
"Knowledge Well Combined Historical" column are per share of the sum of
Knowledge Well Group Limited ordinary shares and Knowledge Well Limited
ordinary shares.
(3) Knowledge Well figures in the "Knowledge Well Combined Historical", "CBT
Pro Forma Combined" and "Knowledge Well Combined Pro Forma Equivalent" are
for the twelve months ended October 31, 1998.
On May 22, 1998, we effected a split of each of our issued and outstanding
ordinary shares of IR37.5p into four ordinary shares of IR9.375p each. As a
consequence of this ordinary share split, each ADS represents and is
exchangeable for one ordinary share. The comparative per share data above has
been restated to reflect the effects of this ordinary share split.
On August 31, 1998, Knowledge Well Limited effected a split of each of its
issued and outstanding ordinary shares of $1.00 into four ordinary shares of
$0.25 each. The comparative per share data above has been restated to reflect
the effects of Knowledge Well Limited's ordinary share split.
No cash dividends have ever been declared or paid with respect to our
ordinary shares or Knowledge Well ordinary shares.
The closing price of a CBT ADS on the Nasdaq National Market on December 9,
1998, the last trading day prior to public announcement of the Share Exchange,
was $12.4375.
12
<PAGE>
SELECTED HISTORICAL AND SELECTED
PRO FORMA COMBINED FINANCIAL DATA
Selected Historical Financial Data
Selected Historical Consolidated Financial Data of CBT
The selected historical consolidated financial data of CBT below sets forth
selected financial information for each of the fiscal years in the five-year
period ended December 31, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996 1995 1994
------ ------ ----- ----- -----
(dollars in millions, except
per share data)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $162.2 $137.0 $87.4 $55.4 $39.2
Net income................................... $ 16.5 $ 18.1 $ 4.5 $ 5.6 $ 1.8
Net Income per share (1):
Basic...................................... $ 0.38 $ 0.45 $0.12 $0.18 $0.07
Diluted.................................... $ 0.36 $ 0.41 $0.11 $0.15 $0.06
Dividends per share.......................... -- -- -- -- --
Total Assets................................. $190.2 $141.3 $96.6 $82.7 $20.1
Redeemable convertible preferred shares...... -- -- -- -- $ 4.7
Long Term Debt............................... -- -- -- $ 0.8 $ 0.8
Shareholders' equity (deficit)............... $154.8 $107.7 $68.2 $59.1 $(5.2)
</TABLE>
Selected Historical Combined Financial Data of Knowledge Well
Knowledge Well Group Limited and Knowledge Well Limited are "sister"
companies in that they have substantially identical shareholders that own
substantially the same percentage of each company. In addition to being under
common control, the companies have identical management. Under US GAAP,
financial statements of "related" businesses may be presented on a combined
basis for any period that they are under common control or management.
Knowledge Well Group Limited and Knowledge Well Limited are related businesses
that have been under common control and management since inception. Thus, the
selected historical combined financial data of Knowledge Well sets forth
selected financial information for Knowledge Well Group Limited and Knowledge
Well Limited on a combined basis for the periods indicated.
<TABLE>
<CAPTION>
Year ended Year ended Inception to
October 31, October 31, October 31,
----------- ----------- ------------
1998 1997 1996
----------- ----------- ------------
(dollars in thousands, except per
share data)
<S> <C> <C> <C>
Revenues................................... $ 48 $ 0.00 $ 0.00
Net loss................................... $(4,422) $(1,595) $ (58)
Net loss per share(2):
Basic.................................... $ (0.49) $ (0.30) $(3.15)
Diluted.................................. $ (0.49) $ (0.30) $(3.15)
Dividends per share........................ -- -- --
Total assets............................... $ 5,774 $ 1,430 $ 122
Long-term debt............................. -- -- --
Shareholders' equity (deficit)............. $ 3,463 $ 1,060 $ (59)
</TABLE>
- --------
(1) The per share data has been restated to reflect the effects of the ordinary
share split.
(2) The per share data has been restated to reflect the effects of the
Knowledge Well Limited ordinary share split.
13
<PAGE>
Selected Unaudited Pro Forma Financial Information
The following selected unaudited pro forma financial information of CBT give
effect to the Share Exchange as if the Share Exchange had occurred at January
1, 1998. The Share Exchange is intended to be treated as a purchase transaction
for accounting and financial reporting purposes. You should read this together
with the consolidated financial statements and accompanying notes of CBT
incorporated by reference herein and Knowledge Well included herein and the
unaudited pro forma condensed combined financial statements and accompanying
discussion and notes set forth under "Unaudited Pro Forma Financial
Information" included herein. The pro forma amounts in the table below are
presented for your information and do not indicate what the financial position
or the results of operations of the combined company would have been had the
Share Exchange occurred at January 1, 1998. The pro forma amounts also do not
indicate what the financial position or future results of operations of the
combined company will be. No adjustment has been included in the pro forma
amounts for any anticipated cost savings or other synergies. See "Unaudited Pro
Forma Financial Information."
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
(dollars in
millions, except
per share data)
<S> <C>
CBT--Knowledge Well Pro Forma Combined
Revenues...................................................... $162.3
Net income.................................................... $ 4.8
Net Income per share:
Basic....................................................... $ 0.10
Diluted..................................................... $ 0.09
Dividends per share........................................... --
Total assets.................................................. $252.5
Long-term debt................................................ --
Shareholders' equity ......................................... $212.5
</TABLE>
14
<PAGE>
EXTRAORDINARY GENERAL MEETING
Record Date for Voting of American Depositary Shares
The Bank of New York, as the Registrar and Transfer Agent for our ADSs, as
well as the depositary for our ordinary shares represented by the ADSs, has
fixed the close of business on May 3, 1999 as the record date for the
determination of ADS Holders entitled to give instructions for the exercise of
voting rights at the Extraordinary General Meeting and any adjournment thereof.
As of the record date, a total of 44,520,579 CBT ordinary shares, par value
IR9.375p per share, were issued and outstanding (or, 44,520,579 equivalent
ADSs). Each CBT ordinary share is represented by one ADS. The ADSs are quoted
on the Nasdaq National Market under the symbol "CBTSY." As of the record date
there were approximately 350 registered holders of ADSs. The CBT ordinary
shares represented by the ADSs are owned of record by AIB Custodial Nominees
Limited on behalf of The Bank of New York.
The Bank of New York has the right, subject to certain limitations set forth
in the deposit agreements, each as amended and restated as of May 22, 1998,
among CBT, The Bank of New York and the owners and beneficial owners of
American Depositary Receipts representing ADSs, to vote all of the CBT ordinary
shares represented by our ADSs. Under the terms of the deposit agreements,
however, The Bank of New York is required to cast its votes with respect to
those CBT ordinary shares for which it receives instructions from the holders
of the ADSs representing such ordinary shares in accordance with the
instructions received. Holders of ADSs may not vote at the Extraordinary
General Meeting.
Quorum; Voting of Ordinary Shares
Holders of CBT ordinary shares whose names appear in the Register of Members
("Members") maintained by our Registrars, Bank of Ireland, on the date
materials are dispatched to Members are entitled to receive notice of the
Extraordinary General Meeting or any adjournment thereof. In addition, Members
on the date of the Extraordinary General Meeting are entitled to attend and
vote at the Extraordinary General Meeting.
The presence at the Extraordinary General Meeting, either in person or by
proxy, of three (3) persons entitled to vote at the Extraordinary General
Meeting, and who together hold not less than one-third of our voting share
capital in issue, each being a Member or a proxy for a Member or a duly
authorized representative of a corporate Member, constitutes a quorum for the
transaction of business. Abstentions will be counted for the purposes of
determining the presence or absence of a quorum for the transaction of
business. However, abstentions will have no effect on the outcome of the voting
as they will not be considered as votes cast with respect to any matter.
Votes may be given at the Extraordinary General Meeting either personally or
by proxy. Voting at the Extraordinary General Meeting will be by a show of
hands unless a poll (a count of the number of shares voted) is duly demanded.
On a show of hands, each shareholder present in person and every proxy shall
have one vote, provided, that no individual shall have more than one vote and,
on a poll, each shareholder shall have one vote for each share of which he, she
or it is the holder. Where there is a tie, whether on a show of hands or on a
poll, the chairman of the meeting is entitled to a casting vote in addition to
any other vote he may have. A proxy has the right to demand or join in
demanding a poll. On a poll, a person entitled to more than one vote need not
use all his, her or its votes or cast all the votes he, she or it uses in the
same way. If a choice is specified in the proxy as to the manner in which it is
to be voted, the persons acting under the proxy will vote the CBT ordinary
shares represented thereby in accordance with such choice. If no choice is
specified, the shares will be voted for each proposal set forth in the
accompanying Notice of Extraordinary General Meeting, as more fully described
in this proxy statement.
15
<PAGE>
Voting of ADSs
Under the terms of the deposit agreements, whenever The Bank of New York
receives notice of any meeting of holders of ordinary shares, The Bank of New
York is required to fix a record date, which shall be the record date, if any,
established by us for the purpose of such meeting or, if different, as close
thereto as practicable, for the determination of the owners of ADSs who will be
entitled to give instructions for the exercise of voting rights at any such
meeting, subject to the provisions of the deposit agreements.
Upon receipt of notice of any meeting of CBT or the solicitation for
consents or proxies from the holders of ordinary shares, The Bank of New York
is required, if so requested in writing by us, as soon as practicable
thereafter, to mail to all owners of ADSs a notice, the form of which shall be
in the sole discretion of The Bank of New York, containing:
. the information contained in the notice of meeting received by The Bank
of New York from us;
. a statement that the owners of ADSs as at the close of business on a
specified record date are entitled (subject to any applicable provisions
of Irish law and of our Articles of Association) to instruct The Bank of
New York as to the exercise by The Bank of New York of the voting
rights, if any, pertaining to the number of ordinary shares represented
by their respective ADSs;
. a statement that owners of ADSs who instruct The Bank of New York as to
the exercise of their voting rights will be deemed to have instructed
The Bank of New York or its authorized representative to call for a poll
with respect to each matter for which instructions are given (subject to
any applicable provisions of Irish law and of our Articles of
Association); and
. a statement as to the manner in which such instructions may be given
(including an express indication that instructions may be given or
deemed to be given in accordance with the next paragraph if no
instruction is received) to The Bank of New York to give a discretionary
proxy to a person designated by us.
Upon the written request of an owner of ADSs on such record date, received
on or before the date established by The Bank of New York for the purpose of
such meeting, The Bank of New York will endeavor, insofar as practicable, to
vote or cause to be voted the number of ordinary shares represented by such
ADSs in accordance with the instructions set forth in such request.
Accordingly, pursuant to our Articles of Association and applicable Irish law,
The Bank of New York will cause its authorized representative to attend each
meeting of holders of ordinary shares and call for a poll as instructed for the
purpose of effecting such vote. The Bank of New York will not vote or attempt
to exercise the rights to vote that attach to the ordinary shares other than in
accordance with such instructions or deemed instructions.
The deposit agreements provide that if no instructions are received by The
Bank of New York from any owner of ADSs with respect to any of the ordinary
shares represented by the ADSs on or before the date established by The Bank of
New York for the purpose of such meeting, The Bank of New York will deem such
owner of ADSs to have instructed The Bank of New York to give a discretionary
proxy to a person designated by us with respect to such ordinary shares and The
Bank of New York will give a discretionary proxy to a person designated by us
to vote such ordinary shares, under circumstances and according to the terms as
set forth in the deposit agreements. However, no such instructions will be
deemed given and no such discretionary proxy will be given when we notify The
Bank of New York, and we have agreed to provide such notice as promptly as
practicable in writing, that the matter to be voted upon is one of the
following:
. a matter not submitted to shareholders by means of a proxy statement
comparable to that specified in Schedule 14A promulgated by the U.S.
Securities and Exchange Commission (the "SEC") pursuant to the U.S.
Securities Exchange Act of 1934, as amended;
. the subject of a counter-solicitation, or is part of a proposal made by
a shareholder which is being opposed by management (i.e. a contest);
. relates to a merger or consolidation (except when our proposal is to
merge with a wholly-owned subsidiary, provided our shareholders,
dissenting thereto, do not have rights of appraisal);
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. involves rights of appraisal;
. authorizes mortgaging of property;
. authorizes or creates indebtedness or increases the authorized amount of
indebtedness;
. authorizes or creates preferred shares or increases the authorized
amount of existing preferred shares;
. alters the terms or conditions of any shares then outstanding or
existing indebtedness;
. involves the waiver or modification of preemptive rights, except when
our proposal is to waive such rights with respect to shares being
offered pursuant to share option or purchase plans involving the
additional issuance of not more than 5% of the outstanding ordinary
shares);
. alters voting provisions or the proportionate voting power of a class of
shares, or the number of its votes per share, except where cumulative
voting provisions govern the number of votes per share for election of
directors and our proposal involves a change in the number of its
directors by not more than 10% or not more than one;
. changes the existing quorum requirements with respect to shareholder
meetings;
. authorizes the issuance of ordinary shares, or options to purchase
ordinary shares, to directors, officers, or employees in an amount which
exceeds 5% of the total amount of the class outstanding provided that
when no plan is amended to extend its duration, we shall factor into the
calculation the number of ordinary shares that remain available for
issuance and the number of ordinary shares subject to outstanding
options and any ordinary shares being added and if there is more than
one plan being considered at the same meeting, all ordinary shares are
aggregated;
. authorizes (a) a new profit-sharing or special remuneration plan, or a
new retirement plan, the annual cost of which will amount to more than
10% of our average annual income before taxes for the preceding five
years, or (b) the amendment of an existing plan which would bring its
costs above 10% of such average annual income before taxes (should there
be more than one plan being considered at the same meeting, all costs
are aggregated; exceptions may be made in cases of: (1) retirement plans
based on agreement or negotiations with labor unions (or which have been
or are to be approved by such unions), and (2) any related retirement
plan for the benefit of non-union employees having terms substantially
equivalent to the terms of such union-negotiated plan, which is
submitted for action of shareholders concurrently with such union-
negotiated plan);
. changes our purposes or powers to an extent which would permit us to
change to a materially different line of business and it is our stated
intention to make such a change;
. authorizes the acquisition of property, assets or a company, where the
consideration to be given has a fair value of 20% or more of the market
value of our previously outstanding shares;
. authorizes the sale or other disposition of assets or earning power of
20% or more of those existing prior to the transactions;
. authorizes a transaction not in the ordinary course of business in which
an officer, director or substantial security holder has a direct or
indirect interest; or
. reduces earned surplus by 51% or more or reduces earned surplus to an
amount less than the aggregate of three years' ordinary share dividends
computed at the current dividend rate.
The first proposal to be acted upon at the Extraordinary General Meeting,
which is approving the Share Purchase Agreement, the Share Exchange and the
issuance of CBT ordinary shares pursuant to the Share Exchange, is not a matter
for which The Bank of New York may deem that instruction has been given for The
Bank of New York to give a discretionary proxy to a person designated by us
where no instruction is received. Therefore, with respect to the first
proposal, The Bank of New York will not give a discretionary proxy to a person
designated by us to vote such ordinary shares unless it receives instruction to
give such discretionary proxy.
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The second proposal to be acted upon at the Extraordinary General Meeting,
which is amending the 1994 Plan to increase the number of ordinary shares
reserved for issuance thereunder by 2,000,000 ordinary shares, is a matter for
which The Bank of New York may deem that instruction has been given for it to
give a discretionary proxy to a person designated by us where no instruction is
received. Therefore, with respect to the second proposal, The Bank of New York
will give a discretionary proxy to a person designated by us to vote such
ordinary shares for which no instruction has been given.
The Bank of New York will make available for inspection by the owners of
ADSs at its Corporate Trust Office any reports and communications, including
any proxy soliciting material, received from us, which are both (a) received by
The Bank of New York as the holder of the ordinary shares and (b) generally
made available to the holders of ordinary shares by us. The Bank of New York
will also send to the owners of ADSs copies of such reports when furnished by
us pursuant to the deposit agreements.
Solicitation of Proxies
We will pay the cost of preparing, assembling, printing and mailing the
proxy statement, the Notice of Extraordinary General Meeting and the enclosed
form of proxy, as well as the cost of soliciting proxies relating to the
Extraordinary General Meeting. We will request banks, brokers, dealers and
voting trustees or other nominees, including The Bank of New York in the case
of the ADSs, to solicit their customers who are owners of shares listed of
record and names of nominees, and will reimburse them for reasonable out-of-
pocket expenses of such solicitation. The original solicitation of proxies by
mail may be supplemented by telephone, telegram and personal solicitation by
our officers and other regular employees.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to us a written notice of
revocation or a duly executed proxy bearing a later date or by attending the
Extraordinary General Meeting and voting in person.
Shareholder Proposals to be Presented at Next Annual General Meeting
Subject to applicable laws, proposals of our shareholders that are intended
to be presented by such shareholders at our 1999 Annual General Meeting of
shareholders must have been received at our offices located at 900 Chesapeake
Drive, Redwood City, California 94063 no later than November 26, 1998 and must
have satisfied the conditions established by the SEC for proposals to be
considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
Vote Required
The affirmative vote of the holders of a majority of the ordinary shares
represented in person or by proxy and voting at the Extraordinary General
Meeting, excluding the holders who are also shareholders of Knowledge Well, is
required to approve the proposal to approve the Share Purchase Agreement, the
Share Exchange and the issuance of CBT ordinary shares pursuant to the Share
Exchange. Unless otherwise instructed, the proxies will vote "FOR" the proposal
to approve the Share Purchase Agreement, the Share Exchange and the issuance of
ordinary shares pursuant to the Share Exchange.
The affirmative vote of the holders of a majority of the ordinary shares
represented in person or by proxy and voting at the Extraordinary General
Meeting is required to approve the proposal to approve the amendment to the
1994 Plan. Unless otherwise instructed, the proxies will vote "FOR" the
proposal to approve the amendment to the 1994 Plan.
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RISK FACTORS
In deciding on the proposals in this proxy statement, you should consider
carefully the risks described below, elsewhere in this proxy statement and in
the documents that we have incorporated herein by reference. This proxy
statement contains forward-looking statements that involve known and unknown
risks and uncertainties. See "Forward-Looking Statements." The matters set
forth below are cautionary statements identifying important factors with
respect to such forward-looking statements, including risks and uncertainties
that could cause actual results to differ materially and adversely from those
in such forward-looking statements.
Risk Relating to CBT and CBT Shareholders
Failure of Knowledge Well to Improve Financial Results. We are acquiring all
of the outstanding shares of Knowledge Well in exchange for approximately
4,018,395 CBT ordinary shares (which shares had a value of approximately $43.2
million as of the date of the signing of the Share Purchase Agreement, and a
value of approximately $62.3 million as of April 30, 1999). We will also assume
all outstanding options to acquire Knowledge Well shares, which options will be
exercisable for up to approximately 818,814 CBT ordinary shares (which shares
had a value of approximately $8.8 million as of the date of the signing of the
Share Purchase Agreement, and a value of approximately $12.7 million as of
April 30, 1999 due to appreciation in the price of our stock since the
agreement was signed). Knowledge Well is in an early stage of development. From
inception through March 31, 1999, Knowledge Well recognized an aggregate of
approximately $220,000 of revenue. In addition, Knowledge Well had total assets
of approximately $5.8 million as of October 31, 1998. As such, if Knowledge
Well fails to generate significant revenue and substantially improve its
financial results, we may not realize any return on our investment and we may
suffer dilution from the issuance of shares.
Risks Relating to the Share Exchange
Difficulties of Integrating CBT and Knowledge Well. Our successful
combination with Knowledge Well will require substantial effort from each
company. Difficulties in combining the companies could have an adverse impact
on our ability to fully benefit from the Share Exchange. Management, for
example, will have to focus significant attention on the integration process.
Research and development and sales and marketing personnel will also have to
coordinate their efforts. In addition, the integration process could cause an
interruption of, or loss of momentum in, our and Knowledge Well's activities.
Substantial Expenses Resulting from the Share Exchange. We and Knowledge
Well estimate that the negotiation and implementation of the Share Exchange
will result in aggregate pre-tax expenses of approximately $2.2 million,
primarily relating to costs associated with combining the companies and the
fees of attorneys, accountants and the financial advisor to the Independent
Committee. Although we and Knowledge Well do not believe that the costs will
significantly exceed $2.2 million, the estimate may be incorrect or
unanticipated events may substantially increase the costs of combining the
operations of the companies. In addition, we expect to record a non-cash
expense of approximately $5.4 million with respect to the write-off of acquired
in-process research and development. In any event, we anticipate that costs
associated with the Share Exchange and the write-off of acquired in-process
research and development and goodwill amortization will negatively impact
results of operations in the quarter in which the Share Exchange closes. In
addition, the amortization of acquired intangible assets will negatively impact
results of operations in future quarters.
Risks Relating to Knowledge Well
Limited Operating History. From December 1996 to date, Knowledge Well's
primary business operation was product development. Knowledge Well's first
telesales representative was hired in March 1998 and Knowledge Well's first
direct field sales representative was hired in late October 1998. As of March
31, 1999, Knowledge Well had a total of 18 customers and, from inception
through March 31, 1999, recognized an aggregate of approximately $220,000 of
revenue. Consequently, Knowledge Well has a very limited operating history upon
which an evaluation of its business and its prospects can be based. In
particular, holders of our ordinary shares and ADSs have a very limited basis
upon which to evaluate the level of future market
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acceptance of Knowledge Well's products. Knowledge Well's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets such as interactive business,
management and professional education. Such risks include, but are not limited
to, the changing nature and unpredictability of Knowledge Well's business
environment, technological change and intense competition.
To address these risks, Knowledge Well must, among other things, do the
following:
. increase its customer base;
. implement and execute its business and marketing strategies;
. continue to develop and upgrade its product offerings;
. provide superior customer service and order fulfillment;
. respond to competitive developments; and
. attract, retain and motivate qualified personnel.
Failure to successfully do so would have a material adverse effect on Knowledge
Well's business, prospects, financial condition and results of operations.
Accumulated Deficit. Knowledge Well has incurred net losses in each quarter
since inception. Knowledge Well had an accumulated deficit of approximately
$6.1 million as of October 31, 1998, and such deficit has continued to
increase. A substantial portion of the accumulated deficit is due to the
significant commitment of resources to Knowledge Well's product development
group and, to a lesser extent, Knowledge Well's sales organization. Knowledge
Well would expect to continue to devote substantial resources in these areas as
a stand-alone company and as a result would need to recognize significant
quarterly revenues to achieve profitability.
Anticipated Losses. Knowledge Well anticipates that it will incur operating
losses for the foreseeable future, and Knowledge Well believes that its future
success will depend on its ability to significantly increase revenues.
Knowledge Well's limited operating history makes an accurate prediction of
future operating results difficult or impossible. Knowledge Well's revenues may
not increase and Knowledge Well may not achieve or maintain profitability or
generate cash from operations in any future periods.
Dependence on Development and Marketing Alliances. Although Knowledge Well
only recently began to sell its products, Knowledge Well's business plan
significantly depends on maintaining its existing relationship with Kansas
State University ("KSU") and on entering into additional, successful
development and marketing alliances with other education content providers.
Knowledge Well has entered into an education and development alliance with KSU
under which Knowledge Well is currently developing courses for an undergraduate
degree in business. This agreement was recently amended to provide Knowledge
Well with the ability to develop with KSU faculty experts a master's degree in
business administration. Knowledge Well has released three KSU undergraduate
business degree courses to KSU faculty members for use by such faculty members
in their classes. However, Knowledge Well does not expect to make such courses
generally commercially available until late 1999. As a result, Knowledge Well
will not generate revenue from these business degree courses until at least
that time. Knowledge Well will market the degree products developed under its
agreement with KSU to individuals who are not KSU students but who would like
to acquire KSU credits and/or study towards a KSU degree. Knowledge Well has
also developed non-credit business courses with subject matter derived from the
KSU relationship. These courses are currently shipping. Knowledge Well has also
entered into a partnership agreement with Hamilton College under which Hamilton
has agreed to grant certificates and continuing education credits in connection
with Knowledge Well's Business Management Competencies Program, subject to
certain conditions.
If KSU does not continue to cooperate with Knowledge Well, if Knowledge Well
does not successfully develop courses for this alliance, or if Knowledge Well
cannot negotiate additional alliances in the future on acceptable terms or at
all, Knowledge Well's business, financial condition, results of operations and
prospects could be materially adversely affected.
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KSU and any future development partner of Knowledge Well could pursue
existing or alternative distance learning initiatives in preference to and in
competition with those being developed with Knowledge Well. In the event
Knowledge Well is not able to maintain or expand its current development
alliance with KSU or enter into new development and/or marketing alliances, its
operating results and financial condition could be materially adversely
affected. Knowledge Well expects that cost of revenues may fluctuate from
period to period in the future based upon many factors, including the number of
titles licensed that were developed exclusively by Knowledge Well compared to
the licensing of royalty-bearing titles developed pursuant to development
alliances, and the timing of expenses associated with development alliances. In
addition, the level of cooperation and coordination necessary in development
alliances may result in longer development times and less control over the
timing of product introductions than for courses developed solely by Knowledge
Well.
Lengthy Sales Cycle. Organizations license Knowledge Well's products to
provide business, management and professional education for their employees.
Organizations will use Knowledge Well's products as a part of their overall
continuing education and training programs or they will implement such programs
with Knowledge Well's products . As a result, the licensing and implementation
of Knowledge Well's software products will generally involve a significant
commitment of management attention and resources by prospective customers.
Accordingly, Knowledge Well's sales process will be subject to delays
associated with a long approval process that typically accompanies significant
expenditures. Knowledge Well expects that the sales cycle associated with the
licensing of its software products will continue to be characterized by a
lengthy approval process over which Knowledge Well has little or no control.
Potential Fluctuations in Operating Results; Uncertainty of Future Operating
Results. Knowledge Well anticipates that its quarterly operating results will
fluctuate in the future depending on factors such as
. the size and timing of orders and their fulfillment;
. the mix of sales between products developed solely by Knowledge Well and
products developed through development and marketing alliances;
. demand for Knowledge Well's products;
. changes in pricing policies by Knowledge Well or by its competitors;
. the number, announcement, introduction and acceptance of new products,
product enhancements and technologies by Knowledge Well and its
competitors;
. mix of sales between Knowledge Well's field sales force, other direct
sales channels and telephone sales channels;
. changes in the level of operating expenses;
. competitive conditions in the industry;
. loss of significant customers;
. changes in Knowledge Well's sales incentive plans;
. availability of existing or new products;
. budgeting cycles of Knowledge Well's customers;
. customer order deferrals in anticipation of enhancements or new products
offered by Knowledge Well or its competitors;
. the cancellation of licenses;
. software bugs and other product quality problems;
. personnel changes;
. changes in Knowledge Well's strategy;
. litigation costs and expenses;
. seasonal trends;
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. general domestic and international economic and political conditions;
and
. Knowledge Well expects that it may experience seasonality in its
operating results attributable to traditional increases in enrollments
in degree programs in January and September.
Risks Associated with Expanding Distribution. To date, Knowledge Well has
licensed its products through its direct sales force only. Knowledge Well's
ability to achieve significant revenue growth will depend in large part on its
success in recruiting and training sufficient direct sales personnel and
establishing and maintaining relationships with third party distribution
channels. Although Knowledge Well has invested significant resources to expand
its direct sales force, it may experience difficulty in recruiting qualified
sales personnel and in establishing necessary third party distribution
channels. Knowledge Well may not be able to successfully expand its direct
sales force or establish third party distribution channels, and failure to do
so would materially adversely affect Knowledge Well's business and prospects.
Reliance On Key Personnel. In connection with the Share Exchange, certain of
Knowledge Well's executive officers resigned from Knowledge Well to assume
positions as our executive officers. As our executive officers, they will
manage our business as a whole. Accordingly, these former Knowledge Well
executive officers will focus significantly less of their attention on
Knowledge Well's operations. As a result, Knowledge Well will hire new managers
to replace them. Knowledge Well's future success also depends on its continuing
ability to employ highly qualified technical, sales and marketing personnel.
Competition for such qualified personnel is intense, particularly in sales and
software development. Failure to attract, assimilate or retain any of these and
other key personnel could have a material adverse effect upon Knowledge Well's
business, prospects, operating results and financial condition.
Competition. Knowledge Well competes in the market for interactive software
products that teach business, management and professional skills and/or
courses. Knowledge Well also competes more generally in the business,
management and professional education and training market. The market for
interactive software products that teach business, management and professional
skills and/or courses is highly fragmented and competitive, and Knowledge Well
expects this competition to increase. In addition, new competitors may enter
the market in the future and larger companies may compete with Knowledge Well
in the business, management and professional education market through the
acquisition of Knowledge Well's competitors. Such competitors may also include
large corporations that are developing internal business, management and
professional training programs, as well as colleges and universities.
Knowledge Well's competition in the business, management and professional
education market comes primarily from traditional education and training
providers, including colleges and universities and for-profit entities.
Knowledge Well also competes with other suppliers of business, management and
professional education and training, including several other companies that
produce interactive software training. Knowledge Well expects that as
organizations establish in-house educational programs, more competitors will
enter the interactive software education market. Many of Knowledge Well's
current and potential competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition, than Knowledge Well. In addition, significant price competition in
the business, management and professional education and training market could
impose increasing price pressures on Knowledge Well.
Accordingly, Knowledge Well may not be able to provide products that compare
favorably with new instructor-led techniques or other interactive training
software. Moreover, competitive pressures may require Knowledge Well to reduce
its prices significantly.
Product Concentration. Knowledge Well currently expects business, management
and professional interactive education software products and related services
to account for all or substantially all of its future revenues. As a result,
factors adversely affecting the pricing of or demand for these products and
services, such as competition or technological change, could have a material
adverse effect on Knowledge Well's business, prospects, operating results and
financial condition. Knowledge Well's future financial performance will
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depend, in significant part, on the successful development, introduction and
customer acceptance of its education products, and Knowledge Well may be unable
to achieve these successes. Also, if the market for Knowledge Well's products
fails to grow, or grows more slowly than Knowledge Well currently anticipates,
its business, prospects, operating results and financial condition would be
materially and adversely affected.
Dependence on Emerging Market for Business, Management and Professional
Education. The market for business, management and professional education
software is rapidly evolving. New methods of delivering interactive education
software often appear in the marketplace, including intranet and Internet
deployment systems. Many of these new delivery and education management systems
will involve new methods of doing business . Some companies also add multimedia
and other product features to educational software. Currently, there are no
universally accepted standards for the presentation of educational content and
the tracking of student performance through interactive education software. To
the extent standards evolve, Knowledge Well will need to develop products that
support such standards. Accordingly, Knowledge Well's future success will
depend upon, among other factors, its ability to develop and implement products
that address these emerging market requirements. Knowledge Well may not
successfully meet changing market needs.
Economic Conditions. The revenue growth and profitability of Knowledge
Well's business depends on the overall demand for interactive business,
management and professional education software and related services as well as
new developments within the education and training industry. The demand for
interactive business, management and professional education software and
related services depends, in part, on general economic and business conditions.
Thus, a weakening of the global economy could result in decreased revenues or
growth rates.
Risk of Increasing Taxes. Knowledge Well Limited has significant operations
in Ireland and, if and when it becomes profitable, it will pay taxes at rates
substantially lower than those in the United States. The extent of this tax
benefit may vary from period to period, and Knowledge Well's tax situation may
change.
Currency Fluctuations. Knowledge Well prepares its combined financial
statements in U.S. dollars. However, a substantial portion of Knowledge Well's
costs and assets are denominated in Irish Pounds. Fluctuations in exchange
rates may have a material adverse effect on Knowledge Well's results of
operations, particularly its operating margins, and could result in exchange
losses. Knowledge Well cannot predict the impact of future exchange rate
fluctuations on its results of operations. Knowledge Well Limited, whose
functional currency is the Irish Pound, incurs substantially all of its
operating expenses in Irish Pounds. At September 30, 1998, Knowledge Well
Limited had net assets unhedged of IR(Pounds)353,000. To date, Knowledge Well
has not sought to hedge the risks associated with fluctuations in exchange
rates, but may undertake such hedging in the future. Hedging techniques, even
if implemented, may not successfully eliminate or reduce the effects of
currency fluctuations.
Euro Currency. Certain participating members of the European Union have
adopted the Euro as the common legal currency effective January 1, 1999. On
that same date they established the fixed conversion rates between the
participating existing sovereign currencies and the Euro. Knowledge Well's
research and development operations are based in Europe. Although it does not
know for sure, Knowledge Well does not believe that the Euro conversion will
have a material impact on its business and financial condition.
Risks Associated with Intellectual Property. Knowledge Well regards its
software as proprietary and relies primarily on a combination of the following
to protect its rights:
. statutory and common law copyright,
. trademark and trade secret laws,
. customer licensing agreements, and
. employee and third-party nondisclosure agreements.
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Knowledge Well generally does not include in its software any mechanisms to
prevent unauthorized use. Instead, Knowledge Well generally requires its
customers to enter into a license agreement which restricts copying and use of
its products. Despite these precautions, a third party may copy or otherwise
obtain and use Knowledge Well's courseware and technology without
authorization. If unauthorized copying or misuse of Knowledge Well's products
occur to a substantial degree, its business, financial condition and results of
operations could be materially adversely affected.
Third parties may claim that Knowledge Well's products infringe their
proprietary rights. Knowledge Well expects that software developers will
increasingly face such claims as the number of products and competitors in the
business, management and professional education software industry grows and the
products in the industry become more similar. Any such claim, with or without
merit, could result in costly litigation or might require Knowledge Well to
enter into royalty or licensing agreements. Such royalty or license agreements,
if required, may not be available on acceptable terms or at all.
Product Liability. Knowledge Well's license agreements with its customers
typically contain provisions designed to limit its exposure to potential
product liability claims. It is possible, however, that these provisions may
not be effective as a result of existing or future federal, state or local laws
or ordinances or unfavorable judicial decisions. Although Knowledge Well has
never experienced any product liability claims, the sale and support of its
software products may lead to such claims, which may be substantial. A
successful product liability claim brought against Knowledge Well could have a
material adverse effect upon its business, operating results and financial
condition.
Risk of Software Defects. Knowledge Well's software products are complex and
may contain errors or defects, especially when first introduced or when new
versions or enhancements are released. Despite testing by Knowledge Well and by
current and potential customers, defects and errors may be found in products
after the products are commercially available, resulting in loss of revenues or
delay in market acceptance.
Year 2000 Compliance. Knowledge Well uses a number of computer software
programs and operating systems in its internal operations, including
applications used in order processing, inventory management, distribution,
financial business systems and various administrative functions. Although
Knowledge Well believes that its internal software applications contain source
code that is able to interpret appropriately the upcoming calendar year 2000,
failure by Knowledge Well to make any required modifications to make such
software "Year 2000" compliant could result in systems interruptions or
failures that could have a material adverse effect on its business. Knowledge
Well does not anticipate that it will incur material expenses to make its
computer software programs and operating systems "Year 2000" compliant.
However, unanticipated costs necessary to update software, or potential systems
interruptions, could exceed Knowledge Well's present expectations and have a
material adverse effect on its business, financial condition and results of
operations.
Knowledge Well is also subject to external forces that might affect industry
and commerce generally, such as Year 2000 compliance failures at utility or
transportation companies and related service interruptions. Some commentators
have stated that a significant amount of litigation will arise out of Year 2000
compliance issues, and Knowledge Well is aware of lawsuits against other
software vendors. Because of the unprecedented nature of such litigation and
unknown impact of the Year 2000 problem, it is uncertain to what extent
Knowledge Well may be affected by such litigation. Knowledge Well does not
currently have information concerning the Year 2000 compliance status of its
customers. If Knowledge Well's current or future customers fail to achieve Year
2000 compliance or if they divert technology expenditures to focus on preparing
their business for the Year 2000, then capital expenditure, software investment
and training budgets may be spent on remediation efforts rather than business,
management and professional education and training. Such a diversion of
software investment and education and training funds could reduce the demand
for Knowledge Well's products both directly, if current and potential customers
allocate less funds to business, management and professional education and
training, and indirectly, by delaying the purchase and implementation of new
systems. This could adversely affect Knowledge Well's future revenues, although
Knowledge Well does not know the impact at this time.
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APPROVAL OF THE SHARE EXCHANGE AND RELATED TRANSACTIONS
Proposal
On November 29, 1998, the Independent Committee of our board of directors
unanimously approved, subject to shareholder approval, the acquisition of
Knowledge Well Group Limited and Knowledge Well Limited, two private companies
formed under the laws of Ireland, which we collectively refer to as "Knowledge
Well,", pursuant to a Share Purchase Agreement and related agreements between
CBT, Knowledge Well, and all of the shareholders of Knowledge Well. The Share
Purchase Agreement provides that we acquire from Knowledge Well shareholders
all of the ordinary shares of Knowledge Well and assume the options
outstanding under Knowledge Well's employee stock plans in exchange for
4,837,209 CBT ordinary shares. Throughout this proxy statement we refer to
this transaction as the "Share Exchange".
The Independent Committee of our board of directors believes that the Share
Exchange is in our best interests.
Vote Required
The affirmative vote of the holders of a majority of our ordinary shares
represented in person or by proxy and voting at the Extraordinary General
Meeting, excluding the holders who also hold Knowledge Well ordinary shares,
is required to approve the Share Purchase Agreement, the Share Exchange and
the issuance of CBT ordinary shares pursuant to the Share Exchange. Unless
otherwise instructed, the proxies will vote "FOR" the approval of the Share
Purchase Agreement, the Share Exchange and the issuance of CBT ordinary shares
pursuant to the Share Exchange.
THE INDEPENDENT COMMITTEE UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
PROPOSAL ONE.
Reasons for the Share Exchange
Other than statements of historical fact, the statements made in this
section, including statements about the benefits expected to result from the
Share Exchange and about future financial performance and the analyses
performed by the Independent Committee's financial advisor, are forward-
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those incorporated by reference in the proxy statement and
those set forth in "Risk Factors" and elsewhere in this proxy statement.
CBT's Reasons for the Share Exchange
The Independent Committee believes that the Share Exchange will benefit us
for the following reasons:
. Access to significant development resources and products providing new
market opportunities in a potentially large and rapidly expanding
segment of the education market;
. Revenue and marketing synergies, including the ability to offer broader
and stronger product lines than either company can offer on its own, as
well as permit CBT's and Knowledge Well's sales forces to market
Knowledge Well's products to our significant customer base;
. Access to the library of courseware already developed by Knowledge Well;
. Access to Knowledge Well's existing relationship with Kansas State
University; and
. The experience, skills and expertise of Knowledge Well's management.
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In the course of its deliberations, the Independent Committee reviewed and
considered a number of other factors relevant to the Share Exchange. The
Independent Committee considered, among other things:
. Information concerning our business, prospects, financial performance,
financial condition, operations and technology;
. The Independent Committee's review, performed in conjunction with its
financial and legal advisors, of the information provided by Knowledge
Well concerning its business, prospects, financial performance,
financial condition, operations and technology;
. Estimates of the projected future financial performance of Knowledge
Well following an acquisition by us, which were prepared by management
of Knowledge Well. Key projections and assumptions were:
. Revenues of approximately $8 million, $17 million and $28 million in
1999, 2000 and 2001, respectively;
. Completion of two years of business courses toward the undergraduate
degree in business at KSU by the end of the first quarter of 2000;
and
. An approximate doubling in sales headcount at the end of 1999,
compared to the start of the year, and an additional tripling of
sales headcount at the end of 2001, compared to the end of 1999;(1)
. The historical trading prices of CBT ADSs;
. Comparable financial metrics, including multiples paid in other
comparable transactions and trading multiples of comparable companies in
the education software industry;
. An analysis of the respective projected contributions to revenue,
operating profits and net profits of the combined companies;
. Financial presentations by Lehman Brothers, including its opinion that
the Exchange Ratio to be paid pursuant to the Share Exchange is fair to
us;
. Reports from financial and legal advisors as to the results of their due
diligence investigations of Knowledge Well; and
. The reasonableness of the terms of the Share Purchase Agreement,
including the parties' representations, warranties and covenants, and
the conditions to their respective obligations.
While the Independent Committee evaluated both companies' prospects in terms
of the future potential of their industry, businesses, products and employees,
the Independent Committee recognized that the financial forecasts might be
affected by inherent uncertainties in the education market, the rapid changes
that take place in the marketplace and in the technology, and in the difficulty
in predicting future revenue streams.
Potentially Negative Impact
The Independent Committee also considered the potentially negative impact of
the Share Exchange, including, but not limited to:
. The difficulties of integrating CBT and Knowledge Well;
. The substantial expenses to be incurred in connection with the Share
Exchange, including costs of integrating the businesses and transaction
expenses arising from the Share Exchange;
. The effect on future results of operations of the amortization of
goodwill to be recognized as a result of the Share Exchange;
. The dilutive effect of the issuance of ordinary shares in the Share
Exchange;
(1) This paragraph contains forward-looking statements reflecting current
expectations. Knowledge Well's actual future performance may not meet the
stated expectations. Actual results may differ materially from those
indicated in the forward-looking statements. We strongly encourage you to
review the section entitled "Risk Factors--Risks Relating to Knowledge
Well" commencing on page 19 for a discussion of factors that could affect
future performance.
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. The difficulty of managing separate operations at different geographic
locations; and
. The other risks described under "Risk Factors" herein.
The Independent Committee assessed the value of Knowledge Well not only as a
stand-alone company, but also, and more importantly, as a part of our
organization. By acquiring Knowledge Well, we can enter into a new market and
diversify our business from the current focus on information technology. This
diversification may benefit our future financial performance, or hedge against
the risks of relying on a single market. Furthermore, Knowledge Well offers a
faster entry into the business, management and professional education software
market because it has already developed products and formed an important
alliance with Kansas State University. The Independent Committee believed that
we stand to benefit from revenue and marketing synergies by building on
Knowledge Well's foundation. We will also gain the skills and expertise of
Knowledge Well's management, together with the individuals' experience in both
the information technology education software market and the business,
management and professional education market.
Throughout its negotiations with Knowledge Well, the Independent Committee
sought guidance from Lehman Brothers, which provided advice on the valuation of
Knowledge Well based on projections provided by Knowledge Well's management.
Arms-length negotiation between the Independent Committee and Knowledge Well
resulted in a proposed acquisition price of $52 million, including the
assumption of options to purchase CBT shares. In order to maintain our cash
reserves and to assure that the shareholders of Knowledge Well who would join
CBT's management would be properly incented to pursue shareholder value, the
Independent Committee concluded that we should use stock to purchase Knowledge
Well, with the number of shares issued to Knowledge Well shareholders
determined by the trading price of our ADSs. The $52 million total acquisition
price (including assumed options) translated into approximately 4.8 million of
our ordinary shares. Lehman Brothers formally performed the financial analysis
described below and confirmed that the Exchange Ratio is fair to us from a
financial point of view.
After reviewing the potentially negative factors associated with the Share
Exchange, as well as the potentially negative operational issues and public
market reaction if the Share Exchange is not completed, the Independent
Committee concluded that they were outweighed by the positive factors described
above and accordingly determined that the Share Exchange is fair to, and in the
best interests of, CBT and our shareholders.
Knowledge Well's Reasons for the Share Exchange
Knowledge Well's management believes that the Share Exchange will benefit
Knowledge Well for the following reasons:
. Our larger and more established sales force will facilitate the
distribution of Knowledge Well's products;
. Our significant customer base provides marketing opportunities for
Knowledge Well's products;
. Our financial resources will help to provide the funds necessary to
expand Knowledge Well's business operations, particularly its research
and development activities; and
. Combining the technological and engineering resources of CBT and
Knowledge Well is expected to allow Knowledge Well to better utilize its
research and development efforts to further innovate and enhance new and
existing product offerings.
Material Contacts and Independent Committee Deliberations
During a series of informal meetings occurring between October 7 and 12,
1998, individual members of our board of directors discussed the possibility of
acquiring Knowledge Well. In the course of these informal discussions, it was
concluded that an independent committee of our board would need to be formed to
consider such an acquisition. In the interest of time, on October 13 and 14,
1998, Mr. McCabe and Mr. Priest, on our behalf, approached representatives of
Lehman Brothers to inform them we were considering acquiring Knowledge Well and
to request that they be prepared to engage in a discussion of the potential
acquisition with members of an independent committee.
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Between October 14, 1998 and October 27, 1998, certain members of our board
of directors who were neither directors, officers nor shareholders of Knowledge
Well and who otherwise had no economic interest in Knowledge Well held informal
discussions with representatives of Lehman Brothers regarding the possible
engagement of Lehman Brothers as the financial advisor to the to-be-formed
independent committee, and Lehman Brothers commenced its due diligence review
of CBT and Knowledge Well.
At a meeting of our board of directors held on October 27, 1998, our board
of directors formed an Independent Committee consisting of John P. Hayes,
Patrick J. McDonagh and James S. Krzywicki to consider the acquisition of
Knowledge Well. The members of the Independent Committee are neither directors,
officers nor shareholders of Knowledge Well and otherwise have no economic
interest in Knowledge Well. To date, Knowledge Well has been engaged primarily
in product development and creating its sales organization and has not employed
significant legal or financial staff. On certain occasions prior to the
commencement of discussions of the potential acquisition, Mr. Hayes, who is a
personal friend of Messrs. McCabe and Priest, had at their request assisted
them with certain Knowledge Well projects with legal or financial components.
These projects were done on Mr. Hayes' own time and he was not remunerated in
any way with respect to them.
On October 28, 1998, at a telephonic meeting of the Independent Committee,
Lehman Brothers made a formal presentation to the Independent Committee
regarding their qualifications to provide financial advisory services
concerning the proposed acquisition of Knowledge Well. The Independent
Committee also considered appointing an independent Irish legal counsel
separate from our outside Irish general counsel, Binchys, Solicitors.
On October 30, 1998, the Independent Committee agreed in principle to retain
Lehman Brothers to act as financial advisor to the Independent Committee.
On November 3, 1998, Mr. Hayes, on behalf of the Independent Committee, met
with and retained Arthur Cox, Solicitors, to act as Irish counsel to the
Independent Committee. In this capacity, among other matters, representatives
from Arthur Cox advised the Independent Committee on its fiduciary duties with
respect to the proposed transaction.
On November 4, 1998, the Independent Committee, Arthur Cox and Lehman
Brothers met telephonically to discuss the valuation of Knowledge Well. Lehman
Brothers presented their preliminary valuation of Knowledge Well and the
projected financial results of Knowledge Well. Binchys and Wilson Sonsini
Goodrich & Rosati, P.C. ("WSGR") participated in the early portion of the call
for logistical reasons, and left the meeting prior to discussion of Lehman
Brothers' findings.
From November 4, 1998 to November 20, 1998, representatives of the
Independent Committee, Lehman Brothers, Arthur Cox, Binchys and WSGR
participated in a series of telephonic meetings in which the structure of the
transaction was discussed. During this period, the Independent Committee, and
its counsel and financial advisor, engaged in due diligence discussions with a
variety of Knowledge Well personnel.
From November 4, 1998 to November 20, 1998, Mr. Hayes, as spokesman for the
Independent Committee, participated in a series of discussions with a
representative of the shareholders of Knowledge Well to negotiate the price of
the Share Exchange.
From November 4, 1998 to November 27, 1998, Mr. Hayes, as spokesman for the
Independent Committee, ,Binchys, WSGR, Knowledge Well and Knowledge Well's
counsel negotiated the terms of the Share Purchase Agreement and related
agreements.
On or about November 22, 1998, Mr. Hayes, as spokesman for the Independent
Committee, and Messrs. McCabe and Priest, on behalf of the shareholders of
Knowledge Well, agreed upon $52 million of total consideration.
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On November 27, 1998, the Independent Committee, Lehman Brothers, CBT,
Knowledge Well and CBT's auditors and advisors discussed the proposed
accounting treatment for the transaction as a pooling-of-interests.
On November 28, 1998, the Independent Committee reviewed the assumption of
Knowledge Well employee stock options, the Share Purchase Agreement and related
agreements.
At a November 29, 1998 meeting of the Independent Committee, Lehman Brothers
orally presented their opinion, which they subsequently confirmed in writing,
that the exchange ratio to be paid by us in the Share Exchange was fair to us
from a financial point of view. Arthur Cox reviewed with the Independent
Committee its fiduciary duties. Satisfied with the due diligence of Knowledge
Well and after discussion of the foregoing matters and the additional benefits
that could be realized by us, the Independent Committee concluded that the
Share Exchange is in our best interests and our shareholders best interests
regardless of whether the transaction is accounted for as a purchase or as a
pooling-of-interests and approved the transaction and the Share Purchase
Agreement.
On November 30, 1998, the Independent Committee, on our behalf, Knowledge
Well and the shareholders of Knowledge Well executed the Share Purchase
Agreement and related agreements. The signature pages were held in escrow
pending resolution of certain accounting and ministerial drafting issues.
From November 30, 1998 to December 8, 1998, the Independent Committee, our
accountants and significant shareholders of Knowledge Well continued to discuss
the accounting treatment of the transaction as a pooling-of-interests. On
December 8, 1998, we were advised that the transaction could not be accounted
for as a pooling-of-interests.
On December 9, 1998, the signature pages for the Share Purchase Agreement
and the related agreements were released from escrow and delivered to the
parties.
On December 9, 1998, the Independent Committee held a meeting to discuss
amending and restating the Share Purchase Agreement (as executed on November
30, 1998) to reflect certain changes as a result of the intention to account
for the Share Exchange as a purchase transaction. The Independent Committee, on
our behalf, Knowledge Well and the shareholders of Knowledge Well agreed upon
such changes on December 9, 1998 and executed the Amended and Restated Share
Purchase Agreement reflecting such changes on March 30, 1999.
Throughout the course of the negotiations between the Independent Committee
and Knowledge Well, Mr. Hayes often negotiated the terms of the transaction as
spokesman for the Independent Committee, without the presence of the other
committee members. The Independent Committee authorized and directed Mr. Hayes
to conduct such negotiations, and all such negotiations by Mr. Hayes were
conducted in accordance with frequent telephonic instructions from the other
members of the Independent Committee.
During the negotiation of the transaction, Messrs. McCabe and Priest
represented the Knowledge Well shareholders. In addition, the Knowledge Well
shareholders were represented by Mason, Hayes & Curran, Solicitors, with
respect to Irish legal matters.
Fairness Opinion of the Financial Advisor to the Independent Committee
The Independent Committee of our board of directors engaged Lehman Brothers
to act as its financial advisor in connection with the Share Exchange. The
Independent Committee instructed Lehman Brothers, in its role as a financial
advisor, to evaluate the fairness, from a financial point of view, to us of the
Exchange Ratio to be paid in the Share Exchange, and to conduct such
investigations as Lehman Brothers deemed appropriate for such purposes. On
November 29, 1998, Lehman Brothers delivered its oral opinion to the
Independent Committee of our board of directors (subsequently confirmed in
writing as of such date) to the effect that, as of such date and based upon and
subject to certain matters stated therein, from a financial point of view, the
Exchange Ratio to be paid in the Share Exchange was fair to us.
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The full text of Lehman Brothers' written opinion dated November 29, 1998 is
attached as Annex E to this Proxy Statement (the "Lehman Opinion") and is
incorporated herein by reference. Shareholders may read the Lehman Opinion for
a discussion of assumptions made, matters considered and limitations on the
review undertaken by Lehman Brothers in rendering its Opinion. The summary of
the Lehman Opinion set forth in this proxy statement is qualified in its
entirety by reference to the full text of such Opinion.
No limitations were imposed by the Independent Committee on the scope of
Lehman Brothers' investigation or the procedures to be followed by Lehman
Brothers in rendering its opinion. The form and amount of the consideration to
be paid by us in the Share Exchange was determined through arm's-length
negotiations between the parties. In arriving at its opinion, Lehman Brothers
did not ascribe a specific range of values to CBT or Knowledge Well but made
its determination as to the fairness of the Exchange Ratio on the basis of the
financial and comparative analyses described below. Lehman Brothers' opinion is
for the use and benefit of the Independent Committee and was rendered to the
Independent Committee in connection with its consideration of the Share
Exchange. Lehman Brothers' opinion does not constitute a recommendation to any
holder of our American Depository Shares as to how such holder should vote with
respect to the Share Exchange. Lehman Brothers was not requested to opine as
to, and its opinion does not address, our underlying business decision to
proceed with or effect the Share Exchange.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
. the Share Exchange and the specific terms of the Share Purchase
Agreement, including with respect to the management of CBT following
consummation of the Share Exchange
. publicly available information concerning us that Lehman Brothers
believed to be relevant to its analysis, including the Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998
. financial and operating information with respect to the business,
operations and prospects of Knowledge Well and CBT furnished to Lehman
Brothers by Knowledge Well and CBT, respectively
. a trading history of our American Depository Shares from April 13, 1995
to the present and a comparison of that trading history with those of
other companies that Lehman Brothers deemed relevant
. a comparison of our historical financial results and present financial
condition with those of other companies that Lehman Brothers deemed
relevant
. a comparison of the historical financial results and present financial
condition of Knowledge Well with those of other companies that Lehman
Brothers deemed relevant
. third-party research analysts' quarterly and annual earnings estimates
for us
. a comparison of the financial terms of the Share Exchange with the
financial terms of certain other transactions that Lehman Brothers deemed
relevant
. the potential pro forma financial effects of the Share Exchange on us,
including operating synergies, revenue enhancements and other strategic
benefits expected by managements of CBT and Knowledge Well to result from
a combination of the businesses of CBT and Knowledge Well
In addition, Lehman Brothers had discussions with the managements of CBT and
Knowledge Well concerning their respective businesses, operations, assets,
financial conditions and prospects, and undertook such other studies, analyses
and investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of management of CBT
and Knowledge Well that they are not aware of any facts or circumstances that
would make such information inaccurate or
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misleading in any material respect. With respect to the financial projections
of Knowledge Well, upon advice of Knowledge Well, Lehman Brothers assumed that
such projections had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Knowledge Well
as to the future financial performance of Knowledge Well and that Knowledge
Well would perform in accordance with such projections. However, in performing
its analysis, Lehman Brothers was not provided with, and did not have access
to, financial projections of us prepared by our management. Accordingly, with
respect to our future financial performance, upon our direction, Lehman
Brothers assumed that the estimates of third-party research analysts (in
particular, BancBoston Robertson Stephens in a report dated October 13, 1998
and Goldman Sachs in a First Call Note dated November 6, 1998) were a
reasonable basis upon which to analyze and evaluate the future financial
performance of us and that we would perform substantially in accordance with
such estimates. With respect to the projected operating synergies, revenue
enhancements and other strategic benefits expected to result from the
combination of the business of CBT and Knowledge Well, upon advice of CBT and
Knowledge Well, Lehman Brothers assumed that such projections had been
reasonably prepared on a basis reflecting the then best currently available
estimates and judgments of the managements of CBT and Knowledge Well and that
such projected operating synergies, revenue enhancements and other strategic
benefits will be achieved substantially as projected. In arriving at its
opinion, Lehman Brothers did not conduct a physical inspection of the
properties and facilities of Knowledge Well and did not make or obtain any
evaluations or appraisals of the assets or liabilities of Knowledge Well.
Lehman Brothers' opinion necessarily is based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of its
opinion letter.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation
of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its opinion, Lehman Brothers did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portion of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinion. In its
analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of CBT or Knowledge Well. Any estimates
contained in the analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.
Discounted Cash Flow Analysis
Lehman Brothers prepared an after-tax cash flow model that was based upon
financial projections prepared by the management of Knowledge Well. Lehman
Brothers used discount rates of 30% to 40% and a terminal value based on a
range of revenue multiples of 4.0x to 5.0x applied to Knowledge Well's
projected fiscal 2001 revenues. The terminal value multiples were selected
based on the trading multiples of similar publicly traded companies and the
multiples of recently completed or proposed acquisitions of similar assets and
companies.
This methodology implied a range of exchange ratios of 0.1415 to 0.1886
American Depository Shares or ordinary shares (as the case may be) of CBT for
each Knowledge Well Share, based upon the closing price of our American
Depository Shares on November 27, 1998 of $10.75. The Exchange Ratio of 0.1635
falls within this range.
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Comparable Transactions Analysis
Lehman Brothers reviewed certain publicly available information on selected
transactions which were announced or took place from April 1997 to May 1998,
including,
. the acquisition of The ForeFront Group, Inc. by CBT Group PLC
. the acquisition of Mastering, Inc. by PLATINUM Technology, Inc.
. the acquisition of National Education Corporation by Harcourt General,
Inc.
. the acquisition of International Business Schools by Education Investment
Corporation
. the acquisition of College for Financial Planning by Apollo Group, Inc.
For each transaction, relevant transaction multiples were analyzed including
the total purchase price, determined as the equity purchase price plus assumed
obligations, divided by latest twelve month revenues. The selected transactions
provided a range of revenue multiples of 1.8x to 7.6x which were used to arrive
at an enterprise value of Knowledge Well.
This methodology implied a range of exchange ratios of 0.1100 to 0.1729
American Depository Shares or ordinary shares, as the case may be, of CBT for
each Knowledge Well Share, based upon the closing price of our American
Depository Shares on November 27, 1998 of $10.75. The Exchange Ratio of 0.1635
falls within this range.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Knowledge Well and the acquired businesses analyzed, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the characteristics of these
transactions and the Share Exchange that would affect the acquisition values of
Knowledge Well and such acquired companies.
Knowledge Well Comparable Company Analysis
Lehman Brothers reviewed the public stock market trading multiples for
selected companies that Lehman Brothers deemed comparable to Knowledge Well, as
follows:
. Post-Secondary Education Tier
. Apollo Group, Inc.
. DeVry, Inc.
. Education Management Corporation
. ITT Educational Services, Inc.
. Strayer Education, Inc.
. Technology-Based Education Tier
. Asymetrix Learning Systems, Inc.
. Caliber Learning Network, Inc.
. CBT Group PLC
Using publicly available information, including estimates published in
third-party research reports, Lehman Brothers calculated and analyzed certain
actual and projected financial, operating and stock market information. The
analysis indicated that enterprise values of the post-secondary education tier,
determined as
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equity market value plus net debt, as a multiple of latest twelve months
revenues and latest twelve months earnings before interest and taxes ranged
from 2.7x to 9.4x and 23.3x to 33.2x, respectively; latest twelve months
revenue multiples in the technology-based education tier ranged from 2.2x to
3.1x. The analysis also indicated that equity market values of the post-
secondary education tier as a multiple of calendar 1998 earnings ranged from
34.5x to 53.0x.
This methodology implied a range of exchange ratios of 0.1415 to 0.2044
American Depository Shares or ordinary shares, as the case may be, of CBT for
each Knowledge Well Share, based upon the closing price of our American
Depository Shares on November 27, 1998 of $10.75. The Exchange Ratio of 0.1635
falls within this range.
Because of the inherent differences between the businesses, operations and
prospects of Knowledge Well and the businesses, operations and prospects of the
companies included in the comparable company groups, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the financial and operating
characteristics of Knowledge Well and companies in the comparable company
groups that would affect the public trading values of Knowledge Well and such
comparable companies.
CBT Stock Trading Analysis
Lehman Brothers reviewed the daily historical closing prices of our American
Depository Shares from April 13, 1995 to November 27, 1998 and compared that
trading history with those of other companies that Lehman Brothers deemed
relevant. Based on this analysis, CBT's American Depository Shares increased
70% during this period; such other companies that Lehman Brothers deemed
relevant, on average, increased 373% during this period.
CBT Comparable Company Analysis
Lehman Brothers reviewed the public stock market trading multiples for
selected companies that Lehman Brothers deemed comparable to us, as follows:
. Information Technology Training/Education Tier
. Computer Learning Centers, Inc.
. DeVry, Inc.
. ITT Educational Services, Inc.
. Learning Tree International, Inc.
. Tools/Distribution Tier
. Asymetrix Learning Systems, Inc.
. Caliber Learning Network, Inc.
Using publicly available information, including estimates published in
third-party research reports, Lehman Brothers calculated and analyzed certain
actual and projected financial, operating and stock market information. The
analysis indicated that enterprise values of the information technology
training/education tier, determined as equity market value plus net debt, as a
multiple of revenues and latest twelve months earnings before interest and
taxes ranged from 0.7x to 4.7x and 8.0x to 33.2x, respectively; latest twelve
months revenue multiples in the tools/distribution tier ranged from 2.2x to
3.1x. The analysis also indicated that equity market values of the information
technology training/education tier as a multiple of calendar 1998 earnings
ranged from 11.5x to 53.0x. By comparison, enterprise value as a multiple of
latest twelve months revenues and latest twelve months earnings before interest
and taxes for us were 2.3x and 13.0x, respectively, and equity value as a
multiple of calendar 1998 earnings was 22.9x.
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Contribution Analysis
Lehman Brothers analyzed the relative income statement contribution of CBT
and Knowledge Well to the combined company based on 2000 projected financial
data and assuming no cost savings or operating synergies. Projected financial
data was based on third-party research estimates with respect to us and
provided by management of Knowledge Well with respect to Knowledge Well. This
analysis indicated that Knowledge Well will contribute approximately 9% of the
combined company's net income. In the transaction, Knowledge Well shareholders
will receive approximately 9% of the combined company's equity.
Pro Forma Share Exchange Consequences Analysis
Lehman Brothers also prepared a pro forma Share Exchange model which
incorporates CBT's and Knowledge Well's financial projections for the years
1999 and 2000 as well as the companies' estimates of future cost savings,
operating synergies and strategic benefits expected to result from the Share
Exchange. Lehman Brothers then compared our earnings on a standalone basis to
the earnings attributable to our interest in the pro forma combined company.
Lehman Brothers noted that, on a purchase method of accounting basis, the
transaction is dilutive to our pro forma earnings in both 1999 and 2000.
Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Independent Committee selected Lehman Brothers because of its expertise,
reputation and familiarity with the training sector and because its investment
banking professionals have substantial experience in transactions comparable to
the Share Exchange.
Pursuant to the terms of our engagement letter agreement dated October 28,
1998 with Lehman Brothers, we have agreed to pay Lehman Brothers a fee of
$250,000 payable upon issuance of the opinion letter and creditable against a
transaction fee of $750,000 payable upon successful completion of the
transaction contemplated by the Share Purchase Agreement. In addition, we have
agreed to reimburse Lehman Brothers for its reasonable expenses incurred in
connection with its engagement, and to indemnify Lehman Brothers and certain
related persons against certain liabilities in connection with its engagement,
including certain liabilities which may arise under federal securities laws.
In the ordinary course of its business, Lehman Brothers actively trades in
our equity securities for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
Interests of Certain Persons in the Share Exchange
In considering the recommendation of the Independent Committee of our board
of directors with respect to the Share Purchase Agreement, the Share Exchange
and the issuance of CBT ordinary shares pursuant to the Share Exchange, holders
of our ordinary shares and ADSs should be aware that a number of our directors
have certain interests in the Share Exchange as below discussed. The
Independent Committee, consisting of three directors of our board of directors
who were neither directors, officers nor shareholders of Knowledge Well and
otherwise have no economic interest in Knowledge Well, has considered these
interests, among other matters, in recommending the approval of the Share
Exchange.
William G. McCabe is a former Chief Executive Officer and the current
Chairman of our board of directors and is also the founder and a former member
of the board of each of Knowledge Well Limited and Knowledge Well Group
Limited. Immediately prior to the closing of the Share Exchange, Mr. McCabe
will be the beneficial owner of approximately 69.0% (on a fully diluted basis)
of Knowledge Well. Mr. McCabe will receive beneficial ownership of 2,792,355
CBT ordinary shares upon the closing of the Share Exchange. In addition, by
assuming options outstanding under the Knowledge Well stock option plans, we
will also assume
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Mr. McCabe's options to purchase Knowledge Well ordinary shares, such that
Mr. McCabe will have options to acquire up to 546,361 CBT ordinary shares
pursuant to such assumption.
Gregory M. Priest is our former Vice President, Finance and Chief Financial
Officer and our current President and Chief Executive Officer and a member of
our board of directors. At the time the Share Purchase Agreement was executed,
Mr. Priest was the President and Chief Executive Officer and a member of the
board of each of Knowledge Well Limited and Knowledge Well Group Limited.
Immediately prior to the closing of the Share Exchange, Mr. Priest will be the
beneficial owner of approximately 9.7% of Knowledge Well (on a fully diluted
basis). Mr. Priest will receive 325,073 CBT ordinary shares upon the closing of
the Share Exchange. In addition, by assuming options outstanding under the
Knowledge Well stock option plans, we will also assume Mr. Priest's options to
purchase Knowledge Well ordinary shares, such that Mr. Priest will have options
to acquire up to 143,184 CBT ordinary shares pursuant to such assumption.
John M. Grillos, our current Chief Operating Officer and a member of our
board of directors, is also the owner of approximately 0.9% of Knowledge Well
(on a fully diluted basis). Mr. Grillos will receive 44,846 CBT ordinary shares
upon the closing of the Share Exchange. In addition, ITech Partners L.P., a
venture capital limited partnership of which Mr. Grillos serves as the sole
general partner, is the owner of approximately 0.7% of Knowledge Well (on a
fully diluted basis). ITech Partners L.P. will receive 35,876 CBT ordinary
shares upon the closing of the Share Exchange.
Each CBT ordinary share is represented by one CBT ADS. The closing price of
CBT ADSs on the Nasdaq National Market on the last trading day prior to the
approval of the Share Exchange by the Independent Committee was $10.75 per ADS.
The closing price of CBT ADSs on the Nasdaq National Market on April 30, 1999
was $15.5 per ADS.
Based upon our capitalization as of May 3, 1999, the shareholders and
optionholders of Knowledge Well will hold approximately 9% of the total number
of equivalent ADSs issued and outstanding after consummation of the Share
Exchange. This percentage assumes exercise by such shareholders and
optionholders of all options to purchase CBT ordinary shares, including options
to purchase ordinary shares of Knowledge Well that will be assumed by us in the
Share Exchange, exercisable within 60 days of the date of the Extraordinary
General Meeting.
Government and Regulatory Approvals
Under the HSR Act, and the rules promulgated thereunder by the Federal Trade
Commission, the Share Exchange cannot be consummated until notifications have
been given and certain information has been furnished to the FTC or the
Antitrust Division of the Department of Justice and the specified waiting
period has been satisfied. The notifications required under the HSR Act as well
as certain information have been furnished to the FTC and the Antitrust
Division. At any time before or after consummation of the Share Exchange, and
notwithstanding that the HSR Act waiting period has expired, the Antitrust
Division, the FTC or any state or foreign governmental authority, could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest. Such action could include seeking to enjoin the consummation
of the Share Exchange or seeking divestiture of Knowledge Well or businesses of
CBT or by CBT. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Under the Mergers, Take-Overs and Monopolies (Control) Act, 1978 (as
amended) there is a requirement to notify the Minister for Enterprise, Trade
and Employment prior to completion of a proposed merger or takeover if two or
more of the parties involved in the proposal exceed one of two financial
thresholds. Under the Mergers Act title to any shares concerned does not pass
until the Minister has stated in writing that he has decided not to make an
order in relation to the proposed merger or take-over, or he has stated in
writing that he has made a conditional order in relation to it, or the relevant
period under the Mergers Act has elapsed without the Minister having made any
order in relation to the proposed merger or take-over. As we and certain of the
shareholders of Knowledge Well exceed one or both of the financial thresholds
the Share Exchange was
35
<PAGE>
notified to the Minister and the Minister has confirmed in writing that, based
upon the information provided to him by us, the Share Exchange does not require
to be notified and that the Minister does not intend to make an order under the
Mergers Act.
Based on information available to us, we believe that the Share Exchange
will be effected in compliance with federal, state and foreign antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Share Exchange on antitrust grounds will not be made or that, if such a
challenge were made, CBT and Knowledge Well would prevail.
Accounting Treatment
We intend to account for the Share Exchange under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on their estimated fair values at the
time of the closing of the Share Exchange. We intend to record an expense of
approximately $5.4 million in the quarter in which the Share Exchange closes
with respect to the write-off of in-process research and development acquired
in the Share Exchange. The intangible assets recorded with respect to the Share
Exchange are expected to be amortized over a period of five to ten years
following the closing of the Share Exchange. Our results of operations will not
include the results of Knowledge Well prior to the closing date of the Share
Exchange.
Rights of the Security Holders of the Company
The rights of our security holders will not be affected by the Share
Exchange.
36
<PAGE>
TERMS OF THE SHARE EXCHANGE
The following summarizes the material provisions of the Share Purchase
Agreement and certain related agreements, copies of which are attached as
Annexes A through D to this proxy statement and are incorporated herein by
reference. This summary is qualified by reference to the more detailed
information set forth in the Share Purchase Agreement and such related
agreements.
Closing. The closing of the Share Exchange will take place no later than
five (5) business days, following satisfaction or waiver of the conditions to
closing set forth in the Share Purchase Agreement, which are described below,
unless another place or time is agreed to by us, Knowledge Well and the
shareholders of Knowledge Well.
Acquisition Price. We will issue the shareholders of Knowledge Well an
aggregate of 4,018,395 CBT ordinary shares (or American Depositary Shares
representing such ordinary shares). If all assumed options vest and are
exercised, we will issue to the option holders of Knowledge Well an additional
818,814 CBT ordinary shares (or American Depositary Shares representing such
ordinary shares) in exchange for payment by the option holders of the aggregate
option exercise price. As a result, we could pay a total of as many as
4,837,209 shares in connection with the Share Exchange.We will pay to each
Knowledge Well shareholder for each Knowledge Well ordinary share exchanged the
number of our ordinary shares that is equal to the "Exchange Ratio". The
"Exchange Ratio" is the quotient (rounded to the nearest 1/10,000th) obtained
by dividing (x) 4,837,209 by (y) the sum of (1) the total number of Knowledge
Well ordinary shares issued immediately prior to the closing plus (2) the total
number of shares in Knowledge Well of any class issuable upon exercise of all
options, warrants and similar rights outstanding immediately prior to the
closing of the Share Exchange.
Treatment of Employee Equity Benefit Plans. At the closing, we will assume
all outstanding options to purchase shares in Knowledge Well under the
Knowledge Well Limited 1998 Share Option Plan and the Knowledge Well Group
Limited 1998 Share Option Plan. We must file a Form S-8 under the Securities
Act of 1933 with respect to the assumed options no later than fifteen days
after the closing of the Share Exchange.
Representations and Warranties. CBT, Knowledge Well, and the shareholders of
Knowledge Well each made a number of representations and warranties in the
Share Purchase Agreement relating to CBT's and Knowledge Well's respective
businesses and various other matters. All representations and warranties in the
Share Purchase Agreement and all covenants to be performed prior to the closing
will survive for two years following the closing of the Share Exchange, except
as otherwise provided. The representations and warranties in the Share Purchase
Agreement are complicated and not easily summarized. You are urged to carefully
read the articles in the Share Purchase Agreement entitled "Representations and
Warranties of the Shareholders," "Additional Representations and Warranties of
the Shareholders," and "Representations and Warranties of CBT."
Knowledge Well's Conduct of Business Before Completion of the Share
Exchange. The Knowledge Well Shareholders and Martin Scully as a director of
Knowledge Well have agreed that until completion of the Share Exchange, or the
termination of the Share Purchase Agreement, or unless we consent in writing,
that Knowledge Well will operate its business in good faith and its ordinary
course of operations with the goal of:
. preserving unimpaired its goodwill and ongoing business;
. preserving intact its present business organization;
. keeping available the services of its present officers and key employees
and maintaining their relationships with
-- customers,
-- suppliers,
37
<PAGE>
-- distributors,
-- licensors,
-- licensees, and
-- others having business dealings with them.
Furthermore, Knowledge Well has agreed not to take a specific list of
actions without our prior written consent. The agreements related to the
conduct of Knowledge Well's business in the Share Purchase Agreement are
complicated and not easily summarized. You are urged to carefully read the
section in the Share Purchase Agreement entitled "Conduct of Business of
Knowledge Well."
No Other Negotiations Involving Knowledge Well. Until the Share Exchange is
completed or the Share Purchase Agreement is terminated, Knowledge Well has
agreed not to take any of the following actions with any party other than us:
. soliciting, conducting discussions with or engaging in negotiations with
any person, relating to the possible acquisition of Knowledge Well or
any of its subsidiaries (whether by way of share exchange, purchase of
share capital, purchase of assets or otherwise) or any material portion
of its or their share capital or assets,
. providing information with respect to it or any of its subsidiaries to
any person relating to the possible acquisition of Knowledge Well
(whether by way of share exchange, purchase of share capital, purchase
of assets or otherwise) or any material portion of its or their share
capital or assets,
. entering into an agreement with any person providing for the acquisition
of Knowledge Well (whether by way of share exchange, purchase of share
capital, purchase of assets or otherwise) or any material portion of its
share capital or assets, or
. making or authorizing any statement, recommendation or solicitation in
support of any possible acquisition of Knowledge Well or any of its
subsidiaries (whether by way of share exchange, purchase of share
capital, purchase of assets or otherwise) or any material portion of its
or their share capital or assets by any person.
Knowledge Well has agreed to promptly notify us and provide us with detailed
information about any offer or proposal it receives relating to the above.
Conditions to Completion of the Share Exchange. The respective obligations
of each party to the Share Purchase Agreement to complete the Share Exchange
are subject to the satisfaction of the following conditions before completion
of the Share Exchange:
. the Share Exchange must be approved by a majority of our shareholders
who are present in person or by proxy and voting at our Extraordinary
General Meeting, excluding our shareholders who are also shareholders of
Knowledge Well; and
. there must not be any law, regulation or order enacted or issued which
has the effect of making the Share Exchange illegal or otherwise
prohibiting completion of the Share Exchange, and all other U.S. and
Irish governmental requirements must be satisfied.
The Knowledge Well shareholders' obligations to complete the Share Exchange
and related transactions are subject to the satisfaction or waiver of each of
the following conditions before completion of the Share Exchange, any of which
may be waived, in writing, exclusively by William G. McCabe and/or Gregory M.
Priest, as the representatives on behalf of the shareholders of Knowledge Well:
. Our representations and warranties must be true and correct in all
material respects as of November 30, 1998, our representations and
warranties relating to our authorized share capital and issued and
outstanding ordinary shares must be true and correct in all material
respects as of the date
38
<PAGE>
of completion of the Share Exchange, and the shareholders of Knowledge
Well must receive a certificate to such effect signed by one of our vice
presidents;
. We must perform or comply in all material respects with all of our
agreements and covenants required by the Share Exchange, subject to
provisions for curing any non-performance or non-compliance, and the
shareholders of Knowledge Well must receive a certificate to such effect
signed by one of our vice presidents;
. Our ADSs that we will issue to the shareholders of Knowledge Well upon
completion of the Share Exchange, or that they will receive upon resale
of our ordinary shares, must be authorized for listing on the Nasdaq
National Market upon official notice of issuance; and
. We must arrange a restricted ADR facility so that the shareholders of
Knowledge Well are able to receive restricted ADRs instead of restricted
ordinary shares.
Our obligations to complete the Share Exchange and related transactions are
subject to the satisfaction or waiver of each of the following additional
conditions before completion of the Share Exchange:
. the representations and warranties of the Knowledge Well shareholders
must be true and correct in all material respects as of November 30,
1998, the representations and warranties of the shareholders of
Knowledge Well relating to the authorized share capital and issued and
outstanding shares of Knowledge Well as well as the shareholders' good
title to the shares must be true and correct in all material respects as
of the date of completion of the Share Exchange, and we must receive a
certificate verifying such signed by a representative of the
shareholders of Knowledge Well;
. Knowledge Well and the shareholders of Knowledge Well must perform or
comply (subject to provisions for curing any non-performance or non-
compliance) in all material respects with all agreements and covenants
required by the Share Purchase Agreement before the completion of the
Share Exchange, and we must receive a certificate to such effect signed
by the Chief Executive Officer of Knowledge Well and a representative on
behalf of the shareholders of Knowledge Well;
. we must receive a legal opinion from Mason, Hayes & Curran, legal
counsel to Knowledge Well, in reasonably satisfactory form;
. each of the Knowledge Well "affiliates", as defined under Rule 145 of
the Securities Act, must deliver a signed and effective affiliate
agreement;
. William G. McCabe, Gregory M. Priest, Jeffrey Newton, William Beamish,
William Lewis and John M. Grillos each must execute and deliver to us an
employment and noncompetition agreement that is reasonably satisfactory
to us and consistent with all applicable laws;
. if requested by us, our independent accountants must:
-- complete their audit of Knowledge Well's financial statements,
-- confirm that the financial statements present fairly, in all
material respects, the financial position of Knowledge Well, and
-- confirm that, in their view, the financial statements satisfy the
requirements of the SEC with respect to our reporting obligations under
the U.S. federal securities laws;
. all preferred shares of Knowledge Well Group Limited shall have been
converted into ordinary shares on a one-for-one basis and no "C"
ordinary shares of Knowledge Well Limited shall be outstanding; and
. Messrs. McCabe, Priest, Beamish, Peregrine Company Managers Limited,
John Grillos and Patricia Grillos, Itech Partners L.P., Finite
Properties Limited, and Molyneux Secretarial Services Limited shall have
executed a Lock-Up Agreement in the form attached as Annex D to this
proxy statement.
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<PAGE>
Termination of the Share Purchase Agreement. The Share Purchase Agreement
may be terminated and the Share Exchange abandoned at any time prior to the
completion of the Share Exchange:
. by mutual consent of the shareholders of Knowledge Well and us;
. by us or by William G. McCabe and/or Gregory M. Priest, as the
representatives on behalf of the shareholders of Knowledge Well, if
-- the Share Exchange is not completed by June 30, 1999,
-- there is a final nonappealable order of a federal or state court
in the United States or a court in Ireland effectively preventing the
completion of the Share Exchange, or
-- completion of the Share Exchange would be illegal;
. by us if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable
to the Share Exchange, by any governmental entity, which would
-- prohibit our or Knowledge Well's ownership or operation of any
material portion of the business of Knowledge Well or
-- compel us or Knowledge Well to dispose of or hold separate, as a
result of the Share Exchange, any material portion of the business or
assets of Knowledge Well or us;
. by us if we are not in material breach of our obligations under the
Share Purchase Agreement and Knowledge Well or the shareholders of
Knowledge Well have breached any representation, warranty, covenant or
agreement contained in the Share Purchase Agreement, and as a result of
such breach the conditions to the Share Exchange are not satisfied,
subject to provisions for curing such breach; or
. by William G. McCabe and/or Gregory M. Priest, as the representatives on
behalf of the shareholders of Knowledge Well, if Knowledge Well and the
shareholders of Knowledge Well are not in material breach of their
respective obligations under the Share Purchase Agreement and we have
breached any representation, warranty, covenant or agreement contained
in the Share Purchase Agreement and as a result of such breach the
conditions to the Share Exchange are not satisfied, subject to
provisions for curing such breach.
Effect of Termination. If the Share Purchase Agreement is terminated, then
the Share Purchase Agreement will become void and there will be no liability or
obligation of CBT, Knowledge Well or the shareholders of Knowledge Well, or
their respective officers, directors or shareholders, provided that each party
will remain liable for any breaches of the Share Purchase Agreement prior to
its termination, and provided that the provisions regarding the payment of
expenses shall remain in full force and effect and survive any termination of
the Share Purchase Agreement.
Escrow and Indemnification. At the closing, we will deposit 402,000 of the
CBT ordinary shares to be issued to Knowledge Well shareholders into an escrow
account.
The Knowledge Well shareholders have agreed to indemnify and hold us and our
affiliates, officers, directors, employees and shareholders, who we refer to as
"CBT Indemnitees," harmless against any damages, including reasonable
attorneys' fees and expenses, resulting from
. any breach of or inaccuracy in any representations and warranties of
Knowledge Well or the shareholders of Knowledge Well set forth in the
Share Purchase Agreement or in any certificate delivered by Knowledge
Well or the shareholders of Knowledge Well pursuant to the Share
Purchase Agreement, or
. any breach or default by Knowledge Well or the shareholders of Knowledge
Well of any covenant, obligation or other agreement of Knowledge Well or
the shareholders of Knowledge Well set forth in the Share Purchase
Agreement.
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<PAGE>
In addition, each of the shareholders of Knowledge Well agreed, severally
and not jointly, to indemnify and hold the CBT Indemnitees harmless against any
damages resulting from any breach of or inaccuracy in any representations and
warranties of such shareholder of Knowledge Well set forth in the Share
Purchase Agreement. Subject to certain conditions, the liability of the
shareholders of Knowledge Well under this indemnity, other than for damages
caused by any breach of or inaccuracy in any representations or warranties
relating to taxes, shall end two years after the date of completion of the
Share Exchange. The liability of the shareholders of Knowledge Well under this
indemnity for damages caused by any breach of or inaccuracy in any
representations or warranties relating to taxes shall end six years after the
date of completion of the Share Exchange.
In no event shall
. any shareholder of Knowledge Well be liable under the indemnity
described above or any other theory of liability for damages in
connection with the Share Exchange for an amount greater than the lesser
of (1) such shareholder's pro rata share of the acquisition price or (2)
such shareholder's pro rata share of any loss we suffer or
. any CBT Indemnitee be reimbursed for any damages under the indemnity
described above or any other theory of liability in connection with the
transactions contemplated by the Share Exchange until the aggregate of
all damages exceeds $500,000, after which all damages, including such
$500,000, shall become payable in accordance with the provisions of the
Share Purchase Agreement.
As partial security for the obligations of each shareholder of Knowledge
Well pursuant to the indemnity described above, the escrow amount shall be
deposited with an escrow agent and shall be controlled by the terms of the
escrow agreement in substantially the form attached as Annex C to this proxy
statement.
Registration Rights. Under the terms of a Declaration of Registration
Rights, we have agreed to register the CBT ordinary shares to be issued in the
Share Exchange. We have agreed to file with the SEC a registration statement
covering all of the CBT ordinary shares within 30 days after the closing of the
Share Exchange to permit the resale of all such CBT ordinary shares. We have
further agreed to use our best efforts to cause the registration statement to
become effective as soon thereafter as possible and to maintain the
effectiveness of the registration statement for two years after the closing of
the Share Exchange. The registration rights described above are subject to the
shareholders of Knowledge Well providing certain information to us that is
required to register the ordinary shares.
Lock-Up. Under the terms of a lock-up agreement, certain shareholders of
Knowledge Well, including Messrs. McCabe, Priest and Grillos have agreed
. from the closing of the Share Exchange until October 1, 1999, not to
offer to sell, contract to sell or otherwise sell, dispose of, or grant
any rights with respect to any ordinary shares issued in the Share
Exchange or upon exercise of options assumed by us in connection with
the Share Exchange (we refer to these securities collectively as the
"Locked-up Securities") without the prior written consent of the members
of our board of directors who are not former shareholders of Knowledge
Well, and
. from October 1, 1999 to October 1, 2000, not to dispose of more than 50%
of the Locked-up Securities without the prior written consent of the
members of our board of directors who are not former shareholders of
Knowledge Well.
The lock-up agreements permit the Locked-up Securities to be pledged as
collateral in certain circumstances.
41
<PAGE>
TAX CONSEQUENCES
U.S. Tax Consequences of the Share Exchange. We will not recognize any tax
gain or loss as a result of the Share Exchange, neither will you.
Irish Capital Duty and Stamp Duty.
Irish law generally requires a "capital company", which we are, to pay a
"capital duty" on the issuance of shares. The rate of the duty would be 1% of
the value of the consideration we receive for the shares. You will not have to
pay any capital duty as a shareholder.
A provision under Irish law, however, provides relief from capital duty and
stamp duty (as discussed below) where a capital company engages in a good faith
"amalgamation" or "reconstruction", as defined under the relevant legislation.
To obtain this relief, we must fulfill several conditions. Furthermore, to
obtain relief from stamp duty, we must be engaging in the amalgamation or
reconstruction for commercial purposes and not for avoiding tax liabilities. We
must apply to the Revenue Commissioners to obtain the relief. If we succeed in
the application, then we will pay no capital duty on the acquisition of
Knowledge Well.
While we cannot guarantee that we will obtain the relief, our Irish counsel
believe that we have met the conditions for it in acquiring Knowledge Well.
However, we may still later become liable for capital duty, especially if
Knowledge Well shareholders dispose of the shares acquired in the transaction
within specific periods.
Irish law generally requires the payment of "stamp duty", a tax on certain
documents, on transfer of shares with an executed instrument of transfer, with
certain exceptions such as transfers between spouses or transactions in
companies registered in Ireland. The transferee of the shares on a sale
generally has to pay IR(Pounds)1 for every IR(Pounds)100 or part thereof (the
ad valorem rate), of the amount or value of the consideration (i.e., purchase
price). Where the consideration for the sale is expressed in a currency other
than Irish pounds, the duty will be charged on the Irish pound equivalent
calculated at the rate of exchange on the date of the transfer. In the case of
a transfer by way of gift (subject to certain exceptions) or for considerations
less than the market value of the shares transferred, stamp duty will be
charged at the ad valorem rate on such market value.
A transfer to the depositary or custodian of CBT ordinary shares for deposit
under the deposit agreements in return for ADSs will be similarly chargeable
with stamp duty at the ad valorem rate as will a transfer of CBT ordinary
shares from the depositary or the custodian upon surrender of an ADR for the
purpose of the withdrawal of the underlying CBT ordinary shares in accordance
with the terms of the deposit agreements, unless, in either case, the transfer
does not relate to a sale or contemplated sale or any other change in the
beneficial ownership of such CBT ordinary shares, in which case the transfer
will be chargeable with nominal duty of IR(Pounds)10.
The person accountable for payment of stamp duty is the transferee or, in
the case of a transfer by way of gift or for a consideration less than the
market value, both parties to the transfer. Stamp duty is normally payable
within 30 days after the date of execution of the transfer. Late or inadequate
payment of stamp duty will result in liability to interest, penalties and
fines.
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<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of CBT
is based on the historical consolidated financial statements and has been
prepared to illustrate the effects of the acquisitions of Knowledge Well
Limited and Knowledge Well Group Limited, combined herein as Knowledge Well
Group Limited, as though such acquisitions had occurred on January 1, 1998 for
the purposes of presenting the pro forma statements of operations and on
December 31, 1998 for the purposes of presenting the pro forma balance sheet.
This pro forma information should be read in conjunction with the respective
historical financial statements and related notes thereto of CBT and Knowledge
Well Group Limited incorporated by reference or included elsewhere in this
proxy statement.
Our pro forma results of operations for the year ended December 31, 1998
have been derived from our financial statements for the year ended December 31,
1998, and Knowledge Well Group Limited's combined financial statements for the
year ended October 31, 1998.
For financial accounting purposes, the acquisition of Knowledge Well will be
accounted for using the purchase method of accounting. Accordingly, Knowledge
Well's assets and liabilities have been adjusted to reflect their fair values
in the pro forma condensed consolidated balance sheet as of October 31, 1998.
The effects resulting from these adjustments have been reflected in the pro
forma condensed consolidated statement of operations. The pro forma adjustments
include, in the opinion of management, all adjustments necessary to give pro
forma effect to the acquisition as though such transaction had occurred on
January 1, 1998 for the purpose of presenting the pro forma statements of
operations and on December 31, 1998 for the purposes of presenting the pro
forma balance sheet.
The unaudited pro forma consolidated financial information is not
necessarily indicative of how our balance sheet and results of operations would
have been presented had the transactions referenced above actually been
consummated at the assumed dates, nor is it necessarily indicative of
presentation of our balance sheet and results of operations for any future
period. The unaudited pro forma consolidated financial information should be
read in conjunction with the historical consolidated financial statements and
related notes thereto incorporated by reference or included herein.
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<PAGE>
CBT GROUP PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1998 October 31, 1998
----------------- ----------------
Knowledge Well Pro Forma
CBT Group Adjustments Pro Forma
----------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 65,648 $ 4,745 $ -- $ 70,393
Short term
investments........... 36,386 -- -- 36,386
Accounts receivable,
net................... 43,508 -- -- 43,508
Inventories............ 247 -- -- 247
Deferred tax assets,
net................... 253 -- -- 253
Prepaid expenses....... 5,777 343 -- 6,120
-------- ------- ------- --------
Total Current assets.. 151,819 5,088 156,907
-------- ------- ------- --------
Intangibles, net....... 4,237 -- 33,950 (e) 60,700
22,513 (f)
Property and equipment,
net................... 17,636 686 -- 18,322
Investment............. 550 -- -- 550
Other assets........... 16,002 -- -- 16,002
-------- ------- ------- --------
Total assets.......... $190,244 $ 5,774 $56,463 $252,481
======== ======= ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank
overdraft facility and
overdrafts............ $ -- $ 74 $ -- $ 74
Accounts payable....... 5,161 96 -- 5,257
Accrued payroll and
related expenses...... 6,790 45 -- 6,835
Other accrued 20,023 978 2,200 (d) 23,201
liabilities...........
Deferred revenues...... 3,004 971 -- 3,975
-------- ------- ------- --------
Total current
liabilities.......... 34,978 2,164 2,200 39,342
-------- ------- ------- --------
Non current liabilities
Minority equity
interest.............. 383 -- -- 383
Other accrued
liabilities........... 82 147 -- 229
-------- ------- ------- --------
Total non current
liabilities.......... 465 147 -- 612
-------- ------- ------- --------
Shareholders' equity
Ordinary shares ....... 6,725 3,319 636 (a) 7,361
(3,319)(c)
Preferred shares....... -- 15 (15)(c) --
Additional paid-in 127,869 6,773 62,490 (a) 190,359
capital............... (6,773)(c)
Accumulated profit 19,293 (6,075) (5,400)(b) 13,893
(deficit)............. 6,075 (c)
Capital redemption..... 231 -- -- 231
Other comprehensive 685 (395) 395 (c) 685
income................
Receivable from -- (174) 174 (c) --
shareholder...........
Treasury stock, 25,769 (2) -- -- (2)
shares at cost........
-------- ------- ------- --------
Total shareholders'
equity............... 154,801 3,463 54,263 212,527
-------- ------- ------- --------
Total liabilities and
shareholders'
equity............... $190,244 $ 5,774 $56,463 $252,481
======== ======= ======= ========
</TABLE>
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements
44
<PAGE>
CBT GROUP PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
12 Months Ended 12 Months Ended
December 31, 1998 October 31, 1998
----------------- ----------------
Knowledge Well Pro Forma Pro
CBT Group Adjustments Forma
----------------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues................ $162,232 $ 48 $ -- $162,280
Cost of revenues........ 25,137 -- -- 25,137
-------- ------- ------- --------
Gross profit............ 137,095 48 -- 137,143
Operating expenses:
Research and
development............ 25,832 3,027 -- 28,859
Sales and marketing..... 75,395 1,088 -- 76,483
General and
administrative......... 15,893 352 -- 16,245
Amortization of acquired
intangibles............ -- -- 6,331 (h) 6,331
Acquired research and
development............ -- -- 980 (g) 980
Costs of acquisition.... 5,505 -- -- 5,505
-------- ------- ------- --------
Total operating
expenses............. 122,625 4,467 7,311 134,403
-------- ------- ------- --------
Income (loss) from
operations............. 14,470 (4,419) (7,311) 2,740
Other Income, net....... 4,734 (3) -- 4,731
-------- ------- ------- --------
Income before provision
for income taxes....... 19,204 (4,422) (7,311) 7,471
Provisions for income
taxes.................. (2,666) -- -- (i) (2,666)
-------- ------- ------- --------
Net income (loss)....... $ 16,538 $(4,422) $(7,311) $ 4,805
======== ======= ======= ========
Net income per Share--
Basic(1)............... $ 0.38 $ 0.10
======== ========
Shares used in computing
net income per
share--Basic(1)........ 43,630 48,467
======== ========
Net income per share--
Diluted(1)............. $ 0.36 $ 0.09
======== ========
Shares used in computing
net income per
share--Diluted(1)...... 45,979 50,816
======== ========
</TABLE>
- --------
(1) The per share data has been restated to reflect the effects of the ordinary
share split and the Knowledge Well Limited share split.
See accompanying notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements
45
<PAGE>
CBT GROUP PLC
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
The unaudited pro forma condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in
the United States after eliminating all material intercompany accounts and
transactions. The acquisition of Knowledge Well is being accounted for under
the purchase method of accounting.
The purchase price of Knowledge Well is $63.1 million and has been allocated
as follows:
<TABLE>
<CAPTION>
Dollars
In
Thousands
---------
<S> <C>
Current and tangible assets.................................... 5,774
Liabilities assumed............................................ (2,311)
------
Net assets..................................................... 3,463
Core developed technology...................................... 4,900
In-process technology.......................................... 5,400
------
Technology..................................................... 10,300
------
Assembled workforce............................................ 1,150
Hamilton college license agreement............................. 2,600
Covenant not to compete........................................ 2,000
Kansas State License agreement................................. 23,300
------
Other identifiable intangible assets........................... 29,050
------
Capitalized transaction costs.................................. (2,200)
Implied goodwill............................................... 22,513
------
Purchase consideration......................................... 63,126
------
</TABLE>
The purchase consideration has been calculated by multiplying 4,837,209
shares to be issued by $13.05 which was our average share price for five days
prior and five days post the announcement of the acquisition. This method of
calculating the share price is consistent with APB No. 16 and EITF 95-19 under
U.S. GAAP.
The following pro forma adjustments have been recorded to reflect the
acquisition:
Condensed Consolidated Balance Sheet--adjustments to reflect the acquisition
as if it had occurred on December 31, 1998
(a) The issuance of 4.8 million CBT ordinary shares for the issued and
outstanding ordinary shares of Knowledge Well at a purchase
consideration of $63.1 million. The ordinary shares of CBT Group PLC
will increase by approximately $636,000 and Additional Paid In Capital
will increase by the remainder of the purchase consideration,
approximately $62,490,000.
(b) The $5.4 million of acquired in-process research and development will
be written off to expense in the period in which the closing of the
acquisition occurs. This write off of in-process research and
development is not reflected in the Unaudited Pro Forma Consolidated
Statements of Operations because pro forma adjustments are limited to
those events that are expected to have a continuing impact.
The $5.4 million of acquired in-process research and development
represents our management's estimate of the current fair value of those
specifically identified Knowledge Well research and development projects
for which technological feasibility has not been established and for
which
46
<PAGE>
alternative future uses do not exist. In estimating such current fair
value, management considered the estimated future after-tax cash flows
attributable to these projects, which were then discounted to present
value utilizing appropriate discount rates commensurate with the risks
of reaching technological feasibility, completing the in-process
projects, and achieving the estimated cash flows (the discount rate was
25%).
(c) Elimination of Knowledge Well pre acquisition shareholder's equity, as
follows:
<TABLE>
<CAPTION>
Dollars
In
Thousands
---------
<S> <C>
Ordinary shares............................................... $3,319
Preference shares............................................. 15
Additional paid-in capital.................................... 6,773
Accumulated deficit........................................... (6,075)
Other comprehensive income.................................... (395)
Receivable from shareholder................................... (174)
------
Total Knowledge Well shareholders equity...................... 3,463
------
</TABLE>
(d) Estimated transaction costs of $2.2 million representing primarily
financial advisor, legal and other professional fees.
(e) Identifiable Intangible Assets
<TABLE>
<CAPTION>
Dollars Amortization
In Period
Thousands Years
--------- ------------
<S> <C> <C>
Assembled workforce............................... $ 1,150 5
Hamilton College license agreement................ 2,600 5
Covenant not to compete........................... 2,000 2
Core developed technology......................... 4,900 5
Kansas State license agreement.................... 23,300 10
-------
$33,950
=======
</TABLE>
(f) Excess purchase price of $22.5 million as goodwill. The final figure
for goodwill will be increased by any reduction in net assets at the
date of closure of the acquisition, currently estimated from
October 31, 1998 to March 31, 1999 to be $2.5 million.
Statements of Operations - adjustments to reflect the acquisition as if it
had occurred on January 1, 1998.
(g) Amortization of core developed technology.
(h) Amortization of Acquired Intangibles:
<TABLE>
<CAPTION>
Dollars
In
Thousands
---------
<S> <C>
Assembled workforce............................................ $ 230
Covenant not to compete........................................ 1,000
Kansas State license agreement................................. 2,330
Hamilton College license agreement............................. 520
Implied goodwill............................................... 2,251
------
6,331
------
</TABLE>
The following are the assumptions used in determining the method and
term of amortization of each of the intangibles noted above:
(i) The assembled workforce intangible will be amortized on a straight-
line basis over a period of five years. The assembled workforce has
been allocated a useful life of five years based on an expected
employee turnover rate of 20% per year, which rate is consistent
with historical turnover rates for our employees;
47
<PAGE>
(ii) The covenant not to compete intangible will be amortized on a
straight line basis over a period of two years. The covenant not
to compete to be included in the employment and non-competition
agreements with Messrs. McCabe and Priest have not yet been fully
negotiated. However, we currently expect such covenants to have a
two-year term and accordingly, we have allocated a useful life of
two years to the covenant not to compete;
(iii) The Kansas State University license agreement intangible will be
amortized on a straight-line basis over a period of ten years. We
have conservatively allocated a useful life of ten years to this
license based on its initial ten-year term;
(iv) The Hamilton College license agreement intangible will be
amortized on a straight-line basis over a period of five years.
We have conservatively allocated a useful life of five years to
this license based on its initial five-year term;
(v) The implied goodwill will be amortized on a straight-line basis
over a period of ten years. The goodwill has been allocated a
useful life of ten years consistent with the period allocated to
the Kansas State University license, which is the most
significant of the acquired intangibles.
(i) Amortization of goodwill and other identifiable intangible assets are
non-tax deductible.
The actual allocation of the purchase price will not occur until the closing
and will be based on the respective fair values of the assets and liabilities
of Knowledge Well at that time.
The unaudited pro forma consolidated information reflects our best
estimates; however the actual financial position and results of operations may
differ from the pro forma amounts reflected herein because of various factors,
including, without limitation, access to additional information, changes in
value and changes in operating results between the date of preparation of the
unaudited pro forma consolidated financial information and the date on which
the acquisition closes. However, in the opinion of management any final
adjustments will not be material to the future financial position and/or
results of operations.
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF CBT
The following table sets forth certain information regarding the beneficial
ownership of our ADSs (or their equivalents) as of December 31, 1998 (unless
otherwise stated) by (a) each director, (b) each Named Executive Officer (as
defined below in "Executive Compensation and Other Matters--Summary
Compensation Table"); (c) each person who is the beneficial owner of more than
five percent (5%) of our ADSs; and (d) all current directors and executive
officers as a group. The number and percentage of ADSs beneficially owned is
determined under the rules of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any equivalent ADSs as to which the individual
has sole or shared voting power or investment power and also any equivalent
ADSs that the individual has the right to acquire within sixty (60) days of
December 31, 1998 through the exercise of share options or other rights. Unless
otherwise indicated, each person has sole voting and investment power (or
shares such powers with his spouse) with respect to the shares shown as
beneficially owned.
<TABLE>
<CAPTION>
Equivalent
ADSs Approximate
Beneficially Percentage
Name of Person or Identity of Group Owned Owned (1)
----------------------------------- ------------ -----------
<S> <C> <C>
Massachusetts Financial Services Company ("MFS")(2).. 5,186,298 11.7%
500 Boylston Street
Boston, MA 02116
Capital Research and Management Company
("Capital")(3).................................... 2,810,000 6.4%
333 South Hope Street
Los Angeles, CA 90071
Putnam Investments, Inc. ("Putnam")(4)............... 1,117,060 2.5%
One Post Office Square
Boston, MA 02109
William G. McCabe (5)................................ 40,996 *
Gregory M. Priest (6)................................ 41,470 *
John M. Grillos (7).................................. 5,000 *
William A. Beamish (8)............................... 23,004 *
William B. Lewis (9)................................. 71,443 *
Jeffrey N. Newton (10)............................... 41,380 *
James J. Buckley (11)................................ 247,930 *
John P. Hayes (12)................................... 14,814 *
Patrick J. McDonagh.................................. 102,000 *
James S. Krzywicki................................... 3,000 *
All current directors and executive officers as a
group (9 persons) (13).............................. 591,037 1.3%
</TABLE>
- --------
* Less than 1%.
(1) Based on 44,358,880 of our ADSs (or their equivalents) issued and
outstanding as of December 31, 1998.
(2) Based on information contained in the Schedule 13G/A filed with the SEC
for the fiscal year ended December 31, 1998 by MFS. Certain shares are
beneficially owned by non-reporting entities as well as MFS.
(3) Based on information contained in the Schedule 13G filed with the SEC for
the fiscal year ended December 31, 1998 by Capital. Capital disclaimed
beneficial ownership pursuant to Rule 13d-4.
(4) Based on information contained in the Schedule 13G filed with the SEC for
the fiscal year ended December 31, 1998 by Putnam. Putnam disclaimed
beneficial ownership on behalf of certain of its affiliated reporting
entities.
(5) Includes 15,996 equivalent ADSs issuable upon the exercise of share
options held by Mr. McCabe, which options are exercisable within sixty
(60) days of December 31, 1998.
49
<PAGE>
(6) Includes 41,458 equivalent ADSs issuable upon the exercise of share
options held by Mr. Priest, which options are exercisable within sixty
(60) days of December 31, 1998.
(7) Includes 5,000 equivalent ADSs issuable upon the exercise of share options
held by Mr. Grillos, which options are exercisable within 60 days of
December 31, 1998.
(8) Includes 23,004 equivalent ADSs issuable upon the exercise of share
options held by Mr. Beamish, which options are exercisable within sixty
(60) days of December 31, 1998.
(9) Includes 60,625 equivalent ADSs issuable upon the exercise of share
options held by Mr. Lewis, which options are exercisable within sixty (60)
days of December 31, 1998.
(10) Includes 41,380 equivalent ADSs issuable upon the exercise of share
options held by Mr. Newton, which options are exercisable within sixty
(60) days of December 31, 1998.
(11) Includes 245,414 equivalent ADSs issuable upon the exercise of share
options held by Mr. Buckley, which options are exercisable within sixty
(60) days of December 31, 1998.
(12) Includes 14,814 equivalent ADSs issuable upon the exercise of share
options held by Mr. Hayes, which options are exercisable within sixty (60)
days of December 31, 1998.
(13) Includes 447,691 equivalent ADSs issuable upon the exercise of options
held by current directors and our executive officers as a group, which
options are exercisable within sixty (60) days of December 31, 1998.
50
<PAGE>
CBT MANAGEMENT AND EXECUTIVE COMPENSATION
Executive Officers
The following persons were our executive officers at the end of the last
fiscal year:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William G. McCabe....... 42 Chairman of the Board
Gregory M. Priest....... 35 President, Chief Executive Officer and Director
John M. Grillos......... 57 Executive Vice President, Chief Operating Officer and Director
William A. Beamish...... 44 Executive Vice President, Product Strategy
William B. Lewis........ 43 Executive Vice President, Global Field Sales
Jeffrey N. Newton....... 44 Executive Vice President, Global Channel Sales
</TABLE>
William G. McCabe was the Chairman of the board of directors, Chief
Executive Officer and President from September 1991 until September 1996, when
he resigned as President. In December 1996, Mr. McCabe resigned as Chief
Executive Officer. In August 1998, Mr. McCabe resigned as Chairman, but
remained a member of the board of directors. In December 1998, Mr. McCabe was
re-appointed as the Chairman of the board of directors.
Gregory M. Priest was appointed President and Chief Executive Officer in
December 1998. From February 1998 until December 1998, Mr. Priest was President
and Chief Executive Officer of Knowledge Well and of Knowledge Well, Inc. Mr.
Priest served as Vice President, Finance and Chief Financial Officer from
December 1995 to January 1998. Mr. Priest has been a director since June 1996.
Prior to joining us, Mr. Priest was an attorney with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, a private law firm representing technology
companies, where he was elected to the partnership in 1995. From June 1989 to
July 1990, Mr. Priest served as a law clerk to Justice Thurgood Marshall of the
United States Supreme Court.
John M. Grillos was appointed Executive Vice President and Chief Operating
Officer in December 1998. Mr. Grillos has been a director since February 1994.
Since June 1996, Mr. Grillos has been the sole General Partner of ITech
Partners, L.P., a venture capital limited partnership focused on seed stage
information technology companies. Prior to joining ITech Partners, Mr. Grillos
was employed by BancBoston Robertson Stephens, an investment banking firm, in
its venture capital group.
William A. Beamish was appointed Executive Vice President, Product Strategy
in December 1998. Mr. Beamish was Vice President, Product Strategy and
Development from 1993 until he resigned on March 31, 1998. Mr. Beamish joined
CBT Systems Ltd. in 1985 as a design consultant. He became head of product
development in 1988 and Development Center Manager in 1990.
William B. Lewis was appointed Executive Vice President Global Field Sales
in December 1998. Since March 1997, Mr. Lewis served as Vice President, North
American Sales. From January 1996 until March 1997, Mr. Lewis served as Area
Vice President of Sales for the southern region and served as Regional Vice
President of Sales for the southern region from January 1994 to January 1996.
Mr. Lewis joined us as a sales manager for the southern region in April 1992
and served in that capacity until January 1994.
Jeffrey N. Newton was appointed Executive Vice President, Global Channel
Sales in December 1998. Mr. Newton served as Vice President, Business
Development from March 1997 until he resigned in June 1998. From January 1996
until March 1997, Mr. Newton served as Area Vice President of Sales for the
northern region and served as Regional Vice President of Sales for the northern
region from January 1994 to January 1996. Mr. Newton joined us as a sales
manager for the northern region in April 1992 and served in that capacity until
January 1994.
51
<PAGE>
Our executive officers are elected by our board of directors on an annual
basis and serve until their successors have been duly elected. There are no
family relationships among our executive officers.
Recent Executive Officer Changes
On October 1, 1998, Mr. James J. Buckley, our Chairman and Chief Executive
Officer and a member of our board of directors, and Mr. Richard Y. Okumoto, our
Senior Vice President of Finance and Chief Financial Officer and also a member
of our board of directors, stepped down from their respective positions. The
decision was made jointly by the members of our board of directors, including
Mr. Buckley and Mr. Okumoto. Upon resignation, we entered into severance
agreements and mutual releases with each of Messrs. Buckley and Okumoto.
Messrs. Buckley and Okumoto were replaced on an interim basis by a newly
formed management committee, consisting of members of our board of directors.
The members of the management committee were Mr. William G. McCabe, our former
Chairman and Chief Executive Officer, Mr. Gregory M. Priest, our former Vice
President of Finance and Chief Financial Officer, and John M. Grillos, a member
of our board of directors. Effective December 10, 1998, we appointed Mr. McCabe
as Chairman of the Board, Mr. Priest as President and Chief Executive Officer
and Mr. Grillos as Executive Vice President and Chief Operating Officer.
Messrs. Priest and Grillos also remain members of our board of directors.
In December 1998, we also appointed Mr. William A. Beamish as Executive Vice
President, Product Strategy and Mr. Jeffrey N. Newton as Executive Vice
President, Global Channel Sales. Both of those individuals had been our
executives and had left our employ earlier in 1998. Also in December 1998, we
promoted Mr. William B. Lewis to Executive Vice President, Global Field Sales.
Prior to the promotion, Mr. Lewis was our Vice President, North American Sales.
We believe, based in part on the low levels of employee attrition that we
have experienced since the end of the third quarter of 1998, that our recent
management changes have helped to restore the confidence of our employees. We
had sequential revenue growth of approximately 20% in the fourth quarter of
1998, as compared to the third quarter. We believe that this improvement
demonstrates an improved level of confidence in the customer base. There may,
however, be material problems in our relations with our employees or customers
in the future.
In connection with the Share Exchange, we will enter into employment and
noncompetition agreements with Messrs. McCabe, Priest, Grillos, Beamish, Lewis
and Newton prior to the closing of the Share Exchange. In the event that the
Share Exchange is not completed for any reason, some or all of these executives
could choose not to execute the agreements and to leave their full-time
employment with us. This could have a material adverse effect on us.
52
<PAGE>
Summary Compensation Tables
In the following tables we disclose compensation earned by each individual
serving as our Chief Executive Officer or acting in a similar capacity and each
of the four other most highly compensated executive officers, whom we refer to
as our "Named Executive Officers", for the fiscal years ended December 31,
1998, 1997 and 1996:
Annual Compensation and Long-term Compensation
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------- -------------------------
Other Annual Options to All Other
Name and Principal Salary Compensation Purchase ADS Compensation
Position Year (1) Bonus (2) Equivalents (3)
------------------ ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James J. Buckley (4) .. 1998 $417,340 $ -- $ -- 120,000 $ --
(Former) Chairman and 1997 385,000 -- -- -- --
Chief Executive 1996 125,618 50,000 -- 970,000 --
Officer
William G. McCabe (5).. 1998 250,000 -- -- 470,000 29,720
Chairman of the Board 1997 250,000 -- -- -- 31,800
1996 120,000 380,000 -- 200,000 32,080
Gregory M. Priest (6).. 1998 56,601 -- -- 410,000 --
President and Chief 1997 180,000 172,000 -- 90,000 --
Executive Officer 1996 125,000 89,250 -- 10,000 --
William B. Lewis (7)... 1998 280,147 19,500 -- 365,196 --
Executive Vice 1997 215,000 75,000 139,047 70,000 --
President 1996 72,000 118,000 -- 72,000 --
Global Field Sales
Jeffrey N. Newton (8).. 1998 203,121 86,398 40,000 350,000 --
Executive Vice 1997 223,000 57,000 86,086 70,000 --
President 1996 72,000 116,000 -- 80,000 --
Global Channel Sales
Richard Y. Okumoto
(9)................... 1998 229,713 -- -- 200,000 --
(Former) Senior Vice
President,
Finance and Chief
Financial Officer
John M. Grillos (10)... 1998 19,154 -- -- 290,000 --
Executive Vice 1997 -- -- -- -- --
President
and Chief Operating
Officer
William A. Beamish
(11).................. 1998 527,500 -- -- 290,000 2,851
Executive Vice 1997 200,000 -- -- -- 6,072
President 1996 74,666 -- -- -- 6,403
Product Strategy
</TABLE>
- --------
(1) Salary includes amount deferred pursuant to our 401(k) plan.
(2) Includes $139,047 and $86,086 paid in 1997 to Messrs. Lewis and Newton,
respectively, for relocation expenses.
(3) Includes payments of $32,080 in 1996, $31,800 in 1997 and $29,720 in 1998
to Mr. McCabe and payments of $6,403 in 1996, $6,072 in 1997 and $2,851 in
1998 to Mr. Beamish, pursuant to defined contribution pension schemes.
(4) Mr. Buckley joined us in September 1996 as President and Chief Operating
Officer. In December 1996, Mr. Buckley became our Chief Executive Officer
and was appointed our Chairman in August 1998. He resigned as an executive
officer and director of us in September 1998. Consequently, Mr. Buckley's
compensation is from September 1996 through September 1998.
53
<PAGE>
(5) Mr. McCabe was our Chairman of the Board, Chief Executive Officer and
President until September 1996, when he resigned as President. In December
1996, he resigned as Chief Executive Officer and in August 1998, he
resigned as Chairman of the Board. In December 1998, Mr. McCabe was re-
appointed Chairman of the Board. Mr. McCabe is compensated for his
management services pursuant to a consulting agreement with a third-party
consulting firm. Amounts are paid by CBT Systems Limited to the consulting
firm which compensates its employees, including Mr. McCabe. We have not
reviewed any agreement between the consulting firm and its employees with
respect to compensation amounts.
(6) Mr. Priest was elected an executive officer of us in December 1995, and
resigned as an executive officer effective January 31, 1998. In December
1998, he was appointed our President and Chief Executive Officer.
(7) Mr. Lewis became Area Vice President of Sales for the southern region in
January 1996 and Vice President North American Sales in March 1997. Mr.
Lewis was appointed Executive Vice President Global Field Sales in
December 1998.
(8) Mr. Newton became Area Vice President for the northern region in January
1996 and Vice President, Business Development in March 1997. He resigned
in June 1998. In December 1998, Mr. Newton was appointed Executive Vice
President, Global Channel Sales.
(9) Mr. Okumoto joined us in February 1998 and resigned in September 1998.
(10) Mr. Grillos was appointed our Chief Operating Officer in December 1998.
(11) Mr. Beamish was our Vice President, Product Strategy and Development from
1993 until he resigned on March 31, 1998. In December 1998, he was
appointed Executive Vice President, Product Strategy.
Option Grants in Last Fiscal Year
The following table provides information with respect to options granted
during fiscal 1998 to our Named Executive Officers:
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value At Assumed
Number of Total Options Annual Rates of Stock
Equivalent ADSs Granted to Exercise Price Appreciation
Over Which Employees in Price Per for Option Term (1)
Options Were Last Fiscal Equivalent Expiration ---------------------
Name Granted (2) (3) Year ADS (4) Date 5% 10%
- ------------------------ --------------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James J. Buckley........ 120,000 2.0% $36.00 1/13/08 $2,716,824 $6,884,967
William G. McCabe....... 60,000 1.0% $36.00 1/13/08 1,358,412 3,442,483
410,000 6.8% $ 9.94 12/9/08 2,562,352 6,493,504
Gregory M. Priest....... 410,000 6.8% $ 9.94 12/9/08 2,562,352 6,493,504
William B. Lewis ....... 50,000 0.8% $ 6.94 1/13/08 218,147 552,829
300,000 5.0% $ 9.94 12/9/08 1,874,892 4,751,344
Jeffrey N. Newton....... 50,000 0.8% $ 6.94 1/13/08 218,147 552,829
300,000 5.0% $ 9.94 12/9/08 1,874,892 4,751,344
Richard Y. Okumoto...... -- -- -- -- -- --
John M. Grillos......... 290,000 4.8% $ 9.94 12/9/08 1,812,395 4,592,966
William A. Beamish...... 50,000 0.8% $ 6.94 1/13/08 218,147 552,829
290,000 4.8% $ 9.94 12/9/08 1,812,395 4,592,966
</TABLE>
- --------
(1) Potential realizable value assumes that the share price (based on the fair
market value of the ADSs) increases from the date of grant until the end of
the ten-year option term at the annual rate specified (5% and 10%). If the
price of the ADSs were to increase at such rates from $14.875 per ADS, the
price at the last trading day of fiscal 1998, over the next ten years, the
resulting ADS price at 5% and 10% appreciation would be approximately
$24.23 and $38.58, respectively. The assumed annual rates of appreciation
are specified in SEC rules and do not represent our estimate or projection
of future share price. We do not necessarily agree that this method can
properly determine the value of an option.
(2) All options in this table were granted under the 1994 Plan. The options
expire ten years from the date of grant, subject to earlier termination in
the event of the optionee's cessation of service with us. The
54
<PAGE>
1994 Plan is currently administered by the Stock Option Committee of our
board of directors, which has broad discretion and authority to amend
outstanding options and to reprice options, whether through an exchange of
options or an amendment thereto.
(3) Unless otherwise indicated, options generally vest over four years such
that 1/4th of the equivalent ADSs subject to the option vest one year from
the respective date of grant, 1/4th vest on the second anniversary of the
respective date of grant and 1/48th vest each month thereafter.
(4) Options were granted at an exercise price equal to the fair market value
of our ADSs, as determined by reference to the closing price of the ADSs
as reported on the Nasdaq National Market on the last trading day prior to
the date of grant.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table provides information with respect to option exercises
in fiscal 1998 by our Named Executive Officers and the value of such officers'
unexercised options at December 31, 1998:
<TABLE>
<CAPTION>
Number of Equivalent ADSs
Subject to Unexercised Value of Unexercised
Options at Fiscal Year- In-The-Money Options
Equivalent ADSs Value End at Fiscal Year End (3)
Acquired on Realized ------------------------- -------------------------
Name Exercise (1) (2) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James J. Buckley........ 140,000 $ 6,599,782 245,414 -- $ -- $ --
William G. McCabe ...... 554,000 25,325,000 996 470,000 -- 2,023,350
Gregory M. Priest....... 84,384 4,355,930 34,376 547,504 95,805 2,286,810
William B. Lewis........ 60,678 3,058,946 42,126 451,500 334,375 2,683,031
Jeffrey N. Newton....... 85,252 4,409,193 22,215 463,337 176,332 2,776,987
Richard Y. Okumoto...... -- -- -- -- -- --
John M. Grillos......... -- -- 5,000 295,000 -- 1,431,150
William A. Beamish...... 9,480 406,833 8,422 399,170 125,270 2,297,687
</TABLE>
- --------
(1) Our employees, including our Named Executive Officers, have a choice of
acquiring either ordinary shares or ADSs representing such ordinary shares
upon exercise of options.
(2) Market value of underlying shares based on the closing price of the ADSs
on the Nasdaq National Market on the date of exercise, minus the exercise
price.
(3) Market value of shares underlying in-the-money share options is based on
the closing price of $14.875 per ADS on the Nasdaq National Market on
December 31, 1998, which is the last trading day of fiscal 1998, minus the
exercise price.
55
<PAGE>
Stock Options Repricing
The principal purpose of our equity incentive plan is to provide an equity
incentive to employees to remain in our employment and to work diligently in
our best interests. Our board of directors determined that this purpose would
not be achieved for employees holding options exercisable at prices above the
market price of our ADSs, and further determined that it was critical to our
best interests and to those of our shareholders that we retain the services of
these employees. Accordingly, on October 16, 1998, our board of directors
authorized the repricing of outstanding options to purchase ADSs under our
stock option plans (except that members of our board of directors and Mr.
Buckley were excluded from the repricing), and the repricing/option exchange
became effective on that date. Employees exchanged eligible outstanding options
with exercise prices in excess of the closing sales price of our ADS on October
16, 1998 for new options with an exercise price equal to such price. Other than
the exercise price, each new option issued upon exchange has substantially the
same terms as the surrendered option, including number of shares, vesting and
expiration. The exercise price for repriced options was $6.94, the closing
sales price of our ADS on October 15, 1998. Options held by certain of our
Named Executive Officers were repriced as part of the repricing/option
exchange. The following table provides information with respect to the
repricing for our Named Executive Officers.
Ten Year Option/SAR Repricing
<TABLE>
<CAPTION>
Length of
Original
Number of Market Price Option Term
Securities of Stock at Remaining at
Underlying Time of Exercise Price Date of
Options/SAR Repricing or at Time of Repricing or
Repriced or Amendment Repricing or New Exercise Amendment
Name Date Amended ($) Amendment ($) Price ($) (Years)
- ------------------------ -------- ----------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William B. Lewis........ 10/16/98 63,004 $437,090 $11.31 $6.94 7.25
William B. Lewis........ 10/16/98 52,500 364,219 20.25 6.94 8.42
William B. Lewis........ 10/16/98 50,000 346,875 36.00 6.94 9.24
Jeffrey N. Newton....... 10/16/98 14,170 98,304 11.31 6.94 7.25
Jeffrey N. Newton....... 10/16/98 50,002 346,889 17.00 6.94 7.49
Jeffrey N. Newton....... 10/16/98 52,501 364,226 20.25 6.94 8.42
Jeffrey N. Newton....... 10/16/98 50,000 346,875 36.00 6.94 9.24
William A. Beamish...... 10/16/98 17,585 121,996 11.31 6.94 7.25
William A. Beamish...... 10/16/98 5,004 34,715 17.00 6.94 7.49
William A. Beamish...... 10/16/98 45,000 312,188 20.25 6.94 8.42
William A. Beamish...... 10/16/98 50,000 346,875 36.00 6.94 9.24
</TABLE>
The Members of the Stock Option
Committee
Patrick J. McDonagh
James S. Krzywicki
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Employment Contracts and Arrangements
On July 24, 1996, we entered into an agreement with James J. Buckley
pursuant to which Mr. Buckley became our President and Chief Operating Officer,
effective as of September 1, 1996. Under the terms of his agreement, Mr.
Buckley received an annual base salary of $385,000 and a potential performance
bonus of approximately $150,000. In addition, Mr. Buckley received an option to
purchase an aggregate of 970,000 ADSs at an exercise price equal to the fair
market value of the ADSs on such date. The ADSs subject to the option vest over
four years, with the initial 25% vesting after one year and the remainder on a
monthly basis thereafter.
On September 30, 1998, Mr. Buckley resigned from our employ. Upon
resignation, we entered into a severance agreement and mutual release with Mr.
Buckley. Under the severance agreement, Mr. Buckley will continue to receive
his annual base salary through September 1999. In addition, as of September 30,
1998, Mr. Buckley had vested in options to purchase 525,414 of the 970,000 ADSs
referred to above. A total of 280,000 of such vested options had been exercised
prior to September 30, 1998, and the remaining 245,414 vested options are
exercisable until September 30, 1999. The remaining 444,586 unvested options
together with all other options granted after July 24, 1996, none of which had
vested as of September 30, 1998, expired upon Mr. Buckley's resignation. Mr.
Buckley's options were not repriced on October 16, 1998.
On September 30, 1998, Mr. Okumoto resigned from our employ. Upon
resignation, we entered into a severance agreement and mutual release with Mr.
Okumoto. Under the severance agreement, Mr. Okumoto continued to receive his
annual base salary through March 1999. As of September 30, 1998, all of Mr.
Okumoto's options to purchase ADSs were unvested and, therefore, expired upon
his resignation.
On January 2, 1996, we entered into an employment agreement with Gregory M.
Priest, under which we agreed to employ Mr. Priest as our Vice President,
Finance and Chief Financial Officer and also agreed that Mr. Priest would be
nominated to serve as one of our directors. Under the terms of the agreement,
Mr. Priest received during the year ended December 31, 1997 an annual base
salary of $180,000. Mr. Priest also received a performance bonus of $172,000 in
the year ended December 31, 1997. The agreement did not contain a minimum term
of employment and both parties acknowledged that Mr. Priest's employment with
CBT was at-will. Mr. Priest entered into an agreement with us in January 1998
pursuant to which he resigned as our Vice President, Finance and Chief
Financial Officer effective as of February 1, 1998. Mr. Priest continued to
serve as one of our directors.
We entered into a consulting agreement with Mr. Priest in February 1998,
pursuant to which Mr. Priest agreed to provide consulting services to us,
initially involving the transition of Mr. Priest's successor as our Vice
President, Finance and Chief Financial Officer. Mr. Priest's agreement provided
that he would be paid on an hourly basis and his options would continue to
vest. Mr. Priest's agreement contained customary provisions regarding
confidentiality and assignment of intellectual property. On October 16, 1998,
the Stock Option Committee, in recognition of Mr. Priest's dedication of an
increased amount of time and attention to our business as a member of the
management committee of our board of directors, amended Mr. Priest's
outstanding options to reinstate the expiration dates that existed prior to his
resignation from us.
CBT Systems Limited has entered into a consulting agreement with a third-
party consulting firm pursuant to which the consulting firm provides certain
management services to CBT Systems Limited, including the services of Messrs.
McCabe, Beamish and Hayes. Messrs. McCabe, Beamish and Hayes as employees of
the consulting firm during 1998. Amounts due under the consulting agreement are
paid by CBT Systems Limited to the consulting firm. Messrs. McCabe, Beamish and
Hayes are separately compensated by the consulting firm. During 1998, the
consulting firm billed CBT Systems Limited an aggregate of $845,031 for
services provided by Messrs. McCabe, Beamish and Hayes.
We entered into an agreement with Mr. Beamish in February 1998 under which
Mr. Beamish agreed to resign as our Vice President, Product Strategy and
Development effective March 31, 1998. Mr. Beamish continued to provide
consulting services to us pursuant to the consulting arrangement described
above through
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December 31, 1998. Under the consulting agreement, Mr. Beamish's outstanding
options were to continue to vest until December 31, 1998. On October 16, 1998,
the Stock Option Committee, in recognition of Mr. Beamish's dedication of an
increased amount of time and attention to our business following the
resignations of Messrs. Buckley and Okumoto, amended Mr. Beamish's outstanding
options to reinstate the expiration dates that existed prior to his
resignation. These options were also repriced on that date.
We entered into a consulting agreement with Mr. Newton in June 1998 under
which Mr. Newton agreed to resign as our Vice President North American Sales
effective June 30, 1998. Mr. Newton continued to provide consulting services to
us pursuant to a consulting agreement through December 31, 1998. Under the
consulting agreement, Mr. Newton's outstanding options were to continue to vest
until October 31, 1999. On October 16, 1998, the Stock Option Committee, in
recognition of Mr. Newton's dedication of an increased amount of time and
attention to our business following the resignations of Messrs. Buckley and
Okumoto, amended Mr. Newton's outstanding options to reinstate the expiration
dates that existed prior to his resignation. These options were also repriced
on that date.
Prior to the closing of the Share Exchange, we will enter into employment
and noncompetition agreements with Messrs. McCabe, Priest, Grillos, Beamish,
Lewis and Newton as described below. Among other things, the employment and
noncompetition agreements with Messrs. McCabe, Priest, Beamish and Newton will
replace their existing consulting arrangements.
Immediately prior to the closing of the Share Exchange, we will enter into
an employment agreement with William G. McCabe whereby we employ Mr. McCabe as
our Chairman of the Board of Directors. Mr. McCabe will receive a minimum base
salary at the rate of $250,000 per year. The employment relationship is at-
will. In the event Mr. McCabe terminates his employment voluntarily, or we
terminate his employment for cause, Mr. McCabe will agree not to engage in the
business of developing or selling computer-based training for information
technology professionals, on-line business degrees, or any other interactive
education business in which we are then involved for a period of one year after
such termination, or until October 31, 2000, whichever is later. Mr. McCabe
shall not receive any compensation or benefits under the employment agreement
on account of such termination. In the event we terminate Mr. McCabe's
employment without cause, then we will make a lump sum payment to him equal to
his base salary for a period of one year, or for the period from such
termination to October 31, 2000, which ever is longer, and his outstanding
stock options will continue to vest during such period. As an alternative to an
employment agreement, we may enter into a consulting agreement with a third
party consulting firm pursuant to which the consulting firm will provide
services to us, including the services of Mr. McCabe, in substantially the same
terms above described.
Immediately prior to the closing of the Share Exchange, we will enter into
an employment agreement with Gregory M. Priest whereby we employ Mr. Priest as
our President and Chief Executive Officer. Mr. Priest will receive a minimum
base salary at the rate of $250,000 per year. In addition, he will be eligible
to receive a performance bonus of up to $200,000. The employment relationship
is at-will. In the event Mr. Priest terminates his employment voluntarily, or
we terminate his employment for cause, Mr. Priest will agree not to engage in
the business of developing or selling computer-based training for information
technology professionals, on-line business degrees, or any other interactive
education business in which we are then involved for a period of one year after
such termination, or until October 31, 2000, whichever is later. Mr. Priest
shall not receive any compensation or benefits under the employment agreement
on account of such termination. In the event we terminate Mr. Priest's
employment without cause, then we will make a lump sum payment to him equal to
his base salary plus the maximum performance bonus for a period of one year, or
for the period from such termination to October 31, 2000, which ever is longer,
and his outstanding stock options will continue to vest during such period.
Immediately prior to the closing of the Share Exchange, we will enter into
an employment agreement with John M. Grillos whereby we employ Mr. Grillos as
our Executive Vice President and Chief Operating Officer. Mr. Grillos will
receive a minimum base salary at the rate of $200,000 per year. In addition, he
will be eligible to receive a performance bonus of up to $100,000. The
employment relationship is at-will. In the event
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Mr. Grillos terminates his employment voluntarily, or we terminate his
employment for cause, Mr. Grillos will agree not to engage in the business of
developing or selling computer-based training for information technology
professionals, on-line business degrees, or any other interactive education
business in which we are then involved for a period of one year after such
termination, or until October 31, 2000, whichever is later. Mr. Grillos shall
not receive any compensation or benefits under the employment agreement on
account of such termination. In the event we terminate Mr. Grillos's employment
without cause, then we will make a lump sum payment to him equal to his base
salary plus the maximum performance bonus for a period of one year, or for the
period from such termination to October 31, 2000, which ever is longer, and his
outstanding stock options will continue to vest during such period.
Immediately prior to the closing of the Share Exchange, we will enter into
an employment agreement with William Beamish whereby we employ Mr. Beamish as
our Executive Vice President, Product Strategy. Mr. Beamish will receive a
minimum base salary at the rate of $200,000 per year. In addition, he will be
eligible to receive a performance bonus of up to $100,000. The employment
relationship is at-will. In the event Mr. Beamish terminates his employment
voluntarily, or we terminate his employment for cause, Mr. Beamish will agree
not to engage in the business of developing or selling computer-based training
for information technology professionals, on-line business degrees, or any
other interactive education business in which we are then involved for a period
of one year after such termination, or until October 31, 2000, whichever is
later. Mr. Beamish shall not receive any compensation or benefits under the
employment agreement on account of such termination. In the event we terminate
Mr. Beamish's employment without cause, then we will make a lump sum payment to
him equal to his base salary plus the maximum performance bonus for a period of
one year, or for the period from such termination to October 31, 2000, which
ever is longer, and his outstanding stock options will continue to vest during
such period. As an alternative to an employment agreement, we may enter into a
consulting agreement with a third party consulting firm pursuant to which the
consulting firm will provide services to us, including the services of Mr.
Beamish, in substantially the same terms above described.
Immediately prior to the closing of the Share Exchange, we will enter into
an employment agreement with William B. Lewis whereby we employ Mr. Lewis as
our Executive Vice President, Global Field Sales. Mr. Lewis will receive a
minimum base salary at the rate of $200,000 per year. In addition, he will be
eligible to receive a performance bonus of up to $150,000. The employment
relationship is at-will. In the event Mr. Lewis terminates his employment
voluntarily, or we terminate his employment for cause, Mr. Lewis will agree not
to engage in the business of developing or selling computer-based training for
information technology professionals, on-line business degrees, or any other
interactive education business in which we are then involved for a period of
one year after such termination, or until October 31, 2000, whichever is later.
Mr. Lewis shall not receive any compensation or benefits under the employment
agreement on account of such termination. In the event we terminate Mr. Lewis's
employment without cause, then we will make a lump sum payment to him equal to
his base salary plus the maximum performance bonus for a period of one year, or
for the period from such termination to October 31, 2000, which ever is longer,
and his outstanding stock options will continue to vest during such period.
Immediately prior to the closing of the Share Exchange, we will enter into
an employment agreement with Jeffrey N. Newton whereby we employ Mr. Newton as
our Executive Vice President, Global Channel Sales. Mr. Newton will receive a
minimum base salary at the rate of $200,000 per year. In addition, he will be
eligible to receive a performance bonus of up to $150,000. The employment
relationship is at-will. In the event Mr. Newton terminates his employment
voluntarily, or we terminate his employment for cause, Mr. Newton will agree
not to engage in the business of developing or selling computer-based training
for information technology professionals, on-line business degrees, or any
other interactive education business in which we are then involved for a period
of one year after such termination, or until October 31, 2000, whichever is
later. Mr. Newton shall not receive any compensation or benefits under the
employment agreement on account of such termination. In the event we terminate
Mr. Newton's employment without cause, then we will make a lump sum payment to
him equal to his base salary plus the maximum performance bonus for a period of
one year, or for the period from such termination to October 31, 2000, which
ever is longer, and his outstanding stock options will continue to vest during
such period.
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Director Compensation
No director receives any cash compensation for his services as a member of
our board of directors, although each director is reimbursed for his expenses
in attending board and related committee meetings. Directors who serve on
committees of our board of directors receive no additional compensation.
In December 1998, each of Messrs. Kryzwicki and McDonagh were granted,
pursuant to a resolution approved by the full board of directors, options to
purchase 50,000 CBT ordinary shares. Under the terms of the option plan under
which such options were granted, the exercise price of these options is the
closing price of a CBT ADS on the Nasdaq National Market on December 8, 1998.
These options vest over four years.
Compensation and Stock Option Committee Interlocks
and Insider Participation
During fiscal 1998, the Compensation Committee of our board of directors
consisted of Messrs. McCabe, McDonagh and Grillos. From January 1, 1998 through
October 15, 1998, the Stock Option Committee consisted of Messrs. McDonagh and
Grillos. Since October 16, 1998, the Stock Option Committee has consisted of
Messrs. McDonagh and Krzywicki. Mr. Krzywicki was not an officer or employee of
us or our subsidiaries during fiscal 1998 or at any time prior to fiscal 1998.
Mr. McDonagh was not an officer or employee of us or our subsidiaries during
fiscal 1998 or at any time since September 1991. From our inception to
September 1991, Mr. McDonagh was our Chief Executive Officer.
Mr. McCabe has served on the Compensation Committee since February 1995. Mr.
McCabe also served as our Chief Executive Officer through December 1996,
President through September 1996 and Chairman of the Board through August 12,
1998. From October 1, 1998 through December 1, 1998, Mr. McCabe was a member of
the interim management committee of our board of directors and since December
1, 1998, Mr. McCabe has been the Chairman of our board of directors. Mr.
Grillos was not an officer or employee of us or our subsidiaries at any time
prior to October 1, 1998. From October 1, 1998 through December 1, 1998, Mr.
Grillos was a member of the interim management committee of our board of
directors and since December 1, 1998, Mr. Grillos has been our Chief Operating
Officer.
Since Knowledge Well does not have a compensation committee, the entire
board of directors of Knowledge Well performs the functions of a compensation
committee. During 1998, Mr. McCabe was a director of Knowledge Well and Mr.
Priest, a director of CBT, served as Knowledge Well's President and Chief
Executive Officer.
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BUSINESS OF KNOWLEDGE WELL
General
Knowledge Well provides software that delivers business, management and
professional education skills and/or courses. Knowledge Well delivers the
software components of its courses over intranets and local area networks and
on CD-ROMs. Students can easily access these interactive courses via basic,
industry-standard computers. For students pursuing a degree, the software will
be supplemented with internet access to faculty and other students. Knowledge
Well aims to provide a self-paced education and training solution which allows
students to obtain degrees and/or other credentials from outside the college
campus.
Knowledge Well has entered into a co-development relationship with Kansas
State University ("KSU") to develop and market degree and non-degree courses of
study, including educational software that may be authorized for full college
credit at KSU toward KSU bachelor and advanced degrees. The initial degree
program that Knowledge Well intends to build under this relationship will be a
bachelor's degree in business. Knowledge Well has released three KSU
undergraduate business degree courses to KSU faculty members for use by such
faculty members in the classes. However, Knowledge Well but does not expect to
make such courses generally commercially available until late 1999. As a
result, Knowledge Well will not generate revenue from these business degree
courses until at least that time. Knowledge Well will market the degree
products developed under its agreement with KSU to individuals who are not KSU
students but who would like to acquire KSU credits and/or study towards a KSU
degree. Knowledge Well has released 58 not-for-credit courses on business and
management topics, primarily created from material received from Knowledge
Well's relationship with KSU.
Knowledge Well Limited ("KWL"), established in August 1996, is a private
company, limited by shares, incorporated under the laws of Ireland. KWL's sole
function is product development, sales and marketing. Knowledge Well Inc.
("KWI"), a Delaware corporation, was established in March 1997 to serve as the
United States sales and marketing headquarters. Knowledge Well Group Limited
("KWGL"), established in May, 1997, is a private company, limited by shares,
incorporated under the laws of Ireland. KWI is a wholly owned subsidiary of
KWGL.
For additional information about Knowledge Well's business, see the combined
financial statements of Knowledge Well and related notes thereto included in
this proxy statement.
Development, Technology and Distance Learning Partnerships
In February 1998, Knowledge Well and KSU entered into a long term
Educational Software Development Agreement to co-develop interactive
educational software for students pursuing degree and non-degree KSU courses of
study from outside of KSU. In addition to the courses the parties co-develop,
Knowledge Well may independently develop courses and submit them to KSU for
review and approval. Upon validation and approval by KSU, the result of the
collaborative effort will be individual courses offered for KSU college credit.
Students may even, on proper completion of a curriculum, receive a full college
credit KSU degree. The content for the courses will be derived from existing
KSU curriculum. Initially, Knowledge Well and KSU have agreed to co-develop a
bachelor's degree in business for full KSU college credit. In November 1998,
Knowledge Well and KSU amended the Educational Software Development Agreement
between the parties to provide that Knowledge Well will build courseware for
KSU's master's degree curriculum in business administration ("MBA"). In
addition, Knowledge Well and KSU will work to define a graduate certificate
program which will be derived from the courses that comprise the MBA program.
Upon completion of such a program, KSU would grant a Graduate Certificate in
Business Administration.
CBT and Knowledge Well entered into a Software License Agreement (the
"License Agreement") in October 1997. CBT granted Knowledge Well a non-
exclusive license to use certain of its technology in the development of
interactive education software. The License Agreement explicitly forbids any
use by Knowledge Well of CBT's technology within CBT's information technology
market area. In exchange, Knowledge Well has agreed to make its products
compatible with CBT's products. Knowledge Well has to pay
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CBT an annual licensing fee. The License Agreement also contains customary
provisions involving the provision of product updates and the protection of
confidential information.
In September 1998, Knowledge Well entered into a distance learning
partnership with Hamilton College, a regionally accredited educational
institution. Knowledge Well and Hamilton have defined nine non-credit
certificate programs from Knowledge Well's Business Competencies Program.
Knowledge Well and Hamilton are also working to define continuing education
unit programs that are expected to be granted and approved by Hamilton. The
non-credit certificates and continuing education units will be awarded to
students that complete a defined path of study from Knowledge Well's Business
Competencies Program. The number of continuing education units to be awarded
will be based on the number of topics covered and the contact hours associated
with each competency.
Knowledge Well's Interactive Learning at a Distance Solution
Technology has enabled interactive learning at a distance, a new method in
delivering learning to the student outside the college campus. This new method
has created new opportunities for individuals to participate in a learning
experience by removing the traditional location and accessibility restrictions.
Knowledge Well's products provides instruction in an interactive format.
Students, for example, actively participate in question and answer sequences.
Knowledge Well's products have been designed for employees and individuals who
are not able or do not wish to attend a university as full-time business or
management students, but who desire and can benefit from business and
management education to advance in their careers.
Knowledge Well's products provide education and training managers with a
flexible, cost-effective solution that allows them to make education and
training available to employees anytime, anywhere. Knowledge Well's technology-
based education software provides a cost-effective solution that reduces the
amount of time employees divert from their day-to-day responsibilities. The
software also minimizes the expense associated with attending instructor-led
training classes and is always accessible to employees.
From December 1996 to date, Knowledge Well's primary business operation was
product development. Knowledge Well's first telesales representative was hired
in March 1998 and Knowledge Well's first field sales representative was hired
in late October 1998. Knowledge Well has not yet recognized significant
revenue. Consequently, Knowledge Well has a very limited operating history upon
which you can evaluate its business and prospects. In particular, you have a
very limited basis upon which to evaluate the level of future market acceptance
of Knowledge Well's products. You must consider Knowledge Well's prospects in
light of the risks, expenses and difficulties frequently encountered by
companies in the early stages of development, particularly companies in new and
rapidly evolving markets such as interactive business, management and
professional education and training software. Such risks include the changing
nature and unpredictability of Knowledge Well's business environment,
technological change and intense competition, among others.
The Knowledge Well business degree, certificate programs and continuing
education learning at a distance solutions feature the following:
Flexible Access Model. Knowledge Well's solutions offer many advantages to
both end-users and administrators over traditional instructor-led training.
Knowledge Well's courseware allow employees to:
. tailor their business, management and professional education to
their work schedules,
. begin their education at a level suitable to their needs,
. integrate the education with on-the-job practice,
. study only the relevant topics, and
. access educational materials on an on-going basis as reference
tools.
Knowledge Well designs all its software titles to be self-paced, so that
students can learn when and where they want to, as well as to be highly
interactive.
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Robust Administrative Systems. Knowledge Well has a network-based
administration and assessment tool designed to allow information system, human
resource or training managers to track employee usage and the performance of
Knowledge Well courseware.
High Quality Course Content. Knowledge Well will develop its business degree
programs based on KSU curricula with the consultation of KSU faculty and
subject matter experts. Knowledge Well will have access to KSU syllabi, reading
lists and any other content material the parties deem appropriate to produce
high quality, educationally rich courseware. Knowledge Well's software is
interactive and allows students to practice and test skills as they learn. The
courseware also includes sophisticated graphics and simulation to demonstrate
many of the concepts introduced.
Multiple Deployment Options. The courseware that Knowledge Well has
developed and is developing can be made available to employees and individuals
on networked or stand-alone computers. The courseware may also be deployed over
intranets via Knowledge Well's intranet deployment product, Knowledge Web.
Knowledge Well is also developing delivery tools to enable the courseware to be
accessed over the Internet.
In addition, Knowledge Well designs its products to allow education and
training administrators to efficiently use their training budgets by tailoring
business and management education programs to their organizations' needs.
Corporate customers can offer Knowledge Well's education software across a
network or a corporate intranet to all employees. Knowledge Well licenses its
Business Competencies Program primarily through one, two or three year license
agreements that provide access to the competencies licensed by each customer.
This allows customers to build tailored business and management education.
Under these license agreements, customers are able to exchange and update their
courses or competencies on a periodic basis as their internal education needs
evolve or as technologies advance. In addition, using Knowledge Well's
administrative software, information system, human resource and training
managers can design and monitor education programs for each employee.
Knowledge Well's Strategy
Knowledge Well's objective is to expand its market position through the
following strategies:
Build Alliances with Subject Matter Experts. Knowledge Well's strategy is to
identify and enter into co-development and marketing alliances with various
universities and other subject matter experts to produce and distribute degree,
non-degree and professional credential interactive software education and
training. To date, Knowledge Well has entered into a co-development agreement
with KSU. Knowledge Well believes this relationship provides a number of
competitive advantages. The subject matter will be developed by various members
of the KSU faculty and given directly to Knowledge Well's curriculum designers,
editors, software developers and graphic artists to be turned into interactive
courseware. This direct relationship with highly qualified subject matter
experts allows Knowledge Well's development team to create interactive software
that provides academically sound and educationally rich content.
Leverage Customer Partnership Model. Knowledge Well intends to offer its
customers business degree, non-business degree and continuing education and
certificate programs. Knowledge Well's strategy is to expand its product
offerings in each of these areas to allow Knowledge Well to enter into larger
initial contracts and support incremental sales to its then existing customer
base over time.
Establish Corporate University Program. Companies face a critical issue in
today's workplace in that employees often lack a fundamental grounding in the
core disciplines of business and management. As a result, many organizations
have developed or are in the process of developing corporate educational
programs to address this deficiency. These programs have been developed to
provide cross-functional learning to employees throughout the organization.
Knowledge Well's goal is to identify these organizations and work with them to
provide relevant, dynamic content that provides employees with a broad
grounding in critical business functions.
Expand Channels of Distribution. Knowledge Well is developing a direct field
sales force and telesales organization to market to Fortune 1000 companies and
other major United States and international
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organizations. Knowledge Well has also begun to market its software to
governmental agencies. Knowledge Well's strategy aims to expand its direct
field sales organization and develop indirect sales channels to reach
organizations not effectively targeted by its direct field sales force.
Knowledge Well also plans to enter into markets worldwide. Over the long term,
Knowledge Well intends to continue to explore electronic distribution through
on-line services and the Internet.
Capitalize on Multimedia Technologies. Knowledge Well's current products
include multimedia elements such as rich graphics, interactive text and
simulations, and can be delivered on networked and stand-alone computers.
Knowledge Well's strategy is to continue to enhance its products over time as
its customers adopt enterprise-wide systems which have the capability to handle
more advanced multimedia elements such as sound, video and complex animation.
Knowledge Well's Products
Knowledge Well's products seek to address businesses' shift in focus on
employee's knowledge, businesses' growing need for employee cross-functional
capabilities and businesses' need to increase employee retention by creating
opportunities for career enhancement.
Business Degree Programs. Knowledge Well has developed or is developing,
both independently and through development and marketing alliances, titles
focused on degree, non-degree and credential granting programs. In February
1998, Knowledge Well and KSU entered into a long term Educational Software
Development Agreement to co-develop a complete set of business degree programs.
Individual courses will be offered for KSU college credit, and students may
even, on proper completion of the curriculum, receive a full college credit KSU
business degree. Knowledge Well has released three KSU undergraduate business
degree courses to KSU faculty members for use by such faculty members in their
classes. However, Knowledge Well does not expect to make such courses generally
commercially available until late 1999. Knowledge Well will market the products
developed under its agreement with KSU to individuals who are not KSU students
but who would like to acquire KSU credits and/or study towards a KSU degree.
Knowledge Well has released 58 not-for-credit courses on business and
management topics, primarily created from material received from Knowledge
Well's relationship with KSU.
Certificate Programs and Continuing Education Units ("CEU's"). Under the
Knowledge Well and Hamilton distance learning partnership, Hamilton will award
continuing educational units for Knowledge Well software titles delivered using
distance learning technologies. To date, Knowledge Well and Hamilton have
defined nine non-credit certificate programs from Knowledge Well's Business
Competencies Program and are working to define a series of non-credit
certificate and CEU programs that will be awarded by Hamilton. Knowledge Well
has completed four such certificate programs, although no significant revenues
have yet been derived from these programs. The number of CEU's to be awarded
will be based on the number of topics covered and the contact hours associated
with each competency.
Business Competencies Program. Knowledge Well's initial interactive learning
at a distance solution will be a Business Competencies Program initially
consisting of 70 software titles. Knowledge Well's Business Competencies
Program offers employees and individuals relevant, advanced, business and
management education. Knowledge Well's initial products provide basic business
education to people in a wide variety of job functions and more advanced
education for more sophisticated students.
Currently, Knowledge Well has organized its Business Competencies Program
software titles into the following competencies that are designed to provide
comprehensive business, management and professional education and training:
. Core Management Competency
. Business Competency
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. Management Competency
. Business Finance Competency
. Management Information Systems Competency
. Organizational Behavior Competency
. Marketing Competency
. Budgeting and Financial Planning Competency
. Interpreting Financial Statements Competency
As of February 3, 1999, Knowledge Well has developed 48 software titles for
the Business Competencies Program. The Business Competencies Program contains a
Business Fundamentals course suitable for all employees, a Core Management
Competencies curriculum of nine titles suitable for managers, prospective
managers and other employees with business decision making authority, and
comprehensive offerings in each competency area for students requiring more in-
depth, advanced material in a particular competency area.
Knowledge Well's courseware includes a sophisticated graphical interface
that leads students through the subject software, presents case studies and
requires students to respond actively to the course. Knowledge Well's
interactive education software typically provides the user with anywhere from
four to eight hours of instruction per individual title. At the end of a
Business Competencies Program course, for example, students may take a test to
measure accurately their mastery of the course content. The results of this
test may be viewed by a central administrator using Knowledge Well's
administrative program or exported to a standard database or spreadsheet.
Knowledge Well offers administrative software designed to allow a central
administrator to audit the use of each course, track employee performance and
create specialized programs for employees by granting access to selected
courses.
Knowledge Well licenses its Business Competencies Program primarily through
license agreements under which customers may use the delivered products for a
period of one, two or three years. The license agreement format generally
allows customers to exchange competencies or titles on each anniversary date
where the agreement is for more than one year. In order to increase the number
of titles or gain access to the library at a time other than the specified
dates, the customer may enter into a new license agreement or upgrade the
existing license agreement. Volume and multi-year discounts encourage customers
to expand license agreements as their needs grow and as they become more
familiar with Knowledge Well's product library. Knowledge Well's pricing
generally varies by the number of students, number of competencies being
licensed and the length of the contract.
In addition to its support of traditional LAN environments, Knowledge Well
offers products to address the emerging Internet and corporate intranet
markets. Knowledge Web is an intranet deployment system which allows users to
download Knowledge Well courseware titles across an intranet. Students can gain
access to these titles through a standard browser. Knowledge Web enables
customers to access and manage Knowledge Well courses over an intranet via
internally managed web servers. Using Knowledge Web, students can choose to
either download Knowledge Well courseware or interact with it in real time over
an intranet using a live play capability. The downloaded courseware contains a
utility to send the student records back to a central administrator so that the
student progress may be monitored.
The market for business and management education is rapidly evolving. New
methods of delivering interactive education software often appear in the
marketplace, including intranet and Internet deployment systems. Many of these
new delivery systems will involve new and different business models and
contracting mechanisms. Some companies also add multimedia and other product
features to educational software. In addition, the existing delivery and
education management systems do not have a universally accepted standard for
the presentation of educational content and the tracking of student
performance. If standards evolve,
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Knowledge Well will need to develop products that support the new standards.
Accordingly, Knowledge Well's future success will depend upon, among other
factors, its ability to develop and implement products that address these
emerging market requirements. Knowledge Well may not be successful in meeting
changing market needs.
Moreover, software products as complex as those offered by Knowledge Well
may contain undetected errors or fail when first introduced or upon release of
new versions. Despite testing by Knowledge Well and by current and potential
customers, errors may be found in new products after commercial release,
resulting in a loss of or delay in market acceptance.
Research and Development
Knowledge Well believes that the development of an effective education
product requires the combination of content, instructional design and
technology. The first step in developing a new education program is to obtain
content from subject matter experts and existing courses, including self-study
courses, course descriptions, syllabi and reading lists. The Knowledge Well
development team then writes a script for the program which includes a
structure covering all of the relevant concepts, tasks to be completed,
interactive features and tests to measure achievement and to reinforce the
subject matter. During the development of a script for a new program, Knowledge
Well's developers and editors, working with animators, simulation programmers
and graphic designers, simultaneously plan and develop the course elements.
These elements are then integrated into a single program. The program is then
tested to ensure that each course delivers the desired education and training
solutions.
The core of Knowledge Well's product development is its product development
engine--an environment comprising its proprietary software and off-the-shelf
tools -- which has been optimized for the creation of interactive software
education and training programs. Knowledge Well believes that the product
development engine provides a competitive advantage by allowing Knowledge Well
to:
.create modular courses,
.identify and change portions of a course without rewriting the entire
course,
.port courses more easily across operating systems, and
.enhance the multimedia content of its courses more quickly and
efficiently.
The technology generally supports a common product architecture, resulting in
products that have a recognizable and consistent interface and are easier to
support. Knowledge Well's goal is to continue to refine and enhance the product
development engine to meet Knowledge Well's future development needs, including
ensuring that its courseware is able to incorporate a wide variety of
multimedia elements.
Knowledge Well performs substantially all of its research and development
activities for its courses at its Dublin, Ireland development facility. From
time to time, Knowledge Well subcontracts outside development services to
develop portions of particular courses. All products produced using these
outside developers remain the sole property of Knowledge Well. Knowledge Well's
research and development staff grew from 26 at December 31, 1997 to 43 at
December 31, 1998. Knowledge Well intends to continue to make substantial
investments in research and development.
Co-Development Relationship
Knowledge Well's strategy is to expand its position in the business,
management and professional software education market by forming development
and marketing alliances with subject matter experts. To date, Knowledge Well
has formed a co-development relationship with KSU. Knowledge Well believes this
co-development relationship provides a competitive advantage, including access
to highly qualified subject matter experts and advisors for assistance in
developing courses of study. With the approval of KSU, products developed under
the relationship will be available for full college credit from KSU towards KSU
bachelor and
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advanced degrees, which Knowledge Well believes improves the marketability of
such courses. Knowledge Well believes that this alliance also provides
significant benefits to KSU by allowing KSU to achieve additional market
penetration.
Knowledge Well believes that an increasing proportion of its revenues in the
future may be attributable to products developed through its alliances. If KSU
or Hamilton does not continue to cooperate with Knowledge Well, if Knowledge
Well does not successfully develop courses for these alliances in a timely
fashion or at all, or if Knowledge Well cannot negotiate additional alliances
in the future on acceptable terms or at all, Knowledge Well's business, results
of operations and prospects could be materially adversely affected.
Knowledge Well's development partner could pursue its existing or
alternative distance learning initiatives in preference to and in competition
with those being developed with Knowledge Well. In the event Knowledge Well is
not able to maintain or expand its current development alliance or enter into
new development and/or marketing alliances, its operating results and financial
condition could be materially adversely affected.
Knowledge Well expects that cost of revenues may fluctuate from period to
period in the future based upon many factors, including the number of titles
licensed that were developed exclusively by Knowledge Well compared to the
licensing of royalty-bearing titles developed pursuant to its development
alliance and the timing of expenses associated with the development alliance.
In addition, the the level of cooperation and coordination necessary in
development alliances may result in longer development times and less control
over the timing of product introductions than for courses developed solely by
Knowledge Well.
Customers
Knowledge Well aims to license its courses to Fortune 1000 companies and
other major United States and international organizations in a wide range of
industries, as well as governmental agencies. To date, Knowledge Well has
marketed its courseware through its direct field sales and telesales
organizations in the United States. Knowledge Well is also exploring the
possibility of distributing its courses through resellers. At March 31, 1999,
Knowledge Well had 18 customers that licensed competencies/titles from its
Business Competencies Programs.
Intellectual Property and Licenses
Knowledge Well regards its software as proprietary and relies primarily on a
combination of the following to protect its rights:
.statutory and common law copyright,
.trademark and trade secret laws,
.customer licensing agreements, and
.employee and third-party nondisclosure agreements.
Knowledge Well generally does not include in its software any mechanisms to
prevent unauthorized use. Instead, Knowledge Well generally requires its
customers to enter into a license agreement which restricts copying and use of
its products. Despite these precautions, a third party may copy or otherwise
obtain and use Knowledge Well's courseware and technology without
authorization. If unauthorized copying or misuse of Knowledge Well's products
occur to a substantial degree, its business and results of operations could be
materially adversely affected.
Third parties may claim that Knowledge Well's products infringe their
proprietary rights. Knowledge Well expects that software developers will
increasingly face such claims as the number of products and competitors in the
business, management and professional education and training software industry
grows and the products in the industry become more similar. Any such claim,
with or without merit, could result in costly litigation or might require
Knowledge Well to enter into royalty or licensing agreements. Such royalty or
license agreements, if required, may not be available on acceptable terms or at
all.
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Competition
Competition. Knowledge Well competes in the market for interactive software
products that teach business, management and professional skills and/or
courses, and, more generally, in the business, management and professional
education and training market. The market for interactive software products
that teach business, management and professional skills and/or courses is
highly fragmented and competitive, and Knowledge Well expects this competition
to increase. In addition, new competitors may enter the market in the future
and larger companies may compete with Knowledge Well in the business,
management and professional education market through the acquisition of
Knowledge Well's competitors. Such competitors may also include large
corporations that are developing internal business and management training
programs, as well as colleges and universities.
Knowledge Well's competition in the business, management and professional
education market comes primarily from traditional education and training
providers, including colleges and universities and for-profit entities.
Knowledge Well also competes with other suppliers of business, management and
professional education and training, including several other companies that
produce interactive software training. Knowledge Well expects that as more
organizations establish in-house educational programs, more competitors will
enter the interactive software education market. Many of Knowledge Well's
current and potential competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition, than Knowledge Well. In addition, significant price competition in
the business, management and professional education and training market could
impose increasing price pressures on Knowledge Well.
Accordingly, Knowledge Well may not be able to provide products that compare
favorably with new instructor-led techniques or other interactive training
software. Moreover, competitive pressures may require Knowledge Well to reduce
its prices significantly.
Sales, Marketing and Customer Support
Sales and Support. Knowledge Well hired its first direct field sales person
in October 1998. At January 25, 1999, Knowledge Well employed 6 direct field
sales and support people. Knowledge Well's telesales organization, which
Knowledge Well established in June 1998 to focus on sales of Knowledge Well
courseware to smaller corporate customers, government agencies and end-users,
employed 4 people at January 25, 1999. Knowledge Well plans to continue to
build both the direct field sales and telesales organizations in 1999.
Indirect Sales. In order to achieve worldwide market penetration, Knowledge
Well intends to broaden its sales strategy by expanding its indirect sales
channels to include resellers. The indirect sales channels would give Knowledge
Well access to a more diverse client base which Knowledge Well believes cannot
be targeted cost-effectively through its direct sales force.
Employees
As of January 25, 1999, Knowledge Well had a total of 56 full-time
employees, of whom 10 were engaged in sales, marketing and customer support, 3
in management, administration and finance and 43 in product development. On
January 25, 1999, 12 employees were located in the United States and 44 in the
Republic of Ireland. None of Knowledge Well's employees is subject to a
collective bargaining agreement, and Knowledge Well has not experienced any
work stoppages. Knowledge Well believes that its employee relations are good.
In connection with the Share Exchange, certain of Knowledge Well's executive
officers resigned from Knowledge Well to assume positions as executive officers
of CBT. As executive officers of CBT, they will manage CBT's business as a
whole. Accordingly, these former executive officers of Knowledge Well will
focus significantly less of their attention on Knowledge Well's operations in
their new capacities. As a result,
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Knowledge Well has to identify and hire new managers to replace them. Knowledge
Well's future success also depends on its continuing ability to identify, hire,
train and retain highly qualified technical, sales and marketing personnel.
Competition for such qualified personnel is intense, particularly in sales and
software development. Failure to attract, assimilate or retain any of these and
other key personnel could have a material adverse effect upon Knowledge Well's
business, prospects, operating results and financial condition.
Foreign Operations
Knowledge Well's research and development organization is located in Dublin,
Ireland. Operations outside the United States are subject to inherent risks,
including fluctuations in exchange rates, political and economic conditions,
unexpected changes in regulatory requirements, tariffs and other trade
barriers, difficulties in staffing and managing foreign subsidiary operations
and potentially adverse tax consequences. Such factors could have a material
adverse effect on Knowledge Well's future operations outside of the United
States.
Properties
Knowledge Well's U. S. headquarters is located in Austin, Texas. Knowledge
Well's research and development organization is located in Dublin, Ireland.
Knowledge Well currently occupies approximately 6,100 square feet at its
Austin, Texas location and approximately 10,500 square feet in Dublin, Ireland.
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SELECTED COMBINED FINANCIAL DATA OF KNOWLEDGE WELL
The selected combined financial data of Knowledge Well for the periods from
inception to October 31, 1996 and for the years ended October 31, 1997 and 1998
are derived from the audited combined financial statements of Knowledge Well
Limited and Knowledge Well Group Limited, included elsewhere in this proxy
statement. The following data should be read in conjunction with "Management's
Discussion and Analysis of the Financial Condition and Results of Operations of
Knowledge Well" and Knowledge Well's Combined Financial Statements, including
the Notes thereto, included herein.
Knowledge Well
<TABLE>
<CAPTION>
Year ended Year ended Inception to
October 31, 1998 October 31, 1997 October 31, 1996
---------------- ---------------- ----------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations
Data:
Revenues................... $ 48 $ -- $ --
Cost of revenues........... -- -- --
--------- --------- ------
Gross profit............... 48 -- --
--------- --------- ------
Operating Expenses:
Research and development... 3,027 1,393 45
Sales and marketing........ 1,088 301 --
General and
administrative............ 352 147 13
--------- --------- ------
Total operating expenses... 4,467 1,841 58
--------- --------- ------
Loss from operations....... (4,419) (1,841) (58)
Other income (expense),
net....................... (3) 246 --
--------- --------- ------
Loss before provision for
income taxes.............. (4,422) (1,595) (58)
Provisions for income
taxes..................... -- -- --
--------- --------- ------
Net loss................... (4,422) (1,595) (58)
========= ========= ======
Net loss per share--Basic
and Diluted(1)............ $ (0.49) $ (0.30) $(3.15)
========= ========= ======
Shares used in computing
per share amounts(1)...... 9,017,461 5,238,156 18,448
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
October 31, October 31,
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and short-term investments......................... $4,745 $1,161
Working capital......................................... 2,923 945
Total assets............................................ 5,774 1,430
Long-term debt, excluding current portion............... -- --
Shareholders' equity.................................... 3,463 1,060
</TABLE>
- --------
(1) The per share data has been restated to reflect the effects of the
Knowledge Well Limited ordinary share split.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF KNOWLEDGE WELL
The following discussion should be read in conjunction with the combined
financial statements and related notes thereto of Knowledge Well contained in
this proxy statement.
Important Note About Forward Looking Statements
The following contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify such forward looking statements. These forward looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those expressed or forecasted. Actual results may vary because of factors
such as product ship schedules, life cycles, terms and conditions, product mix,
competitive products and pricing, customer demand, technological shifts and
other issues discussed elsewhere in this proxy statement. These forward-looking
statements reflect management's opinions only as of the date hereof, and
Knowledge Well assumes no obligation unless required by law to revise or
publicly release the results of any revision to these forward-looking
statements. Risks and uncertainties include, but are not limited to, those
discussed in the section entitled "Risk Factors--Risks Relating to Knowledge
Well." The following discussion and analysis should be read in conjunction
with, and is qualified by, the financial statements, including the notes
thereto, and selected financial data included elsewhere in this proxy
statement. Historical results are not necessarily indicative of trends in
operating results for any future period.
Overview
Knowledge Well provides software that delivers business, management and
professional education skills and/or courses. Knowledge Well delivers the
software components of its courses over intranets and local area networks and
on CD-ROMs. Students can easily access these interactive courses via basic,
industry-standard computers. For students pursuing a degree, the software will
be supplemented with internet access to faculty and other students. Knowledge
Well aims to provide a self-paced education and training solution which allows
students to obtain degrees and/or other credentials from outside the college
campus.
Recent Developments
On September 1, 1998, Knowledge Well Group Limited ("KWGL") made a Rights
Issue of 1,604,664 preferred shares of $0.01 each (the "KWGL Rights Issue
Shares") at a price of $2.18 per share. The Rights Issue was made on the basis
of one KWGL Rights Issue Share for every five ordinary shares of $0.01 each in
KWGL held as of the close of business on August 31, 1998. On the same date,
Knowledge Well Limited ("KWL") made a Rights Issue of 1,604,664 "A" ordinary
shares of $0.25 each (the "KWL Rights Issue Shares") at a price of $0.93 per
share. The Rights Issue was made on the basis of one KWL Rights Issue Share for
every five "A" ordinary shares of $0.25 each in KWL held as of the close of
business on August 31, 1998. At the election of the shareholder, the KWGL
Rights Issue Shares and the KWL Rights Issue Shares could be paid for in three
installments, in which case the final installment was due on November 27, 1998.
As a condition to participating in each of the Rights Issues, any shareholder
of one company who was also a shareholder of the other company was required to
purchase an equal number of shares in each of KWGL and KWL. Any KWGL Rights
Issue Shares or KWL Rights Issue Shares not purchased by the shareholders were
purchased by Gregory M. Priest as an underwriter of the Rights Issues. The
purpose of the Rights Issues was to provide Knowledge Well with additional
working capital without causing a dilutive effect on the existing shareholders
of Knowledge Well.
In February 1998, Knowledge Well and KSU entered into a long term
Educational Software Development Agreement to co-develop interactive
educational software for students pursuing degree and non-degree KSU courses of
study from outside of KSU. In addition to the courses the parties co-develop,
Knowledge Well may independently develop courses and submit them to KSU for
review and approval. Upon validation and approval
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by KSU, the result of the collaborative effort will be individual courses
offered for KSU college credit. Students may even, on proper completion of a
curriculum, receive a full college credit KSU degree. The content for the
courses will be derived from existing KSU curriculum. Initially, Knowledge Well
and KSU have agreed to co-develop a bachelor's degree in business for full KSU
college credit. In November 1998, Knowledge Well and KSU amended the
Educational Software Development Agreement between the parties to provide that
Knowledge Well will build courseware for KSU's master's degree curriculum in
business administration ("MBA"). In addition, Knowledge Well and KSU will work
to define a graduate certificate program which will be derived from the courses
that comprise the MBA program. Upon completion of such a program, KSU would
grant a Graduate Certificate in Business Administration.
Knowledge Well has released three KSU undergraduate business degree courses
to KSU faculty members for use by such faculty members in their classes.
However, Knowledge Well does not expect to make such courses generally
commercially available until late 1999. As a result, Knowledge Well will not
generate revenue from these business degree courses until at least that time.
Knowledge Well will market the degree products developed under its agreement
with KSU to individuals who are not KSU students but who would like to acquire
KSU credits and/or study toward a KSU degree. Knowledge Well has also developed
non-credit business courses with subject matter derived from the KSU
relationship. These courses are currently shipping and are expected to
contribute several million dollars in revenue in 1999, although these
expectations could fail to be met. In any event, 1999 revenues are not expected
to be material to our combined revenues in 1999. We also expect to incur
several million dollars in costs associated with our development under the KSU
agreement in 1999, which we would expect to fund out of our corporate
resources, particularly earlier in the year. These expenses may exceed our
estimates and may not be covered by revenues from the associated products. We
do not expect additional capital commitments associated with the KSU agreement
to be material to our liquidity position.
Knowledge Well's Results of Operations
KWL, established in August 1996, is a private company, limited by shares,
incorporated under the laws of Ireland. KWL's function is product development,
sales and marketing. Knowledge Well Inc. ("KWI"), a Delaware corporation, was
established in March 1997 to serve as the United States sales and marketing
headquarters. KWGL, established in May 1997, is a private company, limited by
shares, incorporated under the laws of Ireland. KWI is a wholly owned
subsidiary of KWGL.
KWGL and KWL are "sister" companies in that they have substantially
identical shareholdings. Accordingly, in accordance with US GAAP, the results
of operations for KWL and KWGL are presented on a combined basis for all
periods.
Combined Results of Operations for the Period from Inception to October 31,
1996 and for the Years Ended October 31, 1997 and 1998
Revenues
Knowledge Well hired its first telesales representative in March 1998 and
its first direct field sales representative in late October 1998. Knowledge
Well from inception through March 31, 1999, recognized an aggregate of
approximately $220,000 of revenue.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of salaries and benefits for Knowledge Well's research and
development personnel and fees paid to contractors. Research and development
expenses were approximately $45,000, $1,393,000 and $3,027,000 from the period
from inception to October 31, 1996 and in the years ended October 31, 1997 and
1998, respectively. The increase was primarily the result of increased
headcount associated with product development. Knowledge Well expects that
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research and development expenses as a stand-alone company would continue to
increase in absolute dollars through additional investments in product
development.
Sales and Marketing. Knowledge Well's marketing expenses consist primarily
of salaries, printing costs, promotional expenses and related overhead costs.
Sales and marketing expenses increased from $0 from the period from inception
to October 31, 1996 to approximately $301,000 in the year ended October 31,
1997 to approximately $1,088,000 in the year ended October 31, 1998. The
increase was primarily the result of the expansion of the United States sales
organization. Since October 31, 1998, Knowledge Well has continued to expand
its United States sales organization and its sales and marketing expenses have
accordingly increased. Knowledge Well expects that sales and marketing expenses
as a stand alone company would increase in absolute dollars to support the
expansion of its sales and marketing organization.
General and Administrative. Knowledge Well's general and administrative
expenses consist primarily of salaries and fees paid for professional services.
General and administrative expenses increased from approximately $14,000 for
the period from inception to October 31, 1996 to approximately $146,000 in the
year ended October 31, 1997 and to approximately $352,000 in the year ended
October 31 , 1998. The increase is primarily due to the expenses incurred to
support the growth of the product development organization in Dublin and to
support the expansion of the United States sales organization. Knowledge Well
expects that general and administrative expenses as a stand-alone company would
increase in absolute dollars in order to support both the product development
and sales and marketing organizations.
Liquidity and Capital Resources on a Combined Basis
Since inception, Knowledge Well has funded its operations primarily through
the private sale of equity securities, which totaled approximately $10 million
(net of issuance costs) as of October 31, 1998. At
October 31, 1998, the principal source of liquidity for Knowledge Well was
approximately $4.7 million in cash and cash equivalents.
Net cash used in operating activities was approximately $2.8 million in the
twelve months ended
October 31, 1998. For such period, net cash used in operating activities
resulted primarily from net losses. Cash flows used in investing activities was
approximately $563,000 in the twelve months ended October 31, 1998. Knowledge
Well's investing activities consisted primarily of purchases of furniture and
equipment, which was offset by lease advances and loans. Knowledge Well expects
that its capital expenditures as a stand-alone company would increase as its
employee base grows and its operations expand.
Net cash provided by financing activities was approximately $7.1 million in
the twelve months ended October 31, 1998. Cash flows from financing activities
consisted primarily of proceeds from the private sale of equity and the BES
funds (as described below) and, to a lesser extent, proceeds from borrowings,
net of repayments. The Business Expansion Scheme ("BES") is an Irish tax-based
investment arrangement for individuals designed to provide seed capital to
start-up companies. In January 1998, KWL entered into an agreement pursuant to
which it issued 607,094 "C" Ordinary Shares of IR(Pounds)1 to The Govenor and
Company of The Bank of Ireland and received $1,345,576 (net of issuance costs)
from a BES investment fund. On August 30, 1998, the 607,094 "C" Ordinary Shares
were subdivided into 2,428,376 "C" Ordinary Shares of IR(Pounds)0.25. Under the
terms of the BES agreement, the "C" Ordinary Shares are to be redeemed by KWL
within five years from the date such shares were issued. Prior to the closing
of the Share Exchange, KWL will redeem the "C" Ordinary Shares with proceeds
from a concurrent sale of "A" Ordinary Shares to Mr. McCabe.
Cash requirements are expected to continue to increase in order to fund: (i)
personnel and salary costs, (ii) research and development costs, (iii)
investment in additional equipment and facilities and (iv) working capital
requirements.
Knowledge Well estimates that the existing cash and cash equivalents will be
sufficient to fund its liquidity requirements for at least the next six months.
Thereafter, Knowledge Well anticipates that it will
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require additional funds to support its liquidity requirements. There can be no
assurance that additional financing will be available at all or that, if
available, such financing will be available on terms favorable to Knowledge
Well.
Year 2000 Compliance
Knowledge Well uses a number of computer software programs and operating
systems in its internal operations, including applications used in order
processing, inventory management, distribution, financial business systems and
various administrative functions. Although Knowledge Well believes that its
internal software applications contain source code that is able to interpret
appropriately the upcoming calendar year 2000, failure by Knowledge Well to
make any required modifications to make such software "Year 2000" compliant
could result in systems interruptions or failures that could have a material
adverse effect on its business. Knowledge Well does not anticipate that it will
incur material expenses to make its computer software programs and operating
systems "Year 2000" compliant. However, unanticipated costs necessary to update
software, or potential systems interruptions, could exceed Knowledge Well's
present expectations and have a material adverse effect on its business,
financial condition and results of operations.
Knowledge Well is also subject to external forces that might affect industry
and commerce generally, such as Year 2000 compliance failures at utility or
transportation companies and related service interruptions. Some commentators
have stated that a significant amount of litigation will arise out of Year 2000
compliance issues, and Knowledge Well is aware of lawsuits against other
software vendors. Because of the unprecedented nature of such litigation and
unknown impact of the Year 2000 problem, it is uncertain to what extent
Knowledge Well may be affected by such litigation. Knowledge Well does not
currently have information concerning the Year 2000 compliance status of its
customers. If Knowledge Well's current or future customers fail to achieve Year
2000 compliance or if they divert technology expenditures to focus on preparing
their business for the Year 2000, then capital expenditure, software investment
and training budgets may be spent on remediation efforts rather than business,
management and professional education and training. Such a diversion of
software investment and education and training funds could reduce the demand
for Knowledge Well's products both directly, if current and potential customers
allocate less funds to business, management and professional education and
training, and indirectly, by delaying the purchase and implementation of new
systems. This could adversely affect Knowledge Well's future revenues, although
Knowledge Well does not know the impact at this time.
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APPROVAL OF AN INCREASE IN NUMBER OF SHARES UNDER
THE 1994 SHARE OPTION PLAN
General
In November 1994, our board of directors and our shareholders adopted and
approved the 1994 Share Option Plan. The 1994 Plan currently provides for the
issuance of up to 7,247,036 ordinary shares. On January 18, 1999, our board of
directors approved, subject to shareholder approval at the Extraordinary
General Meeting, an amendment to the 1994 Plan increasing the total number of
ordinary shares reserved for issuance under the plan by 2,000,000 ordinary
shares. At the Extraordinary General Meeting, you will be requested to approve
an amendment to the 1994 Plan to increase the number of ordinary shares
reserved for issuance under the plan by 2,000,000 ordinary shares.
As of December 31, 1998, options to purchase a total of 3,379,228 ordinary
shares were outstanding and options to purchase 1,649,799 ordinary shares
remained available for future grant under the 1994 Plan, without giving effect
to the increase in shares being presented to the shareholders for approval at
the Extraordinary General Meeting.
We rely heavily on our 1994 Plan to attract and retain high quality
executives and key personnel. Accordingly, our board of directors believes that
it is in our best interests to increase the number of shares reserved for
issuance under the 1994 Plan so that we may continue to provide ongoing
incentives to our employees in the form of options to purchase ordinary shares
in amounts consistent with past practices.
Vote Required
The affirmative vote of the holders of a majority of the ordinary shares
represented in person or by proxy and voting at the Extraordinary General
Meeting is required to approve the amendment to the 1994 Plan. Unless otherwise
instructed, the proxies will vote "FOR" the amendment to the 1994 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL
TWO.
Summary of the 1994 Plan
A description of the principal features of the 1994 Plan, as amended to
date, is set forth below.
General. The 1994 Plan permits the granting of options to purchase ordinary
shares. Options granted under the 1994 Plan may be either "incentive stock
options," as defined in Section 422 of the U.S. Internal Revenue Code of 1986,
as amended, or nonstatutory share options. The purposes of the 1994 Plan are to
attract and retain the best available personnel for us, provide additional
incentive to our current employees and consultants and promote the success of
our business.
Administration of the 1994 Plan. The 1994 Plan must be administered by
either the board of directors or a committee appointed by the board of
directors. The administrator of the 1994 Plan is the Stock Option Committee of
the board of directors and a Non-Officer Stock Option Committee for certain
smaller grants to non-officers. The interpretation and construction of any
provision of the 1994 Plan by the administrator of the plan is final and
binding.
Eligibility. The 1994 Plan provides that options may be granted to our
employees, including officers and directors who are also our employees, our
consultants and employees and consultants of our subsidiaries. Incentive stock
options may be granted only to employees. The administrator of the plan selects
the participants and determines the number of shares subject to each option. As
of December 31, 1998, there were approximately 1,200 employees and consultants
eligible to receive share options under the 1994 Plan.
75
<PAGE>
Terms of Options. The terms of options granted under the 1994 Plan are
determined by the administrator of the plan. Each option is evidenced by a
written agreement between us and the person to whom the option is granted, and
is subject to additional terms and conditions set forth in the 1994 Plan.
The exercise price of incentive stock options granted under the 1994 Plan is
determined by the administrator of the plan, but cannot be less than 100% of
the fair market value of our ordinary shares on the date the options are
granted. The exercise price of nonstatutory stock options granted under the
1994 Plan is determined by the administrator on the date the options are
granted, subject to applicable laws. Fair market value per share is based on
the closing sales price of the ADSs as reported on the Nasdaq National Market
on the last trading day before the date of grant. Incentive stock options
granted to shareholders owning more than 10% of our outstanding shares are
subject to the additional restriction that the exercise price must be at least
110% of the fair market value. The method of payment of the exercise price of
the shares purchased upon exercise of an option is determined by the
administrator of the plan and may include cash, check, promissory note, any
combination of the foregoing, or such other consideration and method of payment
for the issuance of shares to the extent permitted under applicable laws.
The administrator of the plan determines when options become exercisable,
provided that the optionee must generally earn the right to exercise the option
by continuing to perform services for us. Options granted under the 1994 Plan
expire ten years from the date of grant, unless a shorter period is provided in
the notice of grant. No option may be exercised by any person after such
expiration. In addition, incentive stock options granted to shareholders owning
more than 10% of our outstanding shares may not have a term of more than five
years. An option is not transferable by the holder except by will or the laws
of descent or distribution, and is exercisable during the holder's lifetime
only by the optionee, or in the event of the optionee's death, by a person who
acquires the right to exercise the option by bequest or inheritance or by
reason of the death of the holder.
Adjustment and Change in Control. In the event any change is made in our
capitalization, such as a share split, combination or reclassification,
appropriate adjustments, as determined by our board of directors, shall be made
to the purchase price and to the number of shares subject to the option. In the
event of our proposed dissolution or liquidation, all options will terminate
immediately prior to the consummation of such actions, unless otherwise
provided by our board of directors. In the event of a proposed sale of all or
substantially all of our assets, or the merger of us with or into another
corporation, the successor corporation shall assume all outstanding options or
substitute new options therefor, unless our board of directors determines in
its discretion to accelerate the exercisability of such options.
Amendment and Termination of the 1994 Plan. Our board of directors may amend
or terminate the 1994 Plan as it may deem advisable, provided that, to the
extent necessary and desirable to comply with Section 422 of the Internal
Revenue Code or any other applicable law, rule or regulation. We shall obtain
shareholder approval of any 1994 Plan amendment as is required by any
applicable law, rule or regulation. Any amendment or termination of the 1994
Plan shall not affect options already granted and such options shall remain in
full force and effect as if the 1994 Plan had not been amended or terminated,
unless mutually agreed otherwise between the optionee and the board of
directors. Such an agreement must be in writing and signed by the optionee and
us. The 1994 Plan will terminate in November 2004. Any options outstanding
under the 1994 Plan at the time of its termination will remain outstanding
until they expire by their terms.
Tax Information
Options granted under the 1994 Plan may be either "incentive stock options,"
as defined in Section 422 of the Internal Revenue Code, or nonstatutory share
options.
If an incentive stock option is granted under the 1994 Plan, an optionee who
is subject to taxation under the Internal Revenue Code with respect to the
option will recognize no income upon its grant and incur no tax liability due
to its exercise unless the optionee is subject to the alternative minimum tax.
We will not be
76
<PAGE>
allowed a deduction for federal income tax purposes as a result of the exercise
of an incentive stock option regardless of the applicability of the alternative
minimum tax. Upon the sale or exchange of the shares at least two years after
grant of the option and one year after receipt of the shares by the optionee,
any gain or loss will be treated as long-term capital gain or loss. If these
holding periods are not satisfied, the optionee will recognize ordinary income
equal to the difference between the exercise price and the lower of (1) the
fair market value of the shares at the date of the option exercise or (2) the
sale price of the shares. Different rules for measuring ordinary income upon
such a premature disposition may apply if the optionee is also an officer,
director or 10% shareholder of us. We will be entitled to a deduction in the
same amount as the ordinary income recognized by the optionee. Any additional
gain or any loss recognized on such a premature disposition of the shares will
be characterized as long-term or short-term capital gain or loss.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory share options. An optionee will not recognize any
taxable income at the time the optionee is granted a nonstatutory share option.
However, upon its exercise, the optionee will recognize ordinary income for tax
purposes generally measured as the difference between the then fair market
value of the shares purchased and the purchase price. The income recognized by
an optionee who is also one of our employees will be subject to tax withholding
by us by payment in cash or out of the current earnings paid to the optionee.
Upon resale of these shares by the optionee, any difference between the sale
price and the exercise price, to the extent not recognized as ordinary income
as provided above, will be treated as long-term or short-term capital gain or
loss.
THE FOREGOING BRIEF SUMMARY OF THE AFFECT OF FEDERAL INCOME TAXATION UPON
THE PARTICIPANT AND CBT WITH RESPECT TO SHARES PURCHASED UNDER THE 1994 PLAN IS
NOT COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISION OF THE
INTERNAL REVENUE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE TAX
CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS
OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY OTHER THAN THE UNITED STATES IN
WHICH THE PARTICIPANT MAY RESIDE.
Participation in the 1994 Plan
The grant of share options under the 1994 Plan to executive officers,
including the officers named in the Summary Compensation Table contained in
this proxy statement, is subject to the discretion of the administrator of the
plan. As of the date of this proxy statement, there has been no determination
by the administrator of the plan with respect to future grants under the 1994
Plan. Accordingly, future grants are not determinable.
OTHER MATTERS
Representatives of Ernst &Young, our chartered accountants, and of Caplin
Meehan, chartered accountants to Knowledge Well, are expected to be present at
the Extraordinary General Meeting with the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions.
We know of no other matters to be submitted at the Extraordinary General
Meeting.
By Order of the Board of Directors
Dated: May 4, 1999
77
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO THE COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Caplin Meehan, Independent Auditors.............................. F-2
Combined Balance Sheets as of October 31, 1997 and 1998.................... F-3
Combined Statement of Operations for the period August 7, 1996 (date of
inception) to October 31, 1996, the years ended October 31, 1997 and 1998
and the period August 7, 1996 (date of inception) to October 31, 1998..... F-4
Combined Statement of Changes in Shareholders' Equity (Deficit) for the
period August 7, 1996 (date of inception) to October 31, 1996 and the
years ended October 31, 1997 and 1998..................................... F-5
Combined Statements of Cashflows for the period August 7, 1996 (date of
inception) to October 31, 1996, the years ended October 31, 1997 and 1998
and the period August 7, 1996 (date of inception) to October 31, 1998..... F-6
Notes to Combined Financial Statements..................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF CAPLIN MEEHAN, INDEPENDENT AUDITORS
The Board of Directors and Shareholders,
Knowledge Well Group Limited and Knowledge Well Limited
We have audited the accompanying combined balance sheets of Knowledge Well
Group Limited (a development stage enterprise) and Knowledge Well Limited (a
development stage enterprise) as of October 31, 1997 and 1998 and the related
combined statements of operations, changes in shareholders' equity (deficit)
and comprehensive income, and cash flows for the period August 7, 1996 (date of
inception) to October 31, 1996, the years ended October 1997 and 1998 and for
the period August 7, 1996 (date of inception) to October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United States 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, based on our audits, the financial statements referred to
above present fairly, in all material respects, the combined financial position
of Knowledge Well Group Limited and Knowledge Well Limited at October 31, 1997
and 1998, and the combined results of their operations and their cash flows for
the period August 7, 1996 (date of inception) to October 31, 1996, the years
ended October 31, 1997 and 1998 and the period August 7, 1996 (date of
inception) to October 31, 1998 in conformity with United States generally
accepted accounting principles.
/s/ Caplin Meehan
_____________________________________
CAPLIN MEEHAN
Chartered Accountants
Dublin, Ireland
Date: April 1, 1999
F-2
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED BALANCE SHEET
(in United States dollars)
<TABLE>
<CAPTION>
October 31
------------------------
1997 1998
----------- -----------
<S> <C> <C>
BALANCE SHEETS
ASSETS
Current assets
Cash............................................... $ 1,160,972 $ 4,744,899
Prepaid expenses................................... 50,616 342,536
----------- -----------
Total current assets............................... 1,211,588 5,087,435
Property and equipment, net........................ 218,240 686,201
----------- -----------
Total assets....................................... $ 1,429,828 $ 5,773,636
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings under bank overdraft facilities and
overdrafts........................................ -- 74,085
Accounts payable................................... 38,598 95,607
Accrued payroll and related expenses............... 14,429 45,478
Other accrued liabilities.......................... 213,566 977,546
Deferred income.................................... -- 971,550
----------- -----------
Total current liabilities.......................... 266,593 2,164,266
Non current liabilities
Other liabilities.................................. 103,542 146,752
----------- -----------
Total non current liabilities...................... 103,542 146,752
Shareholders' equity
Ordinary Shares in Knowledge Well Group Limited.... 2 80,235
Ordinary Shares in Knowledge Well Limited.......... 1,807,215 3,238,299
Preferred shares in Knowledge Well Group Limited... -- 15,468
Additional paid-in capital......................... 1,112,129 6,773,000
Accumulated development stage (deficit)............ (1,652,895) (6,075,113)
Accumulated other--comprehensive income............ (206,758) (395,631)
Receivable from shareholder........................ -- (173,640)
----------- -----------
Total shareholders' equity......................... 1,059,693 3,462,618
----------- -----------
Total liabilities and shareholders' equity......... $1,429,828 $5,773,636
=========== ===========
</TABLE>
(see accompanying notes)
F-3
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF OPERATIONS
(in United States dollars)
<TABLE>
<CAPTION>
For the Period
For the Period For the For the August 7, 1996
August 7, 1996 Year Ended Year Ended (Date of Inception)
(Date of Inception) October 31, October 31, to October 31,
to October 31, 1996 1997 1998 1998
------------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ 48,011 $ 48,011
Cost of revenues........ -- -- -- --
-------- ----------- ----------- -----------
Gross profit............ -- -- 48,011 48,011
Operating expenses:
Research and
development.......... 44,741 1,393,091 3,027,300 4,465,132
Sales and marketing... -- 300,875 1,087,920 1,388,795
General and
administrative....... 13,415 146,414 352,128 511,957
-------- ----------- ----------- -----------
Total operating
expenses........... 58,156 1,840,380 4,467,348 6,365,884
-------- ----------- ----------- -----------
Loss from operations.... (58,156) (1,840,380) (4,419,337) (6,317,873)
Interest income, net.... -- 51,431 20,318 71,749
Net exchange gain....... -- 194,210 (23,199) 171,011
-------- ----------- ----------- -----------
Income before provision
for income taxes....... (58,156) (1,594,739) (4,422,218) (6,075,113)
Provision for income
taxes.................. -- -- -- --
-------- ----------- ----------- -----------
Net loss................ $(58,156) $(1,594,739) $(4,422,218) $(6,075,113)
-------- ----------- ----------- -----------
Net loss per share--
Basic and diluted...... $ (3.15) ($ 0.30) $ (0.49) $ (0.95)
======== =========== =========== ===========
</TABLE>
(see accompanying notes)
F-4
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME
(in United States dollars)
<TABLE>
<CAPTION>
Shareholders' equity (deficit)
---------------------------------------------------------------------------------------------------
Accumulated Accumulated Total
Convertible Additional Development Receivable other-- shareholders'
Preferred Ordinary paid-in Stage from Comprehensive comprehensive equity
shares shares capital (deficit) shareholder income/(loss) income/loss (deficit)
----------- --------- ---------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 8 "C"
ordinary shares on
incorporation in
Limited............. -- 3 -- -- -- -- 3
Issuance of ordinary
Issuance of 42,856
ordinary shares in
Limited............. -- 10,720 39,356 -- -- -- 50,076
Receivable from
shareholder......... -- -- -- (50,079) -- (50,079)
Cumulative
translation
adjustment.......... -- -- -- -- -- (653) (653) (653)
Net loss............. -- -- -- (58,156) -- (58,156) -- (58,156)
------ --------- --------- ---------- -------- ---------- -------- ----------
Balance October 31,
1996................ -- 10,723 39,356 (58,156) (50,079) (58,809) (653) (58,809)
Issuance of 5,451,428
"A" ordinary shares
in Limited.......... -- 1,362,857 -- -- -- -- 1,362,857
Issuance of 505,716
"A" ordinary Shares
in Limited.......... -- 126,429 463,994 -- -- -- 590,423
Issuance of 234,856
"A" ordinary Shares
in Limited.......... -- 58,714 215,480 -- -- -- 274,194
Issuance of 428,264
"A" ordinary Shares
in Limited.......... -- 107,066 377,951 -- -- -- 485,017
Issuance of 548,576
"A" ordinary Shares
in Limited.......... -- 137,144 -- -- -- -- 137,144
Issuance of 8
ordinary in
Company............. 2 -- -- -- -- 2
Issuance of 17,128
"A" ordinary Shares
in Limited.......... 4,282 15,348 -- -- -- 19,630
Receivable from
shareholder......... -- -- -- -- 50,079 -- 50,079
Cumulative
translation
adjustment.......... -- -- -- -- -- (206,105) (206,105) (206,105)
Net loss for period.. -- -- -- (1,594,739) -- (1,594,739) -- (1,594,739)
------ --------- --------- ---------- -------- ---------- -------- ----------
Balance October 31,
1997................ -- 1,807,217 1,112,129 (1,652,895) -- (1,859,653) (206,758) 1,059,693
Issuance of 794,496
"A" ordinary shares
in Limited.......... -- 198,624 539,125 -- -- -- 737,749
Issuance of 2,428,384
"C" ordinary shares
in Limited.......... -- 831,294 538,004 -- -- -- 1,369,298
Issuance of 6,295,184
"A" ordinary shares
in Limited.......... -- 401,166 1,098,834 -- -- -- 1,500,000
Issuance of 8,023,320
ordinary shares in
Company............. -- 80,233 -- -- -- -- 80,233
Issuance of 1,546,814
convertible
preferred shares in
Company............. 15,468 -- 3,358,350 -- -- -- 3,373,818
Compensation expense
for stock options... -- -- 126,558 -- -- -- 126,558
Receivable from
shareholder......... -- -- -- -- (173,640) -- (173,640)
Cumulative
translation
adjustment.......... -- -- -- -- -- (188,873) (188,873) (188,873)
Net loss............. -- -- -- (4,422,218) -- (4,422,218) -- (4,422,218)
------ --------- --------- ---------- -------- ---------- -------- ----------
Balance October 31,
1998................ 15,468 3,318,534 6,773,000 (6,075,113) (173,640) (6,470,744) (395,631) 3,462,618
====== ========= ========= ========== ======== ========== ======== ==========
</TABLE>
(see accompanying notes)
F-5
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
For the Period For the For the For the Period
August 7, 1996 Year Ended Year Ended August 7, 1996
(Date of Inception) October 31, October 31, (Date of Inception)
to October 31, 1996 1997 1998 to October 31, 1998
------------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Cash from operating
activities
Net loss................ $(58,156) $(1,594,739) $(4,422,218) $(6,075,113)
Adjustments to reconcile
net loss to net cash
used in operating
activities
Depreciation and
amortization........... -- 57,179 95,012 152,191
Changes in operating
assets and liabilities:
Prepaid expenses and
other assets........... (65,006) 14,390 (291,921) (342,537)
Accounts payable........ -- 38,598 57,009 95,607
Accrued payroll and
related expenses and
other accrued
liabilities............ 17,802 313,736 838,238 1,169,776
Deferred revenue........ -- -- 971,550 971,550
-------- ----------- ----------- -----------
Net cash used by
operating activities... (105,360) (1,170,836) (2,752,330) (4,028,526)
-------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchases of property
and equipment.......... (39,295) (236,124) (562,973) (838,392)
-------- ----------- ----------- -----------
Net cash used in
investing activities... (39,295) (236,124) (562,973) (838,392)
-------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from notes
payable................ 162,840 -- -- 162,840
Proceeds from bank
overdraft.............. -- -- 74,085 74,085
Payment of notes
payable................ -- (162,840) -- (162,840)
Proceeds (payments) of
receivables from/to
shareholders........... (50,079) 50,079 (173,640) (173,640)
Proceeds from issuance
of ordinary shares,
net.................... 50,079 2,869,267 7,187,656 10,107,002
-------- ----------- ----------- -----------
Net cash provided by
financing activities... 162,840 2,756,506 7,088,101 10,007,447
-------- ----------- ----------- -----------
Effect of exchange rates
on cash................ (653) (206,106) (188,871) (395,630)
Net increase in cash.... 17,532 1,143,440 3,583,927 4,744,899
Cash at beginning of
period................. -- 17,532 1,160,972 --
-------- ----------- ----------- -----------
Cash at end of period... 17,532 1,160,972 4,744,899 4,744,899
======== =========== =========== ===========
</TABLE>
(see accompanying notes)
F-6
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The accompanying financial statements combine the financial position,
results of operations and cash flows of Knowledge Well Group Limited and
Knowledge Well Limited companies whose majority voting ordinary shares are
owned by the same shareholder.
Knowledge Well Limited is organized as a private limited company under the
laws of the Republic of Ireland. Knowledge Well Limited ("Limited") develops
and markets business, management and professional software training using
interactive learning technologies. Knowledge Well Limited was incorporated on
August 7, 1996.
Knowledge Well Group Limited is organized as a private limited company under
the laws of the Republic of Ireland. Knowledge Well Group Limited (the
"Company" or "Knowledge Well") sells and markets business, management and
professional software training using interactive learning technologies. The
Company was incorporated on May 1, 1997. Knowledge Inc. ("Inc."), a subsidiary
of Knowledge Well Group Limited, was incorporated on March 19, 1997, prior to
the incorporation of Knowledge Well Group Limited. These combined financial
statements include the results of operations of Knowledge Well Limited from
August 7, 1996, Knowledge Well Inc. from March 19, 1997 and the Company from
May 1, 1997. If Knowledge Well Inc. had been accounted for as an acquisition by
the Company in May 1997, there would be no material difference on the combined
financial position or results of operation as reported herein.
Basis of Presentation and Principles of Consolidation and Combination
The combined financial statements are prepared in accordance with generally
accepted accounting principles in the United States and include the Company and
its wholly owned subsidiary and its affiliate Knowledge Well Limited after
eliminating all material inter-company accounts and transactions. The financial
statements of Knowledge Well Group Limited are being presented as a development
stage enterprise. From August 7, 1996 (date of inception) Limited has devoted
most of its efforts to research and development and the Company has devoted
most of its efforts to developing markets in the United States.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Translation of Financial Statements of Foreign Entities
The reporting currency for the combined entity is the U.S. dollar
("dollar"). The functional currency of the Company and Inc. is the dollar and
the functional currency of Limited is the Irish pound.
Balance sheet amounts are translated to the dollar from the local functional
currency at year-end exchange rates, while statements of operations amounts in
local functional currency are translated using average exchange rates.
Translation gains or losses are recorded in other comprehensive income.
Currency gains or losses on transactions denominated in a currency other than
an entity's functional currency are recorded in the results of the operations.
The combined entity has not undertaken hedging transactions to cover its
currency exposures.
Revenue Recognition
Beginning in fiscal 1998, the Company adopted Statement of Position 97-2
"Software Revenue Recognition" as amended by Statement of Position 98-4. The
effect of adoption did not have a material impact on the Company's results of
operations.
F-7
<PAGE>
KNOWLEDGE WELL LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
The Company derives its revenues primarily pursuant to license agreements
under which customers license usage of delivered products for a period of one,
two or three years. On each anniversary date during the term of multi-year
license agreements, customers are allowed to exchange any or all of the
licensed products for an equivalent number of new products. The first year
license fee is generally recognized as revenue at the time of delivery of all
products, provided the Company's fees are fixed or determinable and collections
of accounts receivable are probable. Subsequent annual license fees are
recognized on each anniversary date, provided the Company's fees are fixed or
determinable and collections of accounts receivable are probable. The cost of
satisfying any Post Contract Support ("PCS") is accrued at the time revenue is
recognized as PCS fees are included in the annual license fee, the estimated
cost of providing PCS during the agreements is insignificant and unspecified
upgrades or enhancements offered have been and are expected to be minimal and
infrequent. For multi-element agreements the Company analyzes whether Vendor
Specific Objective Evidence exists to allocate the license fee among the
various elements. Where such evidence exists, license fees associated with
delivered elements are recognized and license fees associated with undelivered
elements are deferred. Where no such evidence exists the entire license fee is
deferred.
Revenues from license agreements providing product exchange rights other
than annually during the term of the agreement are deferred and recognized
ratably over the contract period. Such amounts, together with unearned
development and license revenues, are recorded as deferred revenues in the
combined financial statements.
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of a working model. Development costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have been insignificant. Through October 31, 1998, all research
and development costs have been expensed as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three to
four years. Major classes of property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Office and computer equipment........................... $275,419 $838,392
-------- --------
Total property and equipment............................ 275,419 838,392
Accumulated depreciation................................ 57,179 152,191
-------- --------
Property and equipment, net............................. $218,240 $686,201
======== ========
</TABLE>
Depreciation of property and equipment amounted to $0, $57,179, and $95,012,
for the period August, 7 1996 (date of inception) to October 31, 1996 and for
the years ended October 31, 1997 and 1998, respectively.
Stock Based Compensation
The Statement of Financial Accounting Standards No. 123, (SFAS 123),
"Accounting for Stock Based Compensation," allows companies to account for
employee stock based compensation either under the
F-8
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25, (APB 25), "Accounting for Stock Issued to Employees", but
requires pro forma disclosure in the footnotes to the financial statements as
if the measurement provisions of SFAS 123 had been adopted. The Company has
continued to account for its stock based compensation in accordance with the
provisions of APB 25.
Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
ordinary shares outstanding during the period. Diluted net loss per share
includes the dilution, if any, from potential ordinary shares, such as shares
issuable pursuant to the exercise of options outstanding (using the treasury
stock method). Potential ordinary shares are anti-dilutive in all periods
presented.
On August 31, 1998, Knowledge Well Limited effected a split of its issued
and outstanding ordinary shares of $1.00 into four ordinary shares of $0.25
each. The comparative per share data has been restated to reflect the effects
of Knowledge Well Limited's ordinary share split.
Defined Contribution Plan
The Company sponsors and contributes to a defined contribution plan for
certain employees and directors. Contribution amounts by the Company are
determined by management and allocated to employees on a pro rata basis based
on the employees' contribution. The Company contributed $0, $0 and $20,544 to
the Plan in the period August 7, 1996 (date of inception) to October 31, 1996
and in the years ended October 31, 1997 and 1998, respectively.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed when
incurred. The company incurred no advertising for the period August 7, 1996
(date of inception) to October 31, 1996 or in the years ended October 31, 1997
and 1998 respectively.
Accounting for Income Taxes
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws which will be in effect
when the differences are expected to reverse.
2. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
For the Period
For the Period For the For the August 7, 1996
August 7, 1996 year ended year ended (Date of Inception)
(Date of Inception) October 31, October 31, to October 31,
to October 31, 1996 1997 1998 1998
------------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and
diluted net loss per
share................. $(58,156) $(1,594,739) $(4,422,218) $(6,075,113)
======== =========== =========== ===========
Denominator:
Denominator for basic
and diluted net loss
per share--weighted
average shares........ 18,448 5,238,156 9,017,461 6,370,920
======== =========== =========== ===========
Basic and dilutive net
loss per share......... $ (3.15) $ (0.30) $ (0.49) $ (0.95)
======== =========== =========== ===========
</TABLE>
F-9
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No.130 ("SFAS 130"), "Reporting Comprehensive Income", which
establishes new rules for the reporting and display of comprehensive income and
its components; however, adoption in 1998 will have no impact on the Company's
net income or shareholders' equity. SFAS 130 requires foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
4. OPERATING LEASE COMMITMENTS
The Company leases various facilities, automobiles and equipment under non-
cancellable operating lease arrangements. The major facilities leases are for
terms of 2 to 5 years, and generally provide renewal options for terms of up to
3 additional years. Rent expense under all operating leases was approximately
$1,252, $98,209 and $151,745 in the period August 7, 1996 (date of inception)
to October 31, 1996, and for the years ended October 31, 1997 and 1998,
respectively. Future minimum lease payments under these non-cancellable
operating leases as of October 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................... $ 276,460
2000........................................................... 276,460
2001........................................................... 276,460
2002........................................................... 276,460
2003........................................................... 276,460
Thereafter..................................................... 5,667,430
----------
Total minimum lease payments................................... $6,773,270
==========
</TABLE>
5. SHAREHOLDERS' EQUITY
The Company's authorized share capital is divided into ordinary shares, each
with a par value of $0.01 and convertible preferred shares, each with a par
value of $0.01.
The rights attaching to the classes of shares are identical except for the
following rights attaching to the preference shares:
In the event of any liquidation, dissolution or winding up of the Company
the preference shares shall be entitled to receive in priority to the holders
of any other class of shares an amount of US$2.18114 for each preference share,
plus all declared but unpaid dividends.
The vote of the majority of all the preference shares, voting together as a
single class, is required to approve certain decisions of the Company.
The preference shares may be converted to ordinary shares at the option of
the preference shareholders subject to certain provisions.
The authorized share capital of Knowledge Well Limited is divided into three
classes of shares, "A" ordinary shares of $0.25 each, "B" ordinary shares of
$0.25 each and "C" ordinary shares of IR(Pounds)0.25 each.
F-10
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
The "A", "B" and "C" ordinary shares rank pari passu in all respects except
for the following:
. The maximum amount of dividends payable in respect of the "C" ordinary
shares shall be IR(Pounds)0.812 per share in total. On a winding up of
the Company, the "C" ordinary shares will receive the amount paid up or
credited as paid up on the shares and also any unpaid dividends due at
the time of the winding up.
. On a winding up the "A" and "B" ordinary shares will receive the amount
paid up or credited as paid up on the shares. Any surplus which is
available for distribution after the "C" ordinary shares receive their
full dividend entitlement will be distributed to the "A" and "B"
ordinary shareholders, except that the "B" ordinary shares will not be
entitled to participate until a sum equivalent to US$1,800,000 has been
distributed to the holders of the "A" ordinary shares.
Dividends may only be declared and paid out of profits available for
distribution determined in accordance with accounting principles generally
accepted in Ireland and applicable Irish Company Law. Any dividends, if and
when declared, will be declared and paid in United States Dollars. No reserves
are available for distribution as dividends at October 31, 1998.
Share Option Plans
The Company has elected to follow Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options generally equals the market price of the
underlying stock on the date of grant, no compensation expense is generally
recognized.
In January 1998 the Company and Limited adopted the 1998 Share Option Scheme
(the " Company 1998 Plan"), the 1998 Share Option Scheme (the "Limited 1998
Plan"), (collectively the "Plans").
Under the Plans, incentive stock options and non qualified stock options may
be granted to any director or employee of the Company or Limited and any
independent contractor who performs services for either the Company or Limited
in accordance with law.
As of October 31, 1998, 3 million and 3 million ordinary shares have been
reserved for issuance under the Company 1998 Plan, and the Limited 1998 Plan,
respectively. The Plans are administered by the Stock Option Committees (the
"Committees").
The terms of the options granted are generally determined by the Committee.
The exercise price of options granted under the plans and ISO's cannot be less
than the fair market value of ordinary shares on the date of grant. The term of
an option under the Plans cannot exceed ten years. The term of an ISO granted
to a holder of more than 10% of the voting power of the Company cannot exceed
five years. An option may not be exercised unless the option holder is at the
date of exercise, or within three months of the date of exercise has been, a
director, employee or contractor of the Company. There are certain exceptions
for exercises following retirement or death. Options under the Plans generally
expire not later than 90 days following termination of employment or service or
six months following an optionees' death or disability.
In the event that options under the Plans terminate or expire without having
been exercised in full, the shares subject to those options are available for
additional option grants. Vesting periods of the options are determined by the
Committee and are currently for periods of up to four years.
F-11
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
No options were exercisable at October 31, 1998. As of October 31, 1998,
586,868 options are available for grant under the plans.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company and
Limited had accounted for its stock options under the minimum value method of
that Statement. The minimum value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions during the years ended October 31, 1997 and 1998
respectively: risk-free interest rates of approximately 6%, and 5%; dividend
yields of 0%; volatility factors of the expected market price of the Company's
ordinary shares of 0% and a weighted-average expected life of the option of
five years.
The Black-Scholes option model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the minimum value estimate, in the
management's opinion, the existing models do not provide a reliable single
measure of the minimum value of its stock options.
For the purposes of pro forma disclosures, the estimated minimum value of
the options is amortized to expense over the options' vesting period.
Pro forma (loss) for the years ended October 31, 1997 and 1998 was
$(1,594,739) and $(4,527,447) respectively. Pro forma basic and dilutive net
(loss) per share was $(0.30) and $(0.50) for the years ended October 31, 1997
and 1998, respectively. Because options vest over several years and additional
grants are expected, the effects of these hypothetical calculations are not
likely to be representative of similar future calculations.
A summary of the Company's stock option activity, and related information
for the period ended October 31, 1996 and for the years ended October 31, 1997
and 1998 follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------
Number Price per Weighted Average
of Shares Share Exercise Price
--------- ------------- ----------------
<S> <C> <C> <C>
Balance at October 31, 1996..... -- $ -- $ --
Granted in 1997................. 809,456 $0.01 -- 0.86 $0.43
--------- ------------- -----
Balance at October 31, 1997..... 809,456 $0.01 -- 0.86 $0.43
Granted in 1998................. 4,603,680 $0.01 -- 1.50 $0.76
--------- ------------- -----
Balance at October 31, 1998..... 5,413,136 $0.01 -- 1.50 $0.58
========= ============= =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding At October 31, 1998 Options Exercisable
---------------------------------------------------- ------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Number Average
Exercise Prices Shares Outstanding Contractual Life Exercise Price of Shares Exercise Price
--------------- ------------------ ---------------- -------------- --------- --------------
<C> <S> <C> <C> <C> <C>
$0.01 2,706,658 9.28 $0.01 -- $--
$0.86 404,728 8.97 $0.86 -- $--
$1.19 2,288,680 9.96 $1.50 -- $--
$1.50 13,250 9.96 $1.50 -- $--
--------- ---- ----- --- ---
$0.01--1.50 5,413,136 9.16 $0.58 -- $--
========= ==== ===== === ===
</TABLE>
F-12
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
At October 31, 1997 and 1998 there were no options exercisable. The weighted
average fair value of options granted during the years ended October 31, 1997
and 1998 was $0.43, and $0.76, respectively.
6. INCOME TAXES
The Company and its affiliate Limited have incurred losses since inception
and, therefore, have not been subject to corporation taxes. As of October 1998,
the Company and Limited have net operating losses forward of approximately
US$1m and $3m respectively, available to reduce future income taxes.
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized differently in the
financial statements or tax returns. Under this method deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using
enacted tax rates and laws in effect in the years in which the differences are
expected to reverse. Deferred tax assets are evaluated for realization based on
a more-likely-than-not criteria in determining if a valuation allowance should
be provided. As the combined entities have had cumulative losses and there is
no assurance of future taxable income, the valuation allowance has been
increased by approximately $1.4m over the prior year. The components of the
Company's deferred tax assets as of October 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
October 31,
--------------------
1997 1998
-------- ----------
(in United States
dollars)
<S> <C> <C>
Deferred tax assets Net operating loss carry
forwards......................................... $584,374 $1,988,900
Valuation allowance............................... (584,374) (1,988,900)
-------- ----------
Net deferred tax assets........................... $ -- $ --
======== ==========
</TABLE>
At November 1, 1996 the valuation allowance was $19,773
7. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
On January 1, 1998 the Company adopted Statement of Financial Accounting
Standard No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). The new rules establish revised standards for public
companies relating to the reporting of financial information about operating
segments. The adoption of SFAS 131 did not have a material effect on the
Company's primary combined financial statements but did affect the Company's
segment information disclosures.
Segment Information
Upon adoption of SFAS 131, the Company and Limited have presented financial
information for its two reportable operating segments: United States of America
and Ireland. The United States of America segment is a sales operations and
Ireland is Limited's Research and Development operation. The Company and its
subsidiaries operate in one industry segment, the development and marketing of
interactive education and training software. Operations outside of Ireland
consist principally of sales and marketing.
The Company's Chief Operating Decision Maker ("CODM"), the Company's
President and CEO allocates resources and evaluates performance based on a
measure of segment profit or loss from operations. The accounting policies of
the reportable segments are the same as described in the summary of significant
accounting policies. The Company's CODM does not view segment results below
operating profit (loss),
F-13
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
therefore, net interest income, other income and the provision for income taxes
are not broken out by segment below. The Company does not account for nor
report to the CODM its assets or capital expenditures by segment, thus asset
information is not provided on a segment basis.
A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
Year Ended October 31, 1998
(in United States dollars)
------------------------------------
United States Consolidated
of America Ireland Total
------------- --------- ------------
<S> <C> <C> <C>
Revenues--External.................... $ 48,011 $ -- $ 48,011
Inter segment Revenues................ -- -- --
Depreciation and Amortization......... 8,351 86,661 95,012
Segment Operating Loss................ 1,166,467 3,255,751 4,422,218
<CAPTION>
Year Ended October 31, 1997
(in United States dollars)
------------------------------------
United States Consolidated
of America Ireland Total
------------- --------- ------------
<S> <C> <C> <C>
Revenues--External.................... $ -- $ -- $ --
Inter segment Revenues................ -- -- --
Depreciation and Amortization......... -- 57,179 57,179
Segment Operating Loss................ 300,874 1,293,865 1,594,739
<CAPTION>
Period from August 7, 1996 (date of
inception) to October 31, 1996
(in United States dollars)
------------------------------------
United States Consolidated
of America Ireland Total
------------- --------- ------------
<S> <C> <C> <C>
Revenues--External.................... $ -- $ -- $ --
Inter segment Revenues................ -- -- --
Depreciation and Amortization......... -- -- --
Segment Operating Loss................ -- 58,156 58,156
</TABLE>
Long-Lived assets are those assets that can be directly associated with a
particular geographic area. These assets are categorized by geographical areas
as follows:
<TABLE>
<CAPTION>
October 31
---------------------------
Long-Lived Assets 1997 1998
----------------- ------------- -------------
(in United States dollars)
<S> <C> <C>
Ireland........................................ 208,204 $ 568,125
United States.................................. 10,216 118,076
------------- -------------
Total.......................................... $ 218,420 $ 686,201
============= =============
</TABLE>
8. RECENT DEVELOPMENT
In December 1998, CBT Group PLC ("CBT") announced its intention to seek to
acquire Knowledge Well Limited ("Limited") and Knowledge Well Group Limited
("Company"). In the acquisition each ordinary share of Limited and Company
share will be exchanged for 0.1635 ordinary shares of CBT and CBT
F-14
<PAGE>
KNOWLEDGE WELL GROUP LIMITED
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(Continued)
will assume outstanding stock options of Knowledge Well. The transaction is
intended to be tax free to the shareholders and is intended to be accounted for
using the purchase method. Consummation of the transaction is subject to CBT's
shareholder approval, expiration or termination of the applicable Hart-Scott-
Rodino waiting period and other customary closing conditions. The acquisition
is expected to be completed during the second quarter of 1999.
9. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". The SOP requires
the capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use once certain
criteria are met. The Company has adopted the provisions of SOP 98-1 in fiscal
1998.
In February 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No.132, "Employers' Disclosures About Pensions and Other Post-Retirement
Benefits." This statement revises employers' disclosures about pensions and
other post-retirement benefit plans. It does not, however, change the
measurement of recognition of those plans. This statement standardizes the
disclosure requirements for pensions and other post-retirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. Restatement of disclosures for
earlier periods is required. The Company has implemented the provisions of SFAS
132 in 1998 for its defined contribution plan.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging Activity"
("SFAS 133") which is required to be adopted in years beginning after June 15,
1999. The Company has yet to determine its date of adoption. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges of underlying transactions must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Management has not yet determined what the effect of
SFAS 133 will be on the Company's consolidated financial position, results of
operations or cash flows.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions" and
addresses software revenue recognition as it applies to certain multiple-
element arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2" through fiscal years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999.
F-15
<PAGE>
ANNEX A
AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
<PAGE>
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
BY AND AMONG
CBT GROUP PLC,
KNOWLEDGE WELL LIMITED,
KNOWLEDGE WELL GROUP LIMITED,
SHAREHOLDERS OF KNOWLEDGE WELL LIMITED,
AND
SHAREHOLDERS OF KNOWLEDGE WELL GROUP LIMITED
Dated as of March 30, 1999
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
Exhibit A List of Shareholders
Exhibit B Registration Rights Declaration
Exhibit C Form of KnowledgeWell Affiliates Agreement
Exhibit D Form of Lock-Up Agreement
Exhibit E Form of Escrow Agreement
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I--PURCHASE AND SALE OF KNOWLEDGEWELL SHARES...................... A-1
1.1 Purchase and Sale................................................ A-1
1.2 Acquisition Price................................................ A-1
1.3 Share Exchange................................................... A-2
1.4 Closing Mechanics................................................ A-2
1.5 Payment of Acquisition Price..................................... A-4
1.6 No Further Ownership Rights in KnowledgeWell Shares.............. A-4
1.7 Lost, Stolen or Destroyed KnowledgeWell Certificates............. A-4
1.8 Stock Options.................................................... A-4
1.9 Taking of Necessary Action; Further Action....................... A-5
1.10 Tax-Free Reorganization.......................................... A-5
1.11 Termination of the Prior Share Purchase Agreement................ A-5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS............ A-5
2.1 Organization of KnowledgeWell.................................... A-5
2.2 KnowledgeWell Capital Structure.................................. A-6
2.3 Subsidiaries..................................................... A-6
2.4 Authority........................................................ A-7
2.5 KnowledgeWell Financial Statements............................... A-7
2.6 No Undisclosed Liabilities....................................... A-8
2.7 No Changes....................................................... A-8
2.8 Tax and Other Returns and Reports................................ A-10
2.9 Restrictions on Business Activities.............................. A-15
2.10 Title to Properties; Absence of Liens and Encumbrances........... A-16
2.11 Intellectual Property............................................ A-16
2.12 Agreements, Contracts and Commitments............................ A-19
2.13 Interested Party Transactions.................................... A-20
2.14 Compliance with Laws............................................. A-20
2.15 Litigation....................................................... A-20
2.16 Insurance........................................................ A-20
2.17 Minute Books..................................................... A-21
2.18 Environmental Matters............................................ A-21
2.19 Brokers' and Finders' Fees; Third Party Expenses................. A-21
2.20 United States Employee Matters and Benefit Plans................. A-22
2.21 Ireland Employee Matters and Benefits Plans...................... A-24
2.22 Borrowed Moneys.................................................. A-27
2.23 Grants, etc. Not Repayable....................................... A-27
2.24 Oral Contracts................................................... A-27
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
2.25 Returns Up-to-Date............................................... A-27
2.26 Insolvency....................................................... A-27
2.27 Stamp Duty and Capital Duty...................................... A-27
2.28 VAT.............................................................. A-28
2.29 Shelf Registration Statement Information......................... A-29
2.30 Representations Complete......................................... A-29
2.31 Proxy Statements Complete........................................ A-29
ARTICLE III--ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS............................................................. A-29
3.1 Authority........................................................ A-29
3.2 Conflicts........................................................ A-29
3.3 Consents......................................................... A-30
3.4 Title............................................................ A-30
3.5 Taxes............................................................ A-30
3.6 Sufficient Assets................................................ A-30
3.7 Release of Liabilities........................................... A-30
3.8 Investment Experience............................................ A-30
3.9 Investment....................................................... A-30
3.10 Rule 144......................................................... A-30
3.11 Nature of Solicitation; Access to Data........................... A-31
3.12 Accredited Shareholder........................................... A-31
3.13 Shelf Registration Statement Information......................... A-31
3.14 Representations Complete......................................... A-31
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF CBT......................... A-31
4.1 Organization, Standing and Power................................. A-31
4.2 Authority........................................................ A-31
4.3 No Conflict...................................................... A-32
4.4 Consents......................................................... A-32
4.5 Capital Structure................................................ A-32
4.6 SEC Documents; CBT Financial Statements.......................... A-32
4.7 Broker's and Finder's Fees....................................... A-33
ARTICLE V--CONDUCT PRIOR TO THE CLOSING DATE.............................. A-33
5.1 Conduct of Business of KnowledgeWell............................. A-33
5.2 No Solicitation.................................................. A-35
ARTICLE VI--ADDITIONAL AGREEMENTS......................................... A-35
6.1 Proxy Statement; Shareholder Meetings............................ A-35
6.2 Access to Information............................................ A-36
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
6.3 Expenses....................................................... A-36
6.4 Public Disclosure.............................................. A-36
6.5 Consents....................................................... A-36
6.6 FIRPTA Compliance.............................................. A-36
6.7 Reasonable Efforts............................................. A-36
6.8 Notification of Certain Matters................................ A-36
6.9 Affiliate Agreements........................................... A-37
6.10 Additional Documents and Further Assurances.................... A-37
6.11 NMS Listing.................................................... A-37
6.12 Form S-8....................................................... A-37
6.13 Repurchase of "C" Ordinary Shares.............................. A-37
6.14 Tax-Free Reorganization........................................ A-37
6.15 Resale Registration Statement.................................. A-37
6.16 Restricted ADR Facility........................................ A-38
ARTICLE VII--CONDITIONS TO THE SHARE EXCHANGE........................... A-38
Conditions to Obligations of Each Party to Effect the Share
7.1 Exchange....................................................... A-38
7.2 Additional Conditions to Obligations of Shareholders........... A-38
7.3 Additional Conditions to the Obligations of CBT................ A-39
7.4 No Additional Conditions....................................... A-40
ARTICLE VIII--SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW;
INDEMNITY.............................................................. A-40
8.1 Survival of Representations, Warranties and Covenants.......... A-40
8.2 Agreement to Indemnify......................................... A-40
8.3 Escrow Arrangements; Limits of Liability....................... A-40
Survival of Indemnity; Indemnification Procedures; Time
8.4 Limits......................................................... A-41
8.5 Representative; Power of Attorney.............................. A-42
ARTICLE IX--TERMINATION, AMENDMENT AND WAIVER........................... A-43
9.1 Termination.................................................... A-43
9.2 Effect of Termination.......................................... A-43
9.3 Amendment...................................................... A-44
9.4 Extension; Waiver.............................................. A-44
ARTICLE X--GENERAL PROVISIONS........................................... A-44
10.1 Notices........................................................ A-44
10.2 Interpretation................................................. A-45
10.3 Counterparts................................................... A-45
10.4 Entire Agreement; Successors; Assignment....................... A-45
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
10.5 Severability.................................................... A-45
10.6 Other Remedies.................................................. A-45
10.7 Governing Law; Jurisdiction..................................... A-45
10.8 Rules of Construction........................................... A-46
10.9 Specific Performance............................................ A-46
10.10 Share Legends................................................... A-46
10.11 California Corporate Securities Law............................. A-46
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
This AMENDED AND RESTATED SHARE PURCHASE AGREEMENT (this "Agreement") is
made and entered into as of March 30, 1999 by and among CBT Group PLC, a public
limited company formed under the laws of Ireland ("CBT"), Knowledge Well
Limited, a private limited company formed under the laws of Ireland ("KW
Limited"), Knowledge Well Group Limited, a private limited company formed under
the laws of Ireland ("KW Group" and, collectively with KW Limited,
"KnowledgeWell"), and the shareholders of KW Limited and KW Group listed on
Exhibit A hereto (collectively, "Shareholders," and individually, a
"Shareholder").
RECITALS
WHEREAS, the Shareholders will at Closing (as hereinafter defined) own all
of the issued shares in the capital of each of KW Limited and KW Group.
WHEREAS, CBT desires to acquire from the Shareholders, and the Shareholders
desire to sell to CBT, the KnowledgeWell Shares (as hereinafter defined) owned
by the Shareholders (the "Share Exchange"), in exchange for the consideration
specified herein and subject to the terms and conditions hereof.
WHEREAS, the parties hereto desire to amend and restate that certain Share
Purchase Agreement (the "Prior Share Purchase Agreement") entered into as of
November 30, 1998 by and among CBT, KnowledgeWell and the Shareholders.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF KNOWLEDGEWELL SHARES
1.1 Purchase and Sale. Subject to the terms and conditions set forth in this
Agreement, at the Share Exchange, CBT shall purchase from the Shareholders, and
the Shareholders, as beneficial owners, shall sell, assign, transfer and
deliver to CBT, the KnowledgeWell Shares free and clear of any pledge, lien,
charge, security interest, encumbrance, claim or other equitable or third-party
interest ("Liens").
1.2 Acquisition Price.
(a) In reliance on the representations, warranties and covenants of the
Shareholders contained herein, and in consideration of the aforesaid sale,
assignment, transfer and delivery of the KnowledgeWell Shares, CBT shall pay to
each Shareholder, in full payment for each KnowledgeWell Share so sold,
assigned, transferred and delivered by such Shareholder and the agreements of
such Shareholder made in connection with the transactions contemplated hereby,
the following: such number of CBT American Depositary Shares ("ADSs") (or, in
the event that a Restricted ADR Facility is not arranged prior to the Closing
Date as contemplated in Section 6.16 of this Agreement, such number of Ordinary
Shares of IR9.375p in the capital of CBT ("CBT Ordinary Shares")) as is equal
to the Exchange Ratio. For purposes of this Agreement, the "Exchange Ratio"
shall mean the quotient (rounded to the nearest 1/10,000th) obtained by
dividing (x) 4,837,209 by (y) the sum of (i) the total number of KnowledgeWell
Shares in issue immediately prior to the Closing plus (ii) the total number of
shares in KnowledgeWell of any class issuable upon exercise of all options,
warrants and similar rights outstanding immediately prior to the Closing. For
purposes of this Agreement, "Acquisition Price" shall mean the 4,837,209
Ordinary Shares or ADSs, as the case may be, issuable pursuant to this
Agreement.
(b) For purposes of this Agreement, "KnowledgeWell Shares" shall mean (i)
all of the issued "A" Ordinary Shares of US$0.25 each and "C" Ordinary Shares
of IR25p each in the capital of KW Limited and (ii) all of the issued Ordinary
Shares of US$0.01 each and the convertible preference shares of US$0.01 each in
the capital of KW Group.
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(c) The Exchange Ratio shall be appropriately adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into CBT Ordinary Shares or
ADSs), reorganization, recapitalization or other like change with respect to
CBT Ordinary Shares or ADSs occurring after the date hereof and prior to the
Closing Date (as hereinafter defined).
(d) No fraction of an Ordinary Share or ADS will be issued, but in lieu
thereof, each Shareholder who would otherwise be entitled to a fraction of an
Ordinary Share or ADS (after aggregating all fractional Ordinary Shares or ADSs
to be received by such Shareholder) shall be entitled to receive from CBT an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the closing price of an ADS on November 27,
1998, as reported on the Nasdaq National Market.
1.3 Share Exchange. Unless this Agreement is earlier terminated pursuant to
Section 9.1, the closing of the Share Exchange (the "Closing") will take place
as promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VII, at the
offices of Binchys' Solicitors, 43 Fitzwilliam Place, Dublin 2, Ireland, unless
another place or time is agreed to by CBT and the Shareholders. The date upon
which the Closing occurs is herein referred to as the "Closing Date". The
signing of this Agreement by a Shareholder shall constitute a waiver of all
pre-emption rights in relation to his, her or its KnowledgeWell Shares being
transferred pursuant to this Agreement.
1.4 Closing Mechanics. At Closing the following business shall be transacted
and the following documents shall be signed and delivered.
(a) The Shareholders shall deliver or procure to be delivered to CBT or
its legal counsel:
(i) duly executed and completed transfers in favor of CBT (or as it
shall direct) in respect of the KnowledgeWell Shares together with the
relative certificates therefor (the "KnowledgeWell Certificates");
(ii) duly executed and completed transfers into the names of such
persons as CBT may direct in respect of any shares in KnowledgeWell
Inc. (the "Subsidiary") not registered in the name of KW Group together
with the share certificates for the whole of the issued share capital
of the "Subsidiary";
(iii) any other documents which may be required to give good title
to the KnowledgeWell Shares (including any power of attorney under
which any document required to be delivered under this Section has been
executed or signed) or which may be necessary to enable CBT to procure
the registration of the same in the name of CBT or its nominee;
(iv) all the title deeds and documents relating to the properties at
Block 1, Blackrock Business Park, Blackrock, County Dublin, Ireland and
1701 Directors Boulevard, Suite 920, Austin, Texas 78764, USA occupied
by KnowledgeWell and the Subsidiary (together the "Properties");
(v) the Certificate of Incorporation, statutory books and Common
Seals of each of KW Limited and KW Group and the Subsidiary and all
prints of the Memorandum and Articles of Association or Bylaws thereof
in the possession or under the control of the Shareholders;
(vi) at the offices of KnowledgeWell and the Subsidiary all the
records of KnowledgeWell and the Subsidiary together with all
securities, deeds, documents of title, insurance policies, check books
and other books, papers and documents relating to KnowledgeWell and the
Subsidiary which are in the Shareholders possession or under their
control;
(vii) a letter of resignation in such form as CBT may require of Jim
Middleton and Martin Scully resigning as directors and of Molyneux
Secretarial Services Limited resigning as the Secretary of KW Limited
and KW Group and from any other office or employment that said persons
may hold with either of those companies and acknowledging that he or it
has no outstanding claims against either of those companies whether for
compensation for loss of office or otherwise whatsoever;
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(viii) a letter of resignation in such form as CBT may require of
Caplin Meehan of 3 College Green, Dublin 2, Ireland resigning as
Accountants for and Auditors of KW Limited and KW Group and
acknowledging that they have no outstanding claims against either of
those companies whether for compensation for loss of office or
otherwise whatsoever, with the exception of fees outstanding at the
date of resignation (whether billed or not) and containing the
statement referred to in sub-section 185(2)(a) of the Companies Act,
1990 of Ireland;
(ix) a letter of resignation in such form as CBT may require of Hays
& Co. resigning as Accountants for and Auditors of the Subsidiary and
acknowledging that they have no outstanding claims against the
Subsidiary whether for compensation for loss of office or otherwise
whatsoever;
(x) instruments in such form as CBT may require duly executed by all
of the members of KW Limited and KW Group and all the members (other
than KW Group) of the Subsidiary waiving any pre-emption or other
similar rights which they may have either under the Articles of
Association of KW Limited or KW Group or Bylaws of the Subsidiary or
otherwise in relation to the KnowledgeWell Shares or any of them or in
relation to any shares in the Subsidiary.
(b) The Shareholders shall procure a meeting of the Board of Directors
of each of KW Limited and KW Group to be held at which the following
business shall be transacted:
(i) the appointment of Bill Beamish as an additional director of
each of those companies;
(ii) the acceptance of the resignations of the directors, secretary
and auditors of each of these companies as referred to in sub-clauses
1.4 (vii) and (viii) above and the appointment as secretary and
auditors of each of those companies of such persons or firms as CBT may
nominate;
(iii) the situation of the registered office of each of those
companies shall be changed to Belfield Office Park, Clonskeagh, Dublin
4, Ireland;
(iv) the registration of CBT or its nominees as holder of the
KnowledgeWell Shares subject to the submission of duly stamped and
completed transfers of the KnowledgeWell Shares;
(v) the adoption of Bank Mandates in forms satisfactory to CBT in
substitution for and to the exclusion of the existing mandates; and
(vi) the accounting reference date of each of KW Group and KW
Limited shall be changed to December 31.
(c) The Shareholders shall procure a meeting of the Board of Directors
of the Subsidiary to be held at which the following business shall be
transacted:
(i) the appointment of Eric Murphy as an additional director of the
Subsidiary;
(ii) the acceptance of the resignation of the auditors of the
Subsidiary referred to in sub-clauses 1.4 (ix) above and the
appointment as auditors of the Subsidiary of such persons or firms as
CBT may nominate;
(iii) the registration of CBT or its nominees as the holder of those
shares in the Subsidiary not registered in the name of KW Group; and
(iv) the adoption of Bank Mandates in a form satisfactory to CBT in
substitution for and to the exclusion of the existing mandates.
(d) Each of the Shareholders shall repay and procure the repayment of
all sums owed to KnowledgeWell or the Subsidiary by him, her or it or any
connected person of his, hers or its or any company controlled by him, her
or it. For the purposes of the foregoing, each Shareholder (with the
intention of binding not only himself, herself or itself, but also his, her
or its successors and assigns and (in the case of an individual) his or her
estate after his or her death) hereby severally and not jointly represents
and warrants to CBT that no monies are owed to KnowledgeWell or the
Subsidiary by such Shareholder or any connected person of his, her or it or
any company controlled by him, her or it as at
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November 30, 1998. For purposes of this Section 1.4(d), the term "connected
person" and "control" shall have the meanings ascribed to those terms by
Sections 16(3) and 16(1), respectively, of the Finance (Miscellaneous
Provisions) Act 1968 of Ireland.
1.5 Payment of Acquisition Price.
(a) Upon Closing, CBT shall make available to each Shareholder as payment of
such Shareholder's part of the Acquisition Price in accordance with this
Article I Ordinary Shares of CBT in the name of such Shareholder; provided,
however, that CBT shall cause 402,000 Ordinary Shares to be issued pursuant to
Section 1.2(a) (the "Escrow Amount") to be deposited into an escrow account
pursuant to Section 8.3 below.
(b) Notwithstanding Section 1.5(a), in the event that a Restricted ADR
Facility (the "Restricted ADR Facility") has been arranged with The Bank of New
York prior to Closing as contemplated by Section 6.16, then upon Closing, CBT
shall make available to each Shareholder as payment of such Shareholder's part
of the Acquisition Price in accordance with this Article I Restricted American
Depositary Receipts ("ADRs") of CBT in the name of such Shareholder issued in
accordance with a Restricted Deposit Agreement among CBT, The Bank of New York,
as depository (the "Depository"), and all owners and beneficial owners of such
ADRs (the "Deposit Agreement"), which ADRs shall represent that number of ADSs
to be issued to that Shareholder as payment of such Shareholder's part of the
Acquisition Price in accordance with Section 1.2(a). Prior to or concurrent
with the Share Exchange, CBT shall deliver or cause to be delivered to the
Custodian (as defined in the Deposit Agreement), in accordance with the Deposit
Agreement, the Ordinary Shares represented by the ADSs to be issued in
connection with the Share Exchange, with instructions to the Depository to
create and deliver the ADRs representing the ADSs to each Shareholder as
provided above; provided, however, that CBT shall cause the ADRs representing
402,000 ADSs to be issued pursuant to Section 1.2(a) (the "Escrow Amount") to
be deposited into an escrow account pursuant to Section 8.3 below.
(c) If any ADR or Ordinary Share, as the case may be, is to be issued in a
name other than that of the Shareholder entitled thereto pursuant to the Share
Exchange, it will be a condition of the issuance thereof that the person
requesting such exchange will have paid to CBT or any agent designated by it
any transfer or other taxes required by reason of the issuance of an ADR or
Ordinary Share in any name other than that of the registered holder of the
KnowledgeWell Certificate surrendered, or established to the satisfaction of
CBT or any agent designated by it that such tax has been paid or is not
payable.
1.6 No Further Ownership Rights in KnowledgeWell Shares. All ADSs or
Ordinary Shares, as the case may be, issued in exchange for KnowledgeWell
Shares in accordance with the terms of this Agreement (including any cash paid
in respect of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such KnowledgeWell Shares.
1.7 Lost, Stolen or Destroyed KnowledgeWell Certificates. In the event any
KnowledgeWell Certificates evidencing KnowledgeWell Shares shall have been
lost, stolen or destroyed, then upon Closing, the holder thereof shall be
required to deliver an indemnity in such form as CBT may require in respect of
such lost, stolen or destroyed certificate and CBT may in its sole discretion
require the owner of any such lost, stolen or destroyed KnowledgeWell
Certificates to deliver a bond in such sum as CBT may reasonably direct as part
of any such indemnity against any claim that may be made against CBT with
respect to the KnowledgeWell Certificates alleged to have been lost, stolen or
destroyed.
1.8 Stock Options. At the Closing, all options to purchase shares in
KnowledgeWell then outstanding and unexercised under the KnowledgeWell Limited
1998 Share Option Plan or the KnowledgeWell Group Limited 1998 Share Option
Plan (collectively, the "KnowledgeWell Option Plans") shall be assumed by CBT
in accordance with provisions described below.
(a) At the Closing, each outstanding unexercised option to purchase "A"
Ordinary Shares of US$0.25 each in the capital of KW Limited ("KW Limited
Options") or Ordinary Shares of US$0.01 each
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in the capital of KW Group ("KW Group Options" and, collectively with KW
Limited Options, "KnowledgeWell Options")) under the KnowledgeWell Option
Plans, whether vested or unvested, shall be, in connection with the Share
Exchange, assumed by CBT. Each KnowledgeWell Option so assumed by CBT under
this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the KnowledgeWell Option Plans and/or as
provided in the respective option agreements governing such KnowledgeWell
Option immediately prior to the Closing, except that (A) such KnowledgeWell
Option shall be exercisable for that number of whole CBT Ordinary Shares
equal to the product of the number of shares of KnowledgeWell that were
issuable upon exercise of such KnowledgeWell Option immediately prior to
the Closing multiplied by the Exchange Ratio rounded down to the nearest
whole number of CBT Ordinary Shares and (B) the per share exercise price
for the CBT Ordinary Shares issuable upon exercise of such assumed
KnowledgeWell Option shall be equal to the quotient determined by dividing
the exercise price per share at which such KnowledgeWell Option was
exercisable immediately prior to the Closing by the Exchange Ratio, rounded
up to the nearest whole cent.
(b) It is the intention of the parties that KnowledgeWell Options
assumed by CBT qualify following the Closing as incentive stock options as
defined in Section 422 of the Code to the extent KnowledgeWell Options
qualified as incentive stock options immediately prior to the Closing.
(c) Promptly following the Closing, CBT will issue to each holder of an
outstanding KnowledgeWell Option a document evidencing the foregoing
assumption of such KnowledgeWell Option by CBT.
1.9 Taking of Necessary Action; Further Action. If, at any time after the
Share Exchange, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest CBT with full right, title and
possession to the KnowledgeWell Shares, the Shareholders will take all such
lawful and necessary action.
1.10 Tax-Free Reorganization. The parties hereto intend that the Share
Exchange shall constitute a reorganization within the meaning of Section 368 of
the United States Internal Revenue Code of 1986 (the "Code"). The parties
hereto adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
1.11 Termination of the Prior Share Purchase Agreement. The parties hereto
agree that all rights and obligations under the Prior Share Purchase Agreement
shall be terminated in their entirety and shall be superseded and governed by
this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to CBT as of
November 30, 1998, subject to matters fairly and accurately disclosed in the
disclosure letter supplied by KnowledgeWell to CBT (the "KnowledgeWell
Disclosure Letter") and dated as of November 30, 1998, as follows (for the
purposes of the following warranties and representations (i) unless otherwise
indicated, the term "KnowledgeWell" shall be deemed to include where relevant
having regard to the context each of KW Limited, KW Group and the Subsidiary,
and (ii) subject to matters fairly and accurately disclosed in the
KnowledgeWell Disclosure Letter, no other information relating to KnowledgeWell
of which CBT has knowledge (actual or constructive) shall prejudice any claim
made by CBT under such warranties or representations or operate to reduce any
amount recoverable):
2.1 Organization of KnowledgeWell.
(a) Each of KW Limited and KW Group is a corporation duly incorporated under
the laws of Ireland and has complied in all respects with the filing
requirements of the Companies Acts, 1963 to 1990 of Ireland. Each of KW Limited
and KW Group has the corporate power to own its properties and to carry on its
business as
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now being conducted. Each of KW Limited and KW Group is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on
the business, assets (including intangible assets), financial condition or
results of operations of KnowledgeWell (hereinafter referred to as a "Material
Adverse Effect").
2.2 KnowledgeWell Capital Structure.
(a) The authorized share capital of KW Limited consists of US$5,000,000
divided into 19,872,000 "A" Ordinary Shares of US$0.25 each, of which 9,658,813
are issued and outstanding, 1,289,000 "B" Ordinary Shares of US$0.025 each,
none of which are issued or outstanding, and IR,1,000,000 divided into
4,000,000 "C" Ordinary Shares of IR25p each, of which 2,428,376 are issued and
outstanding. The authorized share capital of KW Group consists of US$250,000
divided into 23,000,000 Ordinary Shares of US$0.01 each, of which 8,023,320 are
issued and outstanding, and 2,000,000 Convertible Preference Shares of US$0.01
each ("KW Preferred"), of which 1,635,493 are issued and outstanding. The
issued shares of KW Limited and KW Group (collectively, "KnowledgeWell Share
Capital") are held by the persons, with the domicile addresses and in the
amounts set forth in Schedule 2.2(a) of the KnowledgeWell Disclosure Letter.
All of the issued shares of KnowledgeWell Share Capital are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Articles of Association or Bylaws of
KnowledgeWell or any agreement to which KnowledgeWell is a party or by which it
is bound. Subject to the stock transfer forms being represented duly stamped
and the register of members being completed, as a result of the Share Exchange,
CBT will be the record and sole beneficial owner of all KnowledgeWell Share
Capital and rights to acquire or receive KnowledgeWell Share Capital. The
copies of the Memorandum and Articles of Association of each of KW Limited and
KW Group delivered by KnowledgeWell to CBT are true, complete and accurate and
have embodied therein or annexed thereto a copy of every such resolution or
agreement as is referred to in section 143(2) of the Companies Act, 1963 of
Ireland. The copy of the Bylaws of the Subsidiary delivered by KnowledgeWell to
CBT are true, complete and accurate;
(b) KW Limited has reserved 3,000,000 "A" Ordinary Shares of US$0.25 each
for issuance to employees and consultants pursuant to the KnowledgeWell Limited
1998 Share Option Plan, of which 2,706,566 shares are subject to outstanding,
unexercised options. KW Group has reserved 3,000,000 Ordinary Shares of US$0.01
each for issuance to employees and consultants pursuant to the KnowledgeWell
Group Limited 1998 Share Option Plan, of which 2,706,566 shares are subject to
outstanding, unexercised options. Schedule 2.2(b) of the KnowledgeWell
Disclosure Letter sets forth for each outstanding KnowledgeWell Option: the
name of the company which has granted the option, the name of the holder of
such option, the domicile address of such holder, the number of ordinary shares
of the relevant company subject to such option, the exercise price of such
option and the vesting schedule for such option, including the extent vested to
date and whether the exercisability of such option will be accelerated and
become exercisable by the transactions contemplated by this Agreement. Except
for KnowledgeWell Options described in Schedule 2.2(b) of the KnowledgeWell
Disclosure Letter, there are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which KnowledgeWell is a
party or by which it is bound obligating KnowledgeWell to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares in the capital of KnowledgeWell. Except for KnowledgeWell
Options described in Schedule 2.2(b) of the KnowledgeWell Disclosure Letter,
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which KnowledgeWell is a party or by which it is
bound obligating KnowledgeWell to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement.
2.3 Subsidiaries. KW Limited does not have and has never had any
subsidiaries and does not otherwise own and has never otherwise owned any
shares of capital stock or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other
business entity. Except for the Subsidiary, KW Group does not have and has
never had any subsidiaries and does not otherwise own and has never otherwise
owned any shares of capital stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
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2.4 Authority. KnowledgeWell has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of KnowledgeWell. KW Limited's and KW Group's
Boards of Directors have unanimously approved the Share Exchange and this
Agreement. This Agreement has been duly executed and delivered by KnowledgeWell
and constitutes the valid and binding obligation of KnowledgeWell, enforceable
in accordance with its terms. Except as set forth in Schedule 2.4 of the
KnowledgeWell Disclosure Letter, the execution and delivery of this Agreement
by KnowledgeWell does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Memorandum and Articles of Association of KW Limited or KW Group or (ii)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to KnowledgeWell or its properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (so as not to trigger any Conflict), is required by or with respect
to KnowledgeWell in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, (ii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth in
Schedule 2.4 of the KnowledgeWell Disclosure Letter and (iii) such consents,
waivers, authorizations, filings, approvals and registrations which would not
individually or in the aggregate, have a material adverse effect on the ability
of KnowledgeWell to consummate the transactions contemplated hereby.
2.5 KnowledgeWell Financial Statements.
(a) Schedule 2.5 of the KnowledgeWell Disclosure Letter sets forth (i) KW
Limited's audited balance sheet as of October 31, 1997 and the related audited
statements of operations and cash flows for the period then ended, (ii) KW
Limited's unaudited balance sheet as of October 31, 1998 (the "KW Limited
Balance Sheet") and the related unaudited statements of operations and cash
flows for the twelve-month period then ended, (iii) KW Group's unaudited
consolidated balance sheet as of October 31, 1998 (the "KW Group Balance Sheet"
and, collectively with the KW Limited Balance Sheet, the "Balance Sheets") and
the related unaudited consolidated statements of operations and cash flows for
the period from incorporation (collectively, the "KnowledgeWell Financial
Statements"). The accounting reference date of each of KW Limited, KW Group and
the Subsidiary is 31 October.
(b) The audited KnowledgeWell Financial Statements:
(i) give a true and fair view of KnowledgeWell in all respects as at
October 31, 1998 (the "Accounts Date");
(ii) comply with the requirements of the Companies Acts, 1963 to 1990 of
Ireland and all regulations to be construed as one with those Acts;
(iii) have been prepared in accordance with the best generally accepted
and adopted accounting principles in Ireland and all applicable Statements
of Standard Accounting Practice ("SSAP");
(c) The audited and unaudited KnowledgeWell Financial Statements:
(i) have been prepared on a basis consistent with that adopted for
preceding accounting periods;
(ii) are not affected by any unusual, extraordinary, exceptional or non-
recurring items or by any other factor rendering the results thereof (or
any of them) unusually better or worse than they (or any of them) might
otherwise be or have been;
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(iii) are true, complete and accurate and properly reflect the financial
position of KnowledgeWell as at the Accounts Date and of its results for
the accounting period ending on that date;
(iv) correctly and accurately disclose all the assets and liabilities
(whether ascertained, contingent, deferred or otherwise and whether or not
quantified or disputed) of KnowledgeWell as at the Accounts Date and make
full provision and/or reserve for all such liabilities and for all capital
commitments of KnowledgeWell up to the Accounts Date;
(v) make full provision for any foreseeable losses which may arise on
Closing and/or on realization of stock and work-in-progress and/or on
completion of any existing or proposed contract;
(vi) make adequate provision for all bad and doubtful debts of
KnowledgeWell and for depreciation of the fixed assets of KnowledgeWell
having regard to their original cost and estimated useful life;
(vii) correctly and accurately disclose all financial commitments in
existence as at the Accounts Date; and
(viii) include all such reserves and provisions for Tax as are necessary
to cover all liabilities for Tax (whether or not assessed) of KnowledgeWell
up to the Accounts Date and, in particular, but without prejudice to the
generality of the foregoing attributable to profits, gains, income,
receipts, and loans and distributions made to participators and associates
and payments from which Tax is deductible.
(d) The KnowledgeWell Financial Statements do not include any intangible
assets and the value attributed to each fixed asset of KnowledgeWell does not
exceed the current market value thereof as at the Accounts Date. The basis of
valuing such fixed assets has not been changed during the period since
incorporation and nor has there been any revaluation of fixed assets during
such period.
(e) The rate of depreciation applied in respect of each fixed asset has been
consistently applied over the period since incorporation and is adequate to
write down the value of such fixed assets to its net realizable value as at the
end of its useful working life and the fixed assets have been depreciated in
accordance with the relevant SSAP for the relevant financial year.
(f) All the accounts, books, ledgers and financial and other records of
whatsoever kind of KnowledgeWell have at November 30, 1998 been fully, properly
and accurately maintained and contain true and accurate records of all matters
required to be entered therein under the Companies Acts, 1963 to 1990 and any
other relevant statutes or regulations and will, pending Closing, continue to
be so maintained and there are at November 30, 1998 and will pending Closing be
no material inaccuracies or discrepancies of any kind contained or reflected
therein or in any of them. At November 30, 1998 they give and reflect and at
Closing will give and reflect a true and fair view of the financial,
contractual and trading position of KnowledgeWell and of its plant and
machinery, fixed and current assets and liabilities (actual and contingent),
debtors and creditors and stock-in-trade and work-in-progress.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6 of the
KnowledgeWell Disclosure Letter, KnowledgeWell does not have any material
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), which
individually or in the aggregate, (i) has not been reflected in the Balance
Sheets, or (ii) has not arisen in the ordinary course of KnowledgeWell's
business since October 31, 1998, consistent with past practices.
2.7 No Changes. Except as set forth in Schedule 2.7 of the KnowledgeWell
Disclosure Letter, since October 31, 1998, there has not been, occurred or
arisen any:
(a) transaction by KnowledgeWell except in the ordinary course of
business as conducted on that date and consistent with past practices;
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(b) amendments or changes to the Memorandum and Articles of Association
of KW Limited or KW Group;
(c) capital expenditure or commitment by KnowledgeWell of US$25,000 in
any individual case or US$100,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets, business
or customer of KnowledgeWell (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by KnowledgeWell;
(g) revaluation by KnowledgeWell of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the share capital of KnowledgeWell, or any
direct or indirect redemption, purchase or other acquisition by
KnowledgeWell of any of its share capital;
(i) increase in the salary or other compensation payable or to become
payable by KnowledgeWell to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any
kind for the payment, by KnowledgeWell, of a bonus or other additional
salary or compensation to any such person except as otherwise contemplated
by this Agreement;
(j) sale, lease, license or other disposition of any of the assets or
properties of KnowledgeWell, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which KnowledgeWell is a party or by which it is bound;
(l) loan by KnowledgeWell to any person or entity, incurring by
KnowledgeWell of any material indebtedness, guaranteeing by KnowledgeWell
of any material indebtedness, issuance or sale of any debt securities of
KnowledgeWell or guaranteeing of any debt securities of others except for
advances to employees for travel and business expenses in the ordinary
course of business, consistent with past practices;
(m) waiver or release of any material right or material claim of
KnowledgeWell, including any material write-off or other material
compromise of any account receivable of KnowledgeWell;
(n) to KnowledgeWell's knowledge, commencement or notice or threat of
commencement of any lawsuit or proceeding against or investigation of
KnowledgeWell or its affairs;
(o) notice of any claim of ownership by a third party of the
Intellectual Property of KnowledgeWell (as defined in Section 2.11 below)
or of infringement by KnowledgeWell of any third party's Intellectual
Property rights;
(p) issuance or sale by KnowledgeWell of any of its share capital, or
securities exchangeable, convertible or exercisable therefor, or of any
other of its securities;
(q) change in pricing or royalties set or charged by KnowledgeWell to
its customers or licensees except in the ordinary course of business, or in
pricing or royalties set or charged by persons who have licensed
Intellectual Property to KnowledgeWell except in the ordinary course of
business;
(r) event or condition of any character that has or could be reasonably
expected to have a Material Adverse Effect on KnowledgeWell; or
(s) negotiation or agreement by KnowledgeWell or any officer or
employees thereof to do any of the things described in the preceding
clauses (a) through (r) (other than negotiations with CBT and its
representatives regarding the transactions contemplated by this Agreement).
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2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means any and all national, federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions,
levies and liabilities, whenever imposed, including without limitation taxes
based upon or measured by gross receipts, income, profits, sales, capital gain,
use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts and any obligations under any agreements or arrangements with any
other person with respect to such amounts and including any liability for taxes
of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8 of the
KnowledgeWell Disclosure Letter:
(i) KnowledgeWell as of the Closing Date will have prepared and filed
all required national, U.S. federal, U.S. state, U.S. local and non-U.S.
returns, estimates, information statements and reports ("Returns") relating
to any and all Taxes concerning or attributable to KnowledgeWell or its
operations and such Returns are true and correct in all material respects
and have been completed in accordance with applicable law.
(ii) KnowledgeWell as of the Closing Date: (A) will have paid or accrued
all Taxes it is required to pay or accrue and (B) will have withheld with
respect to its employees all U.S. federal and U.S. state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) KnowledgeWell has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed against
KnowledgeWell, nor has KnowledgeWell executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of KnowledgeWell is
presently in progress, nor has KnowledgeWell been notified of any request
for such an audit or other examination.
(v) KnowledgeWell does not have any liabilities for unpaid U.S. federal,
state, U.S. local or non-U.S. Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheets, whether asserted or
unasserted, contingent or otherwise, and KnowledgeWell has no knowledge of
any basis for the assertion of any such liability attributable to
KnowledgeWell, its assets or operations.
(vi) KnowledgeWell has provided to CBT copies of all U.S. federal and
U.S. state income and all U.S. state sales and use Tax Returns for all
periods since the date of KnowledgeWell's incorporation.
(vii) There are (and as of immediately following the Closing there will
be) no Liens on the assets of KnowledgeWell relating to or attributable to
Taxes.
(viii) KnowledgeWell has no knowledge of any basis for the assertion of
any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of KnowledgeWell.
(ix) None of KnowledgeWell's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) As of the Closing Date, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of KnowledgeWell that,
individually or collectively, will, or would reasonably be expected to,
give rise to the payment of any amount that would not be deductible
pursuant to Section 280G or 162 of the Code.
(xi) KnowledgeWell is not a party to a tax sharing or allocation
agreement nor does KnowledgeWell owe any amount under any such agreement.
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(c) General
(i) All returns, computations, notices and items of information which are,
or have been, required to be made or given by KnowledgeWell for any Tax purpose
have been made or given within the requisite periods and on a proper basis and
are up-to-date and correct, and none of them is, or is likely to be, the
subject of any dispute with the Irish Revenue Commissioners (the "Revenue
Commissioners") or other Tax authorities.
(ii) All Tax, including amounts required by statute to be deducted by
KnowledgeWell in respect of payments made by it, which KnowledgeWell is liable
to pay prior to Closing has been or will be so paid prior to Closing.
(iii) KnowledgeWell has not paid, or become liable to pay, any fine, penalty
or interest charged by virtue of the Taxes Consolidation Act, 1997 ("TCA"), the
Value Added Tax Act, 1972, of Ireland or any other statutory provision relating
to Tax, and it has not committed any act or made any omission which might
constitute an offense under section 1078 of the TCA.
(iv) Schedule 2.8(c)(iv) of the KnowledgeWell Disclosure Letter sets out
full particulars of any agreement or arrangement between KnowledgeWell and the
Revenue Commissioners or other Tax authorities pursuant to which KnowledgeWell
is authorized not to comply with a requirement which, but for such agreement or
arrangement, would be its statutory obligation, and KnowledgeWell has not taken
any action which has had, or will have, the result of altering, prejudicing or
in any way disturbing any arrangement or agreement which it has previously had
with the Revenue Commissioners or other Tax authorities.
(v) The KnowledgeWell Disclosure Letter contains full and accurate
particulars of all transactions effected otherwise than in the ordinary course
of business since the Accounts Date in respect of which KnowledgeWell is
required to make a specific return to the relevant Tax authorities and in
respect of which the time for making such return will expire on or after
Closing.
(vi) No transaction has been effected by KnowledgeWell in respect of which
any consent or clearance from the Revenue Commissioners or other Tax
authorities was required:
(1) without such consent or clearance having been validly obtained
before the transaction was effected;
(2) otherwise than in accordance with the terms of, and so as to satisfy
any conditions attached to, such consent or clearance; or
(3) otherwise than at a time when, and in circumstances in which, such
consent or clearance was valid and effective,
and, in any case where such consent or clearance was required, no circumstances
have arisen which might reasonably be expected to cause such consent or
clearance to be or become invalid or to be withdrawn by the Tax authority
concerned.
(vii) All particulars furnished to the Revenue Commissioners or other Tax
authorities in connection with the application for any consent or clearance by
KnowledgeWell made since the Accounts Date fully and accurately disclosed all
facts and circumstances material to the decision of the Revenue Commissioners
or such other authorities.
(viii) KnowledgeWell is not and will not become liable to pay, or make
reimbursement or indemnity in respect of, any Tax (or amounts corresponding
thereto) in consequence of the failure by any other person to discharge that
Tax within any specified period or otherwise, where such Tax relates to a
profit, income or gain, transaction, event, omission or circumstance arising,
occurring or deemed to arise or occur whether wholly or partly prior to
Closing.
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(ix) The KnowledgeWell Disclosure Letter includes a correct and complete
list and full particulars with express reference to this clause (c)(ix) of all
matters relating to Tax in respect of which KnowledgeWell (either alone or
jointly with any other person) has, or at Closing will have, an outstanding
entitlement:
(1) to make any claim for relief under the TCA or any other statutory
provision relating to Tax;
(2) to make any election for one type of relief, or one basis, system or
method of Tax, as opposed to another;
(3) to make any appeal (including a further appeal) against an
assessment to Tax;
(4) to make any application for the postponement, or payment by
instalment of, Tax; or
(5) to disclaim any allowance or relief
such particulars being reasonably sufficient to enable CBT to procure that any
time limit to such entitlement expiring within six months after Closing can be
met.
(x) No notice of attachment has been served on KnowledgeWell under section
1002 of the TCA.
(xi) KnowledgeWell has not received, nor will it prior to Closing earn,
deposit interest subject to retention of Tax under section 257 of the TCA.
(xii) KnowledgeWell has not since its incorporation taken a fixed charge on
the book debts of any company, nor will it take any such fixed charge prior to
Closing.
(xiii) KnowledgeWell has never been, nor is it now, assessable to tax under
section 1034 or 1035 of the TCA.
(xiv) KnowledgeWell has not received any notice under section 811(6) of the
TCA or engaged in, or been a party to, a tax avoidance transaction within the
meaning of section 811(2) of the TCA or any other transaction or series of
transactions or scheme or arrangement of which the main purpose, or one of the
main purposes, was or could be said to be the avoidance or deferral of, or a
reduction in the liability to, Tax.
(xv) KnowledgeWell has properly operated the pay as you earn and social
welfare contribution systems (including levies), deducting and accounting for
Tax and maintaining records as required by law, and it has not suffered any
PAYE audit by the Revenue Commissioners since the Accounts Date nor has it been
notified that any such audit will or is expected to be made.
(d) Corporation Tax
(i) Neither KW Limited nor KW Group is, or has at any stage since its
incorporation been resident for Tax purposes in a country other than Ireland.
(ii) Schedule 2.8(d)(ii) of the KnowledgeWell Disclosure Letter includes a
correct and complete list and full particulars of any liability to Tax in a
country other than Ireland.
(iii)(1) Schedule 2.8(d)(iii) of the KnowledgeWell Disclosure Letter
includes a statement of all distributable reserves of KnowledgeWell which carry
a reduced tax credit.
(2) Where relief under chapter 1 of part 14 of the TCA has been claimed by
either KW Limited or KW Group, such relief was claimed, and is being claimed,
on a correct and proper basis.
(iv) No relief (whether by way of deduction, reduction, set-off, exemption,
repayment, allowance or otherwise) from, against or in respect of any tax has
been claimed or given to KnowledgeWell which could or might be effectively
withdrawn, postponed, restricted or otherwise lost as a result of any act,
omission, event or circumstance arising or occurring at or at any time before,
Closing, and KnowledgeWell has not at any time claimed any relief from Tax
under part 10 of the TCA.
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(v) Nothing has been done and no event or series of events has occurred or
will as a result of any contract, agreement or arrangement entered into before
Closing occur, which might when taken together with the entry into or Closing
of this Agreement cause or contribute to the disallowance to either KW Limited
or KW Group of the carry forward of any losses or excess charges on income or
surplus advance corporation tax.
(vi) The use of losses incurred by, or charges paid by, either of KW Limited
or KW Group is not restricted by section 454, 455 or 456 of the TCA.
(vii)(1) Neither KW Limited, KW Group nor the Subsidiary incurred a loss on
the disposal or deemed disposal of an asset (other than trading stock) in
relation to which their ability to set the whole of that loss against any
chargeable gain arising in the same or later accounting period is or may be
restricted or excluded.
(2) Neither KW Limited nor KW Group has made, nor are they entitled to make,
a claim under section 538 of the TCA.
(viii) None of KW Limited, KW Group or the Subsidiary has made a claim for
capital allowances in respect of any asset which is leased to or from, or hired
to or from, any of the other of them, and since the Accounts Date,
KnowledgeWell has not done, or omitted to do, or agreed to do or permitted to
be done, any act, or suffered any occurrence, as a result of which any
balancing charge has arisen or may arise under sections 274 or 288 of the TCA,
nor has there been or might there be any disallowance of excess relief by
virtue of section 403 of the TCA.
(ix)(1) If each of the assets (other than trading stock) of KnowledgeWell
was disposed of for a consideration equal to the book value of that asset shown
in or adopted for the purpose of the KnowledgeWell Financial Statements, no
liability to corporation tax on chargeable gains or balancing charges under
section 274 or 288 of the TCA not fully provided for in the KnowledgeWell
Financial Statements would arise.
(2) For the purpose of determining the liability to corporation tax on
chargeable gains, there shall be disregarded any reliefs and allowances
available to KnowledgeWell other than amounts falling to be deducted under
chapter 2 of part 19 of the TCA.
(3) KnowledgeWell has not since the Accounts Date acquired any asset (other
than trading stock) in circumstances such that sections 584, 585, 586 or 587 of
the TCA applied to its acquisition.
(x) The KnowledgeWell Disclosure Letter includes a correct and complete list
and full particulars of all dividends paid since the date of incorporation of
KnowledgeWell out of patent income disregarded for the purposes of corporation
tax by virtue of section 234 of the TCA.
(xi) Each of KW Limited and KW Group are regarded as close companies for
Irish tax purposes. Except as disclosed in the Schedule 2.8(d)(xi) of the
KnowledgeWell Disclosure Letter none of the said companies has any liability to
Tax pursuant to part 13 of the TCA or will incur any such liability in respect
of any accounting period prior to Closing.
(xii) Each of KW Limited, KW Group and the Subsidiary at November 30, 1998,
carried on an activity which is a trade for the purposes of Tax and has not
ceased, and will not as a result of any contract, agreement or arrangement
entered into before Closing cease, to carry on such activity.
(xiii) KnowledgeWell has never received nor become entitled to any income
which is particular income within the meaning of section 1004 of the TCA nor
any particular gains to which section 1005 of the TCA could apply.
(xiv) KnowledgeWell:
(1) does not own nor has it agreed to acquire any asset, nor has it
received or agreed to receive any services or facilities (including without
limitation the benefit of any licences or agreements), the
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consideration for the acquisition or provision of which was or will be in
excess of its market value, or otherwise than on an arm's length basis;
(2) does not own nor has it agreed to dispose of any asset, nor has it
provided or agreed to provide any services or facilities (including without
limitation the benefit of any licences or agreements), the consideration
for the disposal or provision of which was or will be less than its market
value, or otherwise than on an arm's length basis;
(3) has not disposed of or acquired any asset in such circumstances that
the provisions of section 547 of the TCA applied or could apply thereto;
and
(4) has not since the Accounts Date appropriated any asset owned by it
to or from trading stock.
(xv) None of KW Limited, KW Group or the Subsidiary has since the
respective date of its incorporation:
(1) repaid or agreed to repay, or redeemed or agreed to redeem, or
purchased or agreed to purchase, any of its share capital; or
(2) capitalized or agreed to capitalize in the form of debentures or
redeemable shares any profits or reserves of any class or description.
(xvi) No rents, interest, annual payments, emoluments or other sums of an
income nature paid or payable by KnowledgeWell or which KnowledgeWell is under
an obligation to pay in the future are, or (under the law as presently in
force) may be, wholly or partially disallowable as deductions or charges in
computing profits for the purpose of corporation tax by reason of any
statutory provision relating to Tax.
(xvii) No securities, within the meaning of section 135(8) of the TCA
issued by KnowledgeWell and remaining in issue at November 30, 1998 were
issued in such circumstances that any interest or other distribution out of
assets in respect thereof falls to be treated as a distribution under section
130(2)(d) of the TCA, nor has KnowledgeWell agreed to issue securities (within
that meaning) in such circumstances.
(xviii) Section 138 of the TCA does not apply to dividends paid or received
by any of KW Limited, KW Group or the Subsidiary.
(xix) No asset owned by KnowledgeWell has at any time since its acquisition
by KnowledgeWell been subjected to a reduction in value such that any
allowable loss arising on its disposal is likely to be reduced or eliminated
or any chargeable gain arising on its disposal is likely to be increased.
(xx) KnowledgeWell has not entered into any transaction to which the
provisions of section 98, 99 or 199 of the TCA have been or could be applied.
(xxi) KnowledgeWell has not since the Accounts Date received any payment to
which section 782 of the TCA is applicable.
(xxii)(1) There is set out in Schedule 2.8(d)(xxii) of the KnowledgeWell
Disclosure Letter details of all share schemes established by KnowledgeWell
and approved pursuant to Part 17 of the TCA.
(2) None of KW Limited, KW Group or the Subsidiary has been a qualifying
research and development company or a qualifying sponsoring company within the
meaning of Chapter III of Part I of the Finance Act, 1986, of Ireland.
(xxiii)(1) Schedule 2.8(d)(xxiii)(1) of the KnowledgeWell Disclosure Letter
includes a correct and complete list and full particulars of all arrangements
and agreements relating to group relief (as described in Chapter 5 of Part 2
of the TCA) to which any of KW Limited, KW Group or the Subsidiary are or have
been a party since the respective date of its incorporation.
(2) All claims made by KW Limited, KW Group or the Subsidiary for group
relief were, when made, valid and have been or will be allowed by way of
relief from corporation tax.
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(3) Except as disclosed in Schedule 2.8(d)(xxiii)(3) of the KnowledgeWell
Financial Statements, none of KW Limited, KW Group or the Subsidiary has since
the Accounts Date made, nor are they liable to make, any payment under any such
arrangement or agreement.
(4) Each of KW Limited, KW Group and the Subsidiary has received any
payments due to it under any such arrangements or agreement for surrender of
group relief made by it.
(xxiv)(1) Schedule 2.8(d)(xxiv)(1) of the KnowledgeWell Disclosure Letter
includes a correct and complete list and full particulars of all arrangements
and agreements relating to the surrender of advance corporation tax (as
described in section 166 of the TCA) to which any of KW Limited, KW Group or
the Subsidiary are or have been a party in the period since their respective
incorporation.
(2) All claims made by any of KW Limited, KW Group or the Subsidiary for the
surrender of advance corporation tax were, when made, valid and have been or
will be allowed by way of relief from corporation tax payable by the particular
company to whom the advance corporation tax was surrendered.
(3) Except as disclosed in Schedule 2.8(d)(xxiv)(3) of the KnowledgeWell
Disclosure Letter none of KW Limited, KW Group or the Subsidiary has since the
Accounts Date paid, or is liable to pay, any advance corporation tax which is
or may become incapable of set-off against its liability to corporation tax.
(4) Each of KW Limited, KW Group or the Subsidiary has received all payments
due to it under any such arrangements or agreements for the surrender of
advance corporation tax.
(xxv) Schedule 2.8(d)(xxv) of the KnowledgeWell Disclosure Letter includes a
correct and complete list and full particulars of all elections made by any of
KW Limited, KW Group or the Subsidiary under section 165 of the TCA.
(xxvi) The entry into or Closing of this Agreement will not result in any
profit or gain being deemed to accrue to any of KW Limited, KW Group or the
Subsidiary for Tax purposes, whether pursuant to section 623 of the TCA or
otherwise.
(xxvii) KnowledgeWell has not purchased an asset subject to a claim made
under section 620 of the TCA, nor has it made any other claim which would
affect the amount of the chargeable gain or allowable loss which would, but for
such claim, have arisen on a disposal of any of its assets.
(xxviii) KnowledgeWell has not entered into any transaction as a result of
which it could be assessed to Tax under Chapter 1 Part 22 of the TCA.
(e) Capital Acquisitions Tax.
(i) There is no outstanding charge for unpaid capital acquisitions tax over
any asset of KnowledgeWell or in relation to any shares in the capital of any
of KW Limited, KW Group or the Subsidiary.
(ii) There are not in existence any circumstances whereby any such power as
is mentioned in section 35(8) of the Capital Acquisitions Tax Act, 1976, of
Ireland could be exercised in relation to any shares, securities or other
assets of or owned by KnowledgeWell.
(iii) Since the Accounts Date, no taxable gift (as defined by section 6 of
the Capital Acquisitions Tax Act, 1976, of Ireland) or taxable inheritance (as
defined by section 12 of the same Act) has been received by any of KW Limited,
KW Group or the Subsidiary, nor have any of KW Limited, KW Group or the
Subsidiary been disponers (as defined by section 2 of the same Act) for the
purposes of capital acquisitions tax.
2.9 Restrictions on Business Activities. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which
KnowledgeWell is a party or otherwise binding upon KnowledgeWell which has or
reasonably could be expected to have the effect of prohibiting or impairing any
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business practice of KnowledgeWell, any acquisition of property (tangible or
intangible) by KnowledgeWell or the conduct of business by KnowledgeWell.
Without limiting the foregoing, KnowledgeWell has not entered into any
agreement under which KnowledgeWell is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) KnowledgeWell owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) of the KnowledgeWell Disclosure Letter sets forth a
list of all real property currently, or at any time in the past, leased by
KnowledgeWell, the name of the lessor and the date of the lease and each
amendment thereto and, with respect to any current lease, the aggregate annual
rental and/or other fees payable under any such lease. All such current leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
material default or event of material default (or event which with notice or
lapse of time, or both, would constitute a material default).
(b) KnowledgeWell has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the KnowledgeWell
Financial Statements or in Schedule 2.10(b) of the KnowledgeWell Disclosure
Letter and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby. The buildings on the Properties have been properly
and soundly constructed and are in a good and substantial state of repair and
condition and no high alumina cement, woodwool, calcium chloride, sea dredged
aggregates or asbestos material was used in the construction thereof and
KnowledgeWell has no outstanding claims or liabilities in respect of the
construction of the buildings of the Properties.
(c) Notwithstanding the foregoing paragraphs (a) and (b), no representation
or warranty made in such paragraphs relate to the property at Block 1,
Blackrock Industrial Estate, Blackrock, County Dublin as such property is dealt
with by way of a certificate of title furnished to CBT by Binchys Solicitors at
November 30, 1998.
2.11 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all Irish, United
States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all mask works, mask work
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (v) all industrial designs and any
registrations and applications therefor throughout the world; (vi) all
trade names, logos, common law trademarks and service marks; trademark and
service mark registrations and applications therefor throughout the world;
(vii) all databases and data collections and all rights therein throughout
the world; and (vii) all computer software including all source code,
object code, firmware, development tools, files, records and data, all
media on which any of the foregoing is recorded, and all documentation
related to any of the foregoing throughout the world.
"Intellectual Property of KnowledgeWell" shall mean any Intellectual
Property that is owned by or exclusively licensed to KnowledgeWell.
"currently" means, as used in this section, the period beginning six
years prior to the Closing Date and ending on such date.
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(b) Schedule 2.11(b) of the KnowledgeWell Disclosure Letter lists all of
KnowledgeWell's Irish and United States and foreign: (i) patents, patent
applications (including provisional applications); (ii) registered trademarks,
applications to register trademarks, intent-to-use applications, or other
registrations related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) mask work registrations and
applications to register mask works; and (v) any other Intellectual Property of
KnowledgeWell that is the subject of an application, certificate or
registration issued by or recorded by any state, government or other public
legal authority, all of the foregoing, the "Registered Intellectual Property".
(c) 2.11(c) of the KnowledgeWell Disclosure Letter lists any proceedings or
actions before any court, tribunal (including the Irish Patents Office ("IPO")
and the United States Patent Office ("PTO") or equivalent authority anywhere
else in the world) related to any of the Registered Intellectual Property.
(d) KnowledgeWell has complied with all applicable disclosure requirements
and has not committed any fraudulent act in the application for and maintenance
of any patent, trademark or copyright of KnowledgeWell.
(e) each item of Registered Intellectual Property is valid and subsisting,
all necessary registration, maintenance and renewal fees in connection with
such Registered Intellectual Property have been made or paid and all necessary
documents and certificates in connection with such Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in Ireland, the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property. Schedule 2.11(e) of the KnowledgeWell Disclosure Letter lists all
actions and payments that must be made in the six month period following the
Closing Date in connection with the preservation or maintenance of the
Registered Intellectual Property.
(f) KnowledgeWell is not barred from seeking patents on material potentially
patentable inventions of KnowledgeWell by "on-sale" or similar bars to
patentability or by failure to apply for a patent on such inventions within the
time required.
(g) The contracts, licenses and agreements listed in Schedule 2.11(g) of the
KnowledgeWell Disclosure Letter include all contracts, licenses and agreements,
to which KnowledgeWell is a party with respect to any Intellectual Property
with a potential value or cost in excess of US$20,000.
(h) The contracts, licenses and agreements listed in Schedule 2.11(g) of the
KnowledgeWell Disclosure Letter are in full force and effect. The consummation
of the transactions contemplated by this Agreement will neither violate nor
result in the breach, modification, cancellation, termination, or suspension of
the contracts, licenses and agreements listed in Schedule 2.11(g) of the
KnowledgeWell Disclosure Letter. KnowledgeWell is in compliance with, and has
not breached any term of, the contracts, licenses and agreements listed in
Schedule 2.11(g) of the KnowledgeWell Disclosure Letter, and, to the knowledge
of KnowledgeWell, all other parties to the contracts, licenses and agreements
listed in Schedule 2.11(g) of the KnowledgeWell Disclosure Letter are, in
compliance with, and have not breached any term of, such contracts, licenses
and agreements.
(i) except as set forth in Schedule 2.11(i) of the KnowledgeWell Disclosure
Letter: (i) no person has any rights to use any of the Intellectual Property of
KnowledgeWell; and (ii) KnowledgeWell has not granted to any Person, nor
authorized any Person to retain, any rights in the Intellectual Property of
KnowledgeWell.
(j) Except as set forth in Schedule 2.11(j) of the KnowledgeWell Disclosure
Letter: (i) KnowledgeWell owns and has good and exclusive title to each item of
Intellectual Property of KnowledgeWell, including all Registered Intellectual
Property listed in Schedule 2.11(b) of the KnowledgeWell Disclosure Letter,
free and clear of any lien or encumbrance; (ii) KnowledgeWell owns, or has the
right, pursuant to a valid Contract to use or operate under, all other
Intellectual Property of KnowledgeWell; and (iii) KnowledgeWell is the
exclusive owner of all trademarks and trade names used in connection with the
operation or conduct of the business of KnowledgeWell, including the sale of
any products or the provision of any services by KnowledgeWell.
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(k) The operation of the business of KnowledgeWell as such business
currently is conducted, or is reasonably is contemplated to be conducted,
including KnowledgeWell's design, development, manufacture, marketing and sale
of the products or services of KnowledgeWell (including with respect to
products currently under development) has not, does not and will not infringe
or misappropriate the Intellectual Property of any other Person or constitute
unfair competition or trade practices under the laws of any jurisdiction.
(l) KnowledgeWell has not received notice from any person that the operation
of the business of KnowledgeWell, including its design, development,
manufacture and sale of its products (including with respect to products
currently under development) and provision of its services, infringes or
misappropriates the Intellectual Property of any Person or constitutes unfair
competition or trade practices under the laws of any jurisdiction.
(m) KnowledgeWell owns or has the right to all Intellectual Property
necessary to the conduct of its business as it currently is conducted or is
reasonably contemplated to be conducted, including, without limitation, the
design, development, manufacture and sale of all products currently
manufactured or sold by KnowledgeWell or under development by KnowledgeWell and
the performance of all services provided or contemplated to be provided by
KnowledgeWell.
(n) Schedule 2.11(n) of the KnowledgeWell Disclosure Letter lists all
contracts, licenses and agreements between KnowledgeWell and any other Person
wherein or whereby KnowledgeWell has agreed to, or assumed, any obligation or
duty to warrant, indemnify, hold harmless or otherwise assume or incur any
obligation or liability with respect to the infringement or misappropriation by
KnowledgeWell or such other Person of the Intellectual Property of any other
Person.
(o) Except as listed in Schedule 2.11(o) of the KnowledgeWell Disclosure
Letter, there are no contracts, licenses and agreements between KnowledgeWell
and any other person with respect to the Intellectual Property of KnowledgeWell
under which there is any dispute known to KnowledgeWell regarding the scope of
such agreement, or performance under such agreement including with respect to
any payments to be made or received by KnowledgeWell thereunder.
(p) Except as listed in Schedule 2.11(p) of the KnowledgeWell Disclosure
Letter, to the knowledge of KnowledgeWell, no person has or is infringing or
misappropriating any of the Intellectual Property of KnowledgeWell.
(q) Except as listed in Schedule 2.11(q) of the KnowledgeWell Disclosure
Letter, there have been, and are, no claims asserted against KnowledgeWell or
against any customer of KnowledgeWell, related to any product or service of
KnowledgeWell.
(r) No Intellectual Property of KnowledgeWell, or product or service of
KnowledgeWell is subject to any proceeding or outstanding decree, order,
judgment, or stipulation restricting in any manner the use or licensing thereof
by KnowledgeWell, or which may affect the validity, use or enforceability of
such Intellectual Property of KnowledgeWell.
(s) KnowledgeWell has taken all steps that are reasonably required to
protect KnowledgeWell's rights in KnowledgeWell's confidential information and
trade secrets or any trade secrets or confidential information of third parties
provided to KnowledgeWell, and, without limiting the foregoing, KnowledgeWell
has and enforces a policy requiring each employee and contractor to execute
proprietary information and confidentiality agreements substantially in
KnowledgeWell's standard forms and all current and former employees and
contractors of KnowledgeWell have executed such an agreement.
(t) KnowledgeWell owns exclusively and has good title to all copyrighted
works that are KnowledgeWell products or which KnowledgeWell otherwise purports
to own, except for those copyrighted works licensed to KnowledgeWell listed in
Schedule 2.11(t) of the KnowledgeWell Disclosure Letter.
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(u) To the extent that any work, invention, or material has been developed
or created by a third party for KnowledgeWell, KnowledgeWell has a written
agreement with such third party with respect thereto and KnowledgeWell thereby
has obtained ownership of, and is the exclusive owner of, all Intellectual
Property in such work, material or invention by operation of law or by valid
assignment.
(v) Notwithstanding any other provision of this Agreement, it is understood
and agreed that KnowledgeWell will not be deemed to be in violation of any
representation, warranty, covenant or agreement under this Agreement,
including without limitation any representation, warranty, covenant or
agreement relating to Intellectual Property, due to any matter that relates to
the Intellectual Property licensed from CBT pursuant to the Software License
Agreement dated October 22, 1997 between KW Limited and CBT, as amended.
2.12 (a) Agreements, Contracts and Commitments. Except as set forth in
Schedule 2.12(a) of the KnowledgeWell Disclosure Letter, KnowledgeWell does
not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement with
a firm or other organization,
(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of US$5,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement containing any covenant limiting the freedom of
KnowledgeWell or its present and future affiliated entities to engage in
any line of business or to compete with any person,
(x) any agreement relating to capital expenditures and involving future
payments in excess of US$20,000,
(xi) any agreement relating to the disposition or acquisition of assets
or any interest in any business enterprise outside the ordinary course of
KnowledgeWell's business,
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw materials
involving US$20,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which KnowledgeWell has granted or may
grant in the future, to any party a source-code license or option or other
right to use or acquire source-code, or
(xvii) any other agreement that involves US$20,000 or more or is not
cancelable without penalty within thirty (30) days.
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(b) Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 2.12(b) of the
KnowledgeWell Disclosure Letter, KnowledgeWell has not materially breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, and there are no circumstances reasonably likely to give
rise to any material breach, violation or default under any of the terms or
conditions of any agreement, contract or commitment required to be set forth in
Schedule 2.12(a) or 2.11(b) of the KnowledgeWell Disclosure Letter (any such
agreement, contract or commitment, a "Contract"). Each Contract is in full
force and effect and, except as otherwise disclosed in Schedule 2.12(b) of the
KnowledgeWell Disclosure Letter, is not subject to any material default
thereunder of which KnowledgeWell has knowledge by any party obligated to
KnowledgeWell pursuant thereto.
2.13 Interested Party Transactions. Except as set forth in Schedule 2.13 of
the KnowledgeWell Disclosure Letter, to KnowledgeWell's knowledge, no officer,
director or shareholder of KnowledgeWell (nor any ancestor, sibling, descendant
or spouse of any of such persons, or any trust, partnership or corporation in
which any of such persons has or has had a material economic interest), has or
has had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that
KnowledgeWell furnishes or sells, or proposes to furnish or sell, (ii) an
economic interest in any entity that purchases from, or sells or furnishes to,
KnowledgeWell, any goods or services or (iii) a beneficial interest in any
contract or agreement set forth in Schedule 2.12(a) or 2.12(b) of the
KnowledgeWell Disclosure Letter; provided, that (x) ownership of no more than
one percent (1%) of the outstanding voting stock of a publicly traded
corporation and no more than ten percent (10%) of the outstanding equity of any
other entity shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.13 and (y) this provision shall only apply if the
terms and conditions applicable to the subject relationship are materially less
favorable to KnowledgeWell than the terms and conditions that could be obtained
in an arms-length relationship.
2.14 Compliance with Laws. To KnowledgeWell's knowledge, KnowledgeWell and
its officers and employees have complied in all material respects with, are not
in material violation of, and have not received any notices of violation with
respect to, any foreign, federal, state or local statute, law or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15 of the KnowledgeWell
Disclosure Letter, KnowledgeWell is not engaged in nor is there any action,
suit or proceeding of any nature pending or, to KnowledgeWell's knowledge
threatened, against KnowledgeWell, its properties or any of its officers or
directors, in their respective capacities as such or any person for whose acts
or defaults KnowledgeWell is or may be vicariously liable. Except as set forth
in Schedule 2.15 of the KnowledgeWell Disclosure Letter, to KnowledgeWell's
knowledge, there is no investigation pending or threatened against
KnowledgeWell, its properties or any of its officers or directors by or before
any governmental entity. Schedule 2.15 of the KnowledgeWell Disclosure Letter
sets forth, with respect to any pending or threatened action, suit, proceeding
or investigation, the forum, the parties thereto, the subject matter thereof
and the amount of damages claimed or other remedy requested. No governmental
entity has at any time challenged or questioned the legal right of
KnowledgeWell to manufacture, offer or sell any of its products in the present
manner or style thereof.
2.16 Insurance.
(a) All material assets of KnowledgeWell of an insurable nature have at all
material times been and are at November 30, 1998 insured in amounts
representing their full replacement or reinstatement value against fire and
other risks (including without limiting the generality of the foregoing loss of
profit) normally insured against by persons carrying on the same classes of
business as those carried on by KnowledgeWell and KnowledgeWell has at all
material times been and is at November 30, 1998 adequately covered against
accident, damage, injury, third party public liability (including products
liability and defamation liability) loss of profits and other risks normally
insured against by persons carrying on the same classes of business as those
carried on by KnowledgeWell. All such policies are and will at Closing be in
full force and effect and nothing has been done or omitted to be done which
would make any policy of insurance void or voidable or which is likely to
result in an increase in premium. All of such insurance policies have been
disclosed to CBT and are listed in Schedule 2.16(a) of the KnowledgeWell
Disclosure Letter.
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(b) With respect to the insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of KnowledgeWell, there is no claim by KnowledgeWell pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and KnowledgeWell is
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
To KnowledgeWell's knowledge, there is no threatened termination of, or
material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of KnowledgeWell provided to counsel for
CBT are the only minute books of KnowledgeWell and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the time of incorporation of
KnowledgeWell.
2.18 Environmental Matters.
(a) Hazardous Material. KnowledgeWell has not: (i) operated any underground
storage tanks at any property that KnowledgeWell has at any time owned,
operated, occupied or leased; or (ii) illegally released any material amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws,
(a "Hazardous Material"), but excluding office and janitorial supplies properly
and safely maintained. No Hazardous Materials are present, as a result of the
deliberate actions of KnowledgeWell, or, to KnowledgeWell's knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that KnowledgeWell has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. KnowledgeWell has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before
the Closing Date, nor has KnowledgeWell disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of November 30, 1998 to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. KnowledgeWell currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of KnowledgeWell's Hazardous Material Activities and
other businesses of KnowledgeWell as such activities and businesses are
currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending, or to
KnowledgeWell's knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activities of KnowledgeWell.
KnowledgeWell is not aware of any fact or circumstance which could involve
KnowledgeWell in any environmental litigation or impose upon KnowledgeWell any
environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. KnowledgeWell has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
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2.20 United States Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with KnowledgeWell within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(iii) "KnowledgeWell Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by KnowledgeWell or any
Affiliate for the benefit of any "Employee" (as defined below), and
pursuant to which KnowledgeWell or any Affiliate has or may have any
material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired employee,
officer, or director of KnowledgeWell or any Affiliate;
(v) "Employee Agreement" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa, work
permit or similar agreement or contract between KnowledgeWell or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each KnowledgeWell Employee Plan
which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) of the KnowledgeWell Disclosure Letter
contains an accurate and complete list of each KnowledgeWell Employee Plan and
each Employee Agreement, together with a schedule of all liabilities, whether
or not accrued, under each such KnowledgeWell Employee Plan or Employee
Agreement. KnowledgeWell does not have any plan or commitment to establish any
new KnowledgeWell Employee Plan or Employee Agreement, to modify any
KnowledgeWell Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such KnowledgeWell Employee Plan or Employee
Agreement to the requirements of any applicable law, or as required by this
Agreement), or to enter into any KnowledgeWell Employee Plan or Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. KnowledgeWell has provided to CBT (i) correct and complete
copies of all documents embodying or relating to each KnowledgeWell Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each KnowledgeWell Employee Plan; (iii) the three most recent
annual reports (Series 5500 and all schedules thereto), if any, required under
ERISA or the Code in connection with each KnowledgeWell Employee Plan or
related trust; (iv) if a KnowledgeWell Employee Plan is funded, the most recent
annual and periodic accounting of that KnowledgeWell Employee Plan's assets;
(v) the most recent summary plan description together with the most recent
summary of material modifications, if any, required under ERISA with respect to
each KnowledgeWell Employee Plan; (vi) all IRS determination letters and
rulings relating to KnowledgeWell Employee Plans and copies of all applications
and correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any KnowledgeWell Employee Plan; (vii) all communications material
to any Employee or Employees relating to any KnowledgeWell Employee Plan and
any proposed
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KnowledgeWell Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to KnowledgeWell; and (viii) all registration statements and
prospectuses prepared in connection with each KnowledgeWell Employee Plan.
(d) Employee Plan Compliance. Except as set forth in Schedule 2.20(d) of the
KnowledgeWell Disclosure Letter, (i) KnowledgeWell has performed in all
material respects all obligations required to be performed by it under each
KnowledgeWell Employee Plan and each KnowledgeWell Employee Plan has been
established and maintained in all material respects in accordance with its
terms and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any KnowledgeWell Employee
Plan; (iii) there are no actions, suits or claims pending, or, to the knowledge
of KnowledgeWell, threatened or anticipated (other than routine claims for
benefits) against any KnowledgeWell Employee Plan or against the assets of any
KnowledgeWell Employee Plan; and (iv) each KnowledgeWell Employee Plan can be
amended, terminated or otherwise discontinued after the Closing Date in
accordance with its terms, without liability to KnowledgeWell, CBT or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (v) there are no inquiries or proceedings pending or,
to the knowledge of KnowledgeWell or any affiliates, threatened by the IRS or
DOL with respect to any KnowledgeWell Employee Plan; and (vi) neither
KnowledgeWell nor any Affiliate is subject to any penalty or tax with respect
to any KnowledgeWell Employee Plan under Section 402(i) of ERISA or Section
4975 through 4980 of the Code.
(e) Pension Plans. KnowledgeWell does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(f) Multiemployer Plans. At no time has KnowledgeWell contributed to or been
requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule 2.20(g)
of the KnowledgeWell Disclosure Letter, no KnowledgeWell Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and
KnowledgeWell has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(h) Effect of Transaction.
(i) Except as provided in Section 1.8 of this Agreement or as set forth
in Schedule 2.20(h)(i) of the KnowledgeWell Disclosure Letter, the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any
KnowledgeWell Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits with respect to any Employee.
(ii) Except as set forth in Schedule 2.20(h)(ii) of the KnowledgeWell
Disclosure Letter, no payment or benefit which will or may be made by
KnowledgeWell or CBT or any of their respective Affiliates with respect to
any Employee will be characterized as an "excess parachute payment", within
the meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. KnowledgeWell (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms
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and conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other
benefits or obligations for Employees (other than routine payments to be made
in the normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against KnowledgeWell is pending
or, to the knowledge of KnowledgeWell, threatened. Except as set forth in
Schedule 2.20(j) of the KnowledgeWell Disclosure Letter, KnowledgeWell is not
involved in or, to the knowledge of KnowledgeWell, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate have a Material Adverse
Effect on KnowledgeWell. Neither KnowledgeWell nor any of its subsidiaries has
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act which would, individually or in the aggregate, directly or
indirectly result in a liability to KnowledgeWell. Except as set forth in
Schedule 2.20(j) of the KnowledgeWell Disclosure Letter, KnowledgeWell is not
presently, nor has it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is being negotiated by KnowledgeWell.
2.21 Ireland Employee Matters and Benefits Plans.
(a) There are not in existence any service agreements with directors or
employees of Knowledge Well which cannot be terminated by three months notice
or less or (whether or not reduced to writing) by reasonable notice without
giving rise to any claim for damages or compensation (other than the statutory
redundancy payment or statutory compensation for unfair dismissals).
(b) The information set out in the KnowledgeWell Disclosure Letter,
comprises accurate disclosure of all retirement, death, superannuation and
pension benefits and schemes actually or contingently agreed, or due, or
accrued, or proposed in respect of all of the present and former employees of
KnowledgeWell (all such schemes and benefits being hereinafter called the
"Pension Schemes").
(c) There are no gratuitous payments, pensions, or benefits payable,
promised, undertaken or being paid by KnowledgeWell to any directors,
consultants, employees or former directors consultants or employees of
KnowledgeWell.
(d) KnowledgeWell:
(i) has not given any undertaking or assurance (whether legally
enforceable or not) to any Relevant Employee or to any widow, child or
dependant of any Relevant Employee as to the continuance, introduction,
improvement or increase of any benefit of a kind described in paragraph (b)
above; or
(ii) is not paying or has not in the period since incorporation paid any
benefit of the kind described in paragraph (c) above to any Relevant
Employee or the widow, child or dependant of any Relevant Employee.
(e) The Pension Schemes have been registered pursuant to the provisions of
the Pensions Act, 1990, of Ireland.
(f) The Pension Schemes are exempt approved schemes within the meaning of
Sections 15 and 16 of the Finance Act, 1972, of Ireland and comply with and
have at all times been administered in accordance with all applicable laws,
regulations and requirements (including those of the Revenue Commissioners and
of trust law) and KnowledgeWell is not aware of any reason why such exempt
status should or could be withdrawn.
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(g) True copies of all of the Definitive and interim Trust Deeds, Rules,
Explanatory Booklets and Announcements relating to the Pension Schemes have
been delivered to CBT and copies thereof are contained in the KnowledgeWell
Disclosure Letter, and KnowledgeWell has no obligation to any employee or
former employee in relation to death in service, pension, superannuation or
analogous benefits except as provided in the said Deeds, Rules, Booklets and
Announcements.
(h) All of the Pension Schemes are fully, properly and adequately funded
with respect to existing and prospective liabilities having regard to current
funding rates, assets and investment and liability assumptions of the Pension
Schemes and no increase in funding rates is proposed or has been recommended in
relation to any of the Pension Schemes. Schedule 2.21(h) of the KnowledgeWell
Disclosure Letter contains a true copy of the latest reports and valuations of
all of the Pension Schemes by the actuary or actuaries advising thereon and
since the dates of such reports all recommendations contained therein have been
fully implemented and no material change has occurred in the assets,
valuations, liabilities or funding rates of any of the Pension Schemes or as to
the assumptions according to which the same are calculated.
(i) All benefits (other than any refund of members' contributions with
interest where appropriate) payable under the Pensions Schemes on the death of
any person while in employment to which the Pension Schemes relate are insured
fully under a policy with an insurance company of good repute and there are no
grounds on which that company might avoid liability thereunder.
(j) Contributions to the Pension Schemes are not paid in arrears and all
contributions and other amounts which have fallen due for payment have been
paid and no fees, charges or expenses referable to the Pension Schemes for
which KnowledgeWell is or may become liable (whether wholly or in part) have
been incurred but not paid and KnowledgeWell has reimbursed any person who has
paid any such fees, costs or expenses if and to the extent that KnowledgeWell
is or may become liable so to do.
(k) KnowledgeWell:
(i) has been admitted to participation in the Pension Schemes on the
same terms as apply to all other employers participating in the Schemes;
(ii) has observed and performed those provisions of the Pension Schemes
which apply to it;
(iii) may terminate its liability to contribute to the Pension Schemes
without notice, without the consent of any person and without further
payment;
(iv) has at all material times held or been named in a contracting-out
certificate referable to the Pensions Scheme.
(l) The trustees of the Pension Scheme are not engaged in any litigation or
arbitration proceedings and so far as KnowledgeWell is aware no litigation or
arbitration proceedings are pending or threatened by or against the trustees of
the Pension Scheme and there are no facts likely to give rise to any litigation
or arbitration.
(m) Except as set forth in the KnowledgeWell Financial Statements there are
no amounts owing to any present or former directors of KnowledgeWell other than
remuneration agreed due or for reimbursement of business expenses properly
incurred.
(n) Except to the extent (if any) to which provision or allowance has been
made in the KnowledgeWell Financial Statements, KnowledgeWell has not made or
agreed to make any payment to or provided or agreed to provide any benefit for
any present or former officer or employee which is not allowable as a deduction
for the purposes of Tax.
(o) No liability has been incurred by KnowledgeWell for breach of any
contract of service for redundancy payment or for compensation for wrongful or
unfair dismissal or for failure to comply with any order for the reinstatement
or re-engagement of any employee and no gratuitous payment has been made or
promised by
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KnowledgeWell in connection with the termination or proposed termination of the
employment of any present or former director or employee.
(p) KnowledgeWell is not involved in any industrial or trade dispute or any
dispute or negotiation regarding a claim of material importance with any trade
union or organization or body of employees or any dispute arising out of or
affected by or otherwise relating to the provisions of the Employment Statutes
as defined in 2.21(r)(iii) below and there are no agreements or other
arrangements (whether or not legally binding) between KnowledgeWell and any
trade union or other body representing employees.
(q) Except for the KnowledgeWell Option Plans, KnowledgeWell has not in
existence nor is it proposing to introduce any share incentive scheme, share
option scheme or profit sharing scheme for all or any part of its directors or
employees.
(r) KnowledgeWell has in relation to each of its employees (and so far as is
relevant to each of its former employees);
(i) complied in all material respects with all obligations imposed on it
by any statutory provision or regulation and codes of conduct relevant to
the relations between it and its employees or any recognized trade union
and has maintained adequate and suitable records regarding the service of
each of its employees; and
(ii) complied in all material respects with all collective agreements
for the time being having effect as regards such relations or the
conditions of service of its employees;
(iii) complied in all material respects with the following regulations
of Ireland: the Redundancy Payments Acts, 1967-1991, the Minimum Notice and
Terms of Employment Act, 1973 to 1991, the Organization of Working Time
Act, 1997, the Anti-Discrimination (Pay) Act, 1974, the Protection of Young
Persons (Employment) Act, 1976, the Unfair Dismissals Acts, 1977 to 1993,
the Protection of Employment Act, 1977 to 1993, the Employment Equality
Act, 1977, the European Communities (Safeguarding of Rights of Employees on
Transfer of Undertakings) Regulations, 1980, the Maternity Protection of
Employees Act, 1981, the Pensions Act, 1990, the Payment of Wages Act, 1991
and the Worker Protection (Regular Part Time Employees) Act, 1991 (the
"Employment Statutes").
(s) No KnowledgeWell employee in receipt of a salary at a basic rate in
excess of IR(Pounds)40,000 per annum has advised KnowledgeWell formally or
informally that he or she is terminating or considering terminating his or her
employment with the company and to KnowledgeWell's knowledge, there are no
circumstances likely to give rise to such termination. KnowledgeWell has no
existing dispute with any of its employees of a material nature and to
KnowledgeWell's knowledge, there are no circumstances reasonably likely to give
rise to a dispute with any of its employees of a material nature.
(t) To KnowledgeWell's knowledge, all persons in receipt of income at a
basic rate in excess of IR(Pounds)40,000 per annum who have during the period
since the Relevant Accounting Date habitually or normally carried out duties of
a full time nature on behalf of KnowledgeWell in connection with its business
and affairs are not planning to terminate employment with KnowledgeWell at or
after Closing.
(u) No change has been made since the Accounts Date by KnowledgeWell in the
rate or basis of the emoluments or other terms of any contract of service,
contract for services or otherwise of any directors or employees of
KnowledgeWell who at any time since the said date were in receipt of emoluments
at the rate of IR(Pounds)40,000 per annum or more.
(v) True and complete particulars of the total numbers of KnowledgeWell's
full time and part time employees as at the Accounts Date, their dates of
commencement of employment or appointment to office, and terms and conditions
of their employment including their remuneration and other benefits have been
disclosed to CBT and are referred to or contained in Schedule 2.21(v) of the
KnowledgeWell Disclosure Letter and there has been no material change in such
numbers since the Accounts Date.
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(w) KnowledgeWell is not under any contractual or other obligation to
increase the rates of remuneration of or make any bonus or incentive or other
similar payment to any of its officers or employees at any future date.
(x) KnowledgeWell has not given to any person any power or attorney or other
authority (express, implied or ostensible) which is still outstanding.
(y) KnowledgeWell has not entered into any recognition agreement with a
trade union nor has it done any act which might be construed as recognition.
2.22 Borrowed Moneys. KnowledgeWell has not received notice (whether formal
or informal) from any lenders of money to it in respect of or as a preliminary
to the demand by such persons for payment of any money owing by KnowledgeWell
to such persons and KnowledgeWell is not aware of any circumstances likely to
give rise to such notice being given to it.
2.23 Grants, etc. Not Repayable. Except for disposals in the ordinary course
of business KnowledgeWell has not done or failed to do any act or thing which
could result in all or any part of a government grant or other similar payment
or allowance made or due to be made by it becoming repayable or being forfeited
by it.
2.24 Oral Contracts. No tender, quotation or offer issued or made at any
time by KnowledgeWell is or will become capable of giving rise to a contract by
an order or acceptance by another party or parties, except in the ordinary
course of business and on terms calculated to yield a gross profit margin
consistent with the prudent carrying on of the business of KnowledgeWell.
2.25 Returns Up-to-Date.
(a) All returns, particulars, resolutions and other documents required to be
filed or to be delivered on behalf of KnowledgeWell to the Registrar of
Companies of Ireland or any other applicable jurisdiction have been correctly
and properly made up and so filed or delivered within the period prescribed.
(b) All charges in favor of KnowledgeWell have (if appropriate) been
registered in accordance with the provisions of the Companies Acts, 1963 to
1990 of Ireland.
2.26 Insolvency.
(a) No order has been made or petition presented or resolution passed for
the winding up of KnowledgeWell to the Shareholders, there are no grounds on
which any such order or petition could be made or presented to the Shareholders
and no such resolution is contemplated by the members or any of them.
(b) No distress, execution or other process has been levied on any of the
assets of KnowledgeWell, nor has any of KW Limited, KW Group or the Subsidiary
stopped payment or become insolvent or unable to pay its debts for the purposes
of Section 214 of the Companies Act, 1963 of Ireland.
(c) No power to appoint a receiver or administrative receiver has been
exercised or has arisen in respect of the business or any of the assets of
KnowledgeWell and there is no unfulfilled or unsatisfied judgment or Court
order outstanding against any of KW Limited, KW Group or the Subsidiary.
2.27 Stamp Duty and Capital Duty.
(a) KnowledgeWell has duly complied with and has no liability under Section
1 of the Stamp Act, 1891, of Ireland as substituted by the provisions of
Section 94 of the Finance Act, 1991, of Ireland.
(b) All documents in existence and any others which may be existing at
Closing in the enforcement of which KnowledgeWell is, was or may be or become
interested have been duly stamped or adequate provision has been made therefor
in the KnowledgeWell Financial Statements.
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(c) No relief or exemption has been obtained from companies capital duty or
stamp duty and, without prejudice to the generality of the foregoing, no
relief, exemption or reduction has been obtained from companies capital duty or
stamp duty under Section 72 of the Finance Act, 1973, of Ireland or from stamp
duty under Section 19 of the Finance Act, 1952, of Ireland or Statutory
Instrument No. 244 of 1979, of Ireland or Statutory Instrument No. 272 of 1981,
of Ireland or Section 31 of the Finance Act, 1965, of Ireland which has (a)
become liable to forfeiture or (b) been obtained in respect of a transaction
carried out within the period within which it may become liable to forfeiture
and pending Closing no relief or exemption under any of the said enactments
will be claimed and all stamp duty or capital duty which has become or pending
Closing will become payable by KnowledgeWell has been or will be duly paid.
(d) All capital duty and/or stamp duty payable by KnowledgeWell in respect
of any of the transactions referred to in the following Sections of the Finance
Act, 1973, of Ireland has been duly and promptly paid by KnowledgeWell so that
there is no liability in respect thereof or any interest thereon:
(i) Section 63;
(ii) Section 64;
(iii) Section 68; and
(iv) Section 69 and 70.
(e) All other capital and/or stamp duty howsoever arising or payable has
been paid by KnowledgeWell and there is no outstanding liability therefor or
interest thereon.
(f) KnowledgeWell has not executed an instrument in respect of which fines
could be imposed pursuant to Section 5 of the Stamp Act, 1891, of Ireland as
substituted by Section 97 of the Finance Act, 1991, of Ireland.
(g) KnowledgeWell is not liable for any penalty imposed by Section 103 of
the Finance Act, 1991, of Ireland.
(h) KnowledgeWell and its employees have not done or omitted to do anything
which could give rise to a liability on KnowledgeWell for a fine, penalty,
interest, charge or additional duty under the Stamp Act, 1891, of Ireland as
amended.
2.28 VAT.
(a) Each of KW Limited and KW Group is a registered and taxable person for
the purposes of the VAT legislation (as hereinafter defined) and:
(i) Neither of them has at any time been treated as a member of a group
(other than that comprising KW Group and the Subsidiary alone) for such
purposes and no application for either of them to be so treated has at any
time been or pending Closing will be made and no act or transaction has
been or pending Closing will be effected in consequence whereof either KW
Limited or KW Group is or may be held liable for any Value Added Tax
chargeable against some other company except, in the case of KW Group, the
Subsidiary;
(ii) Each of them has complied and pending Closing will comply in all
respects with the VAT legislation;
(iii) Each of them has given, obtained, made and maintained and pending
Closing will give, obtain, make and maintain full, complete, correct and up
to date invoices, records and other documents appropriate or requisite for
the purposes of the VAT legislation;
(iv) Neither of them is and will not pending Closing be in arrears with
any payment or returns or notifications thereunder or liable to any
abnormal or non-routine payment or any forfeiture or penalty or to the
operation of any penal provision and where payment is not yet due or
receivable has provided for such payment;
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(v) neither of them has been and pending Closing neither of them will be
required by the appropriate fiscal authorities to give security; and
(vi) all supplies made and to be made pending Closing by either of them
are taxable supplies and neither of them is or will pending Closing be
denied credit for any input tax;
(b) For the purposes of this clause the "VAT legislation" means the Value
Added Tax Act, 1972, of Ireland and all orders, rules, regulations, notices,
provisions, directions or conditions made, laid down, given or imposed
thereunder.
2.29 Shelf Registration Statement Information. The information supplied by
KnowledgeWell for inclusion in the registration statement contemplated by the
Declaration of Registration Rights attached hereto as Exhibit B (the "Rights
Declaration") does not contain, and will not contain at the effective date of
such registration statement, any untrue statement of a material fact or omit,
and will not omit at the effective date of such registration statement, to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
2.30 Representations Complete. None of the representations or warranties
made by the Shareholders (as modified by the KnowledgeWell Disclosure Letter),
nor any statement made in the KnowledgeWell Disclosure Letter or certificate
furnished by KnowledgeWell pursuant to this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein, in the light of the
circumstances under which they were made, not misleading.
2.31 Proxy Statements Complete. None of the statements made or furnished by
KnowledgeWell in or in connection with documents mailed or delivered to the
shareholders of CBT in connection with soliciting their approval of this
Agreement (it being acknowledged that KnowledgeWell shall have the opportunity
to review and comment on such documents prior to any such mailing or
delivering), contains or will contain at the date of such mailing or delivery
or the date of the CBT shareholder vote, any untrue statement of a material
fact, or omits or will omit at the date of such mailing or delivery or the date
of the CBT shareholder vote to state any material fact necessary in order to
make the statements contained therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder, severally and not jointly, represents and warrants to CBT
as of November 30, 1998 as follows:
3.1 Authority. This Agreement and each agreement attached as an exhibit
hereto (collectively, the "Related Agreements") to which such Shareholder is a
party have been duly and validly executed and delivered by, or on behalf of,
Shareholder and, assuming due authorization, execution and delivery by the
other parties hereto and thereto, constitute valid and binding obligations of
Shareholder, enforceable against Shareholder in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.2 Conflicts. Neither the execution and delivery of each of this Agreement
and the Related Agreements to which such Shareholder is a party nor the
performance by Shareholder of his, her or its respective obligations hereunder
or thereunder, violate, conflict with, or constitute a default under any
agreement or commitment to which Shareholder is a party, or violate any statute
or law or any judgment, decree, order, regulation or rule of any court or other
Governmental Entity applicable to Shareholder that would preclude Shareholder
from entering into this Agreement or the Related Agreements to which such
Shareholder is a party or consummating the transactions contemplated hereby or
thereby.
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3.3 Consents. No consent, waiver, approval, order or authorization of, or
declaration, filing or registration with, any Governmental Entity or any third
party is required to be made or obtained by Shareholder in connection with the
execution and delivery by Shareholder of each of this Agreement and the Related
Agreements to which such Shareholder is a party or the performance by
Shareholder of his, her or its obligations hereunder or thereunder or the
consummation by Shareholder of the transactions contemplated herein or therein.
3.4 Title. Shareholder has the sole right to transfer the KnowledgeWell
Shares registered in his, her or its name to CBT. Upon delivery of
KnowledgeWell Certificates representing such KnowledgeWell Shares to CBT,
together with a duly executed transfer instrument, CBT will receive good title
to such KnowledgeWell Shares, free and clear of all Liens.
3.5 Taxes. Shareholder has had an opportunity to review with his, her or its
respective tax advisors the tax consequences to Shareholder of the Share
Exchange and the transactions contemplated by this Agreement. Shareholder
understands that he, she or it must rely solely on his, her or its advisors and
not on any statements or representations by CBT, KnowledgeWell or any of their
respective agents. Shareholder understands that he, she or it (and not CBT or
KnowledgeWell) shall be responsible for his, her or its own tax liability that
may arise as a result of the Share Exchange or any other transactions
contemplated by this Agreement or the Related Agreements.
3.6 Sufficient Assets. Shareholder will have sufficient assets, after sale
of the KnowledgeWell Shares owned by Shareholder as contemplated hereby, to
satisfy all of Shareholder's obligations to his, her or its creditors, as the
same become due and payable.
3.7 Release of Liabilities. Shareholder has procured the release of
KnowledgeWell and the Subsidiary unconditionally from all liability whatsoever
(actual or contingent) to the Shareholder and/or to third parties in respect of
the liabilities and obligations of Shareholder, including, without prejudice to
the generality of the foregoing, all guarantees given by KnowledgeWell and/or
the Subsidiary to the bankers of the Shareholder.
3.8 Investment Experience. Shareholder has substantial experience in
evaluating and investing in private placement transactions so that Shareholder
is capable of evaluating the merits and risks of receiving CBT's securities in
the Share Exchange. Shareholder, by reason of his, her or its business or
financial experience or the business or financial experience of its
professional advisors who are unaffiliated with and who are not compensated by
CBT or any affiliate of CBT, directly or indirectly, has the capacity to
protect its own interests in connection with the Share Exchange.
3.9 Investment. Shareholder is acquiring CBT's shares for investment for
Shareholders' own account, not as a nominee or agent, and not with the view to,
or for resale in connection with, any distribution thereof. Shareholder
understands that the CBT shares to be received in the Share Exchange have not
been, and will not be, registered under the United States Securities Act of
1933, as amended (the "Securities Act") by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
Shareholder's representations as expressed herein. If Shareholder is not an
individual, Shareholder has not been formed for the specific purpose of
acquiring CBT's shares in the Share Exchange.
3.10 Rule 144. Shareholder acknowledges that the CBT shares to be received
are characterized as "Restricted Securities" and must be held indefinitely
unless subsequently registered under the Securities Act or an exemption from
such registration is available. Shareholder is aware of the provisions of Rule
144 promulgated under the Securities Act, which permit limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, including (except as limited by Rule 144(k)), among other
things, the existence of a public market for the shares, the availability of
certain current public information about CBT, the resale occurring at least one
year after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in transactions directly
with a "market maker" (as provided by Rule 144(f)) and the number of shares
being sold during any three-month period not exceeding specified limitations.
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3.11 Nature of Solicitation; Access to Data. Shareholder has had the
opportunity to ask questions of and receive answers from CBT or a person acting
on its behalf concerning the terms and conditions of this transaction as well
as to obtain any information requested by Shareholder. Shareholder has asked
such questions and received such answers as were necessary to enable him or it
to make an informed decision as to whether to participate in the Share
Exchange. Shareholders' decision to so participate is based in part on the
answers to such questions as Shareholder and its representatives have raised
concerning the transaction and on his or its own evaluation of the risks and
merits of CBT's business activities. Shareholder confirms that at no time was
Shareholder presented with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any other form of general
advertising in connection and concurrently with such communicated offer.
3.12 Accredited Shareholder. Shareholder is an "Accredited Investor" as that
term is defined in Rule 501 of Regulation D, promulgated by the United States
Securities and Exchange Commission under the Securities Act.
3.13 Shelf Registration Statement Information. The information supplied by
Shareholder for inclusion in the registration statement contemplated by the
Rights Declaration does not contain, and will not contain at the effective date
of such registration statement, any untrue statement of a material fact or
omit, and will not omit at the effective date of such registration statement,
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
3.14 Representations Complete. None of the statements furnished by
Shareholder in or in connection with documents mailed or delivered to the
shareholders of CBT in connection with soliciting their approval of this
Agreement, contains or will contain at the Closing Date, the date of such
mailing or delivery or the date of the CBT vote, any untrue statement of a
material fact, or omits or will omit at the Closing Date, the date of such
mailing or delivery or the date of the CBT vote to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBT
CBT represents and warrants to each Shareholder as of November 30, 1998 as
follows:
4.1 Organization, Standing and Power. CBT is a corporation duly organized,
validly existing and in good standing under the laws of Ireland. CBT has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets, financial condition, or results of
operations of CBT or the ability of CBT to consummate the transactions
contemplated hereby.
4.2 Authority. CBT has all requisite corporate power and authority to enter
into this Agreement and the Related Agreements to which CBT is a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements to which CBT is a party
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of CBT and
no further action is required on the part of CBT to authorize the Share
Exchange, this Agreement, the Related Agreements to which CBT is a party and
the transactions contemplated hereby or thereby, except for approval by the
shareholders of CBT and as expressly set forth elsewhere herein. This Agreement
and each Related Agreement to which CBT is a party has been duly executed and
delivered by CBT and, assuming due authorization, execution and delivery by
other parties hereto, constitute the valid and binding obligations of CBT,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief
or other equitable remedies.
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4.3 No Conflict. The execution and delivery of this Agreement and the
Related Agreements to which CBT is a party do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under (i) any provision of
the Memorandum and the Articles of Association of CBT or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to CBT or its properties or assets,
other than any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have a material adverse effect
on the ability of CBT to consummate the transactions contemplated hereby and
thereby.
4.4 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to CBT in connection with the execution
and delivery of this Agreement and the Related Agreements to which CBT is a
party by CBT or the consummation by CBT of the transactions contemplated hereby
and thereby, except for (i) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state and federal securities laws and the laws of any foreign country, and (ii)
such other consents, authorizations, filings, approvals and registrations which
if not obtained or made would not have a material adverse effect on the ability
of CBT to consummate the transactions contemplated hereby and thereby.
4.5 Capital Structure.
(a) The authorized share capital of CBT is IR(Pounds)11,250,000 divided into
120,000,000 Ordinary Shares, par value IR(Pounds)9.375 pence per share, of
which 44,355,890 shares were issued and outstanding as of October 31, 1998. No
shares of preferred stock are issued or outstanding. All such shares of CBT
have been duly authorized and validly issued, and all such issued and
outstanding shares are fully paid and nonassessable. An aggregate of 4,049,007
Ordinary Shares are subject to outstanding, unexercised options issued to
employees, directors and consultants pursuant to CBT employee benefit plans,
and 3,640,537 shares remain available for future grant. There are no other
options, warrants, calls, rights, commitments or agreements of any character to
which CBT is a party or by which it is bound obligating CBT to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of CBT or obligating CBT to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
(b) The CBT Ordinary Shares to be issued pursuant to the Share Exchange will
be, at the Share Exchange, duly authorized, validly issued, fully paid, not
subject to any call, preemptive or similar rights and nonassessable. Upon
issuance of the Ordinary Shares issued pursuant to Article I, the right, title
and interest to such Ordinary Shares will be transferred to the Shareholders,
free and clear of all liens, charges, encumbrances, security interests and
claims.
(c) CBT meets all requirements for the qualification of the inclusion and
quotation of ADSs on the Nasdaq National Market System ("NMS"). ADSs to be
issued pursuant to the Share Exchange or in connection with the resale of
Ordinary Shares issued in the Share Exchange, as the case may be, will be
included and quoted in the NMS.
4.6 SEC Documents; CBT Financial Statements. CBT has made available to each
Shareholder true and complete copies of CBT's annual report on Form 10-K for
the fiscal year ended December 31, 1997 and quarterly reports on Form 10-Q for
each of the three fiscal quarters in the period ended September 30, 1998, which
CBT filed under the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act"), with the Securities and Exchange Commission (the "SEC")
and of its registration statement on Form S-4 (Registration Statement No. 333-
51159), which CBT filed under the Securities Act with the SEC (collectively,
the "SEC Documents"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the
Securities Act, as applicable, and the SEC Documents did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not
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misleading. The financial statements of CBT, including the notes thereto,
included in the SEC Documents (the "CBT Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles in the
United States consistently applied and fairly present in all material respects
the consolidated financial position of CBT at the dates thereof and of its
operations and cash flows for the periods then ended. Except as set forth in
Schedule 4.6, since September 30, 1998, there have not been any changes in the
assets, liabilities, financial condition, business or operations of CBT from
that reflected in the SEC Documents except changes which have not been, either
individually or in the aggregate, materially adverse to CBT. Except as set
forth in Schedule 4.6, since September 30, 1998, there has not been, occurred
or arisen any event or condition which has had a material adverse effect on the
business, assets (including intangible assets), financial conditions or results
of operations of CBT and subsidiaries, taken as a whole. Since September 30,
1998, CBT has filed all forms, reports and documents with the SEC required to
be filed by it pursuant to the U.S. federal securities laws and the rules and
regulations of the SEC (collectively, "Securities Laws"), each of which
complied as to form, at the time such form, document or report was filed, in
all material respects with the applicable requirements of all Securities Laws,
except for such failures to file or to comply with Securities Laws as are not,
individually or in the aggregate, materially adverse to CBT and its
subsidiaries, taken as a whole. None of the statements made by CBT in or in
connection with documents mailed or delivered to the shareholders of CBT in
connection with soliciting their approval of this Agreement contains or will
contain at the Closing Date or the date of the CBT shareholder vote, any untrue
statement of a material fact, or omits or will omit at the Closing Date or the
date of the CBT shareholder vote to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
4.7 Broker's and Finder's Fees. Except for Lehman Brothers Inc., no broker,
finder or investment banker is entitled to any brokers', finders' or other fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of CBT.
ARTICLE V
CONDUCT PRIOR TO THE CLOSING DATE
5.1 Conduct of Business of KnowledgeWell. During the period from November
30, 1998 and continuing until the earlier of (i) the termination of this
Agreement and (ii) the Closing Date, the Shareholders, as shareholders, and
Martin Scully, as a director, shall procure that KnowledgeWell shall (except to
the extent that CBT shall otherwise consent in writing) carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, pay its debts and Taxes when due, pay or perform other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing business at the Closing Date. KnowledgeWell shall promptly
notify CBT of any event or occurrence or emergency not in the ordinary course
of its business, and any material event involving KnowledgeWell or its
business. Such representatives and advisors as CBT requests may be designated
to work with KnowledgeWell with regard to the management and operations of
KnowledgeWell. Subject to such representatives and advisors being reasonably
available, KnowledgeWell will consult with such representatives and advisors
with respect to any action that may materially affect the business of
KnowledgeWell. KnowledgeWell will furnish to such representatives and advisors
such information as they may reasonably request for this purpose. Except as
expressly contemplated by this Agreement or disclosed in Schedule 5.1, the
Shareholders, as shareholders, and Mr. Scully, as a director, shall procure
that KnowledgeWell shall not (and KW Group shall cause the Subsidiary to not),
without the prior written consent of CBT (which consent shall not be
unreasonably withheld):
(a) Enter into any commitment or transaction not in the ordinary course
of business.
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(b) Transfer to any person or entity any rights to KnowledgeWell
Intellectual Property Rights (other than pursuant to end-user licenses in
the ordinary course of business);
(c) Enter into or amend any material agreements pursuant to which any
other party is granted marketing, distribution or similar rights of any
type or scope with respect to any products of KnowledgeWell;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the KnowledgeWell Disclosure Letter;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
share capital, or split, combine or reclassify any of its share capital or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of share capital of KnowledgeWell, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its share capital (or options, warrants or other rights exercisable
therefor);
(g) Except for the issuance of shares upon exercise or conversion of
presently outstanding KnowledgeWell Options or KW Preferred, create, issue,
grant, deliver or sell or authorize or propose the creation, issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any of
its share capital or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(h) Cause or permit any amendments to its Memorandum or Articles of
Association or Bylaws (as the case may be) or pass any resolution by its
members;
(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any material assets;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, other than in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of KnowledgeWell or
guarantee any debt securities of others, or create, extend, grant or issue
any loan, mortgage, charge, debenture, guarantee, warranty or other form of
security or agree to do so;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee, except payments made pursuant to
standard written agreements outstanding on November 30, 1998;
(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its employees;
(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of US$10,000 (in
any one case) or US$50,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the KnowledgeWell Financial Statements (or the notes thereto) or
liabilities, claims or obligations arising in the ordinary course of
business after October 31, 1998 or expenses consistent with the provisions
of this Agreement incurred in connection with any transaction contemplated
and permitted hereby;
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(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent
to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;
(q) Incur any capital commitment in excess of US$25,000, or acquire any
assets on lease, purchase, credit sale or deferred terms;
(r) Co-opt any person to its board of directors;
(s) Enter into any strategic alliance, development or joint marketing
agreement except in the ordinary course of business; or
(t) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (s) above, or any other action that
would prevent KnowledgeWell from performing or cause KnowledgeWell not to
perform its covenants hereunder.
5.2 No Solicitation. Until the earlier of (i) the Closing Date and (ii) the
date of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, KnowledgeWell will not (nor will KnowledgeWell permit any of
KnowledgeWell's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than CBT and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of
KnowledgeWell or any of its subsidiaries (whether by way of share exchange,
purchase of share capital, purchase of assets or otherwise) or any material
portion of its or their share capital or assets, (b) provide information with
respect to it or any of its subsidiaries to any person, other than CBT,
relating to the possible acquisition of KnowledgeWell (whether by way of share
exchange, purchase of share capital, purchase of assets or otherwise) or any
material portion of its or their share capital or assets, (c) enter into an
agreement with any person, other than CBT, providing for the acquisition of
KnowledgeWell (whether by way of share exchange, purchase of share capital,
purchase of assets or otherwise) or any material portion of its share capital
or assets or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of KnowledgeWell or any of
its subsidiaries (whether by way of share exchange, purchase of share capital,
purchase of assets or otherwise) or any material portion of its or their share
capital or assets by any person, other than by CBT. In addition to the
foregoing, if KnowledgeWell receives prior to the Closing Date or the
termination of this Agreement any offer or proposal relating to any of the
above, KnowledgeWell shall promptly notify CBT thereof, including information
as to the identity of the offeror or the party making any such offer or
proposal and the specific terms of such offer or proposal, as the case may be,
and such other information related thereto as CBT may reasonably request.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Proxy Statement; Shareholder Meetings. As promptly as practicable after
the execution of this Agreement, CBT shall prepare, and KnowledgeWell shall
assist in preparing, a Proxy Statement (the "Proxy Statement") relating to the
solicitation of the approval of the shareholders of CBT of this Agreement. CBT
shall file with the SEC the Proxy Statement as soon as is reasonably
practicable following preparation thereof. KnowledgeWell shall provide to CBT
and its counsel for inclusion in the Proxy Statement, in form and substance
reasonably satisfactory to CBT and its counsel, such information concerning
KnowledgeWell, its operations, capitalization, technology, share ownership and
other material as CBT or its counsel may reasonably request. Each of CBT and
KnowledgeWell shall use its reasonable efforts to respond to any comments of
the SEC, to have the Proxy Statement approved by the SEC as promptly as
practicable after such filing and to cause the Proxy Statement to be mailed to
CBT's shareholders at the earliest practicable time. Each party will notify the
other parties hereto promptly of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for
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additional information and will supply the other party with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff, on the other hand, with respect to the Proxy
Statement. Whenever any event occurs which should be set forth in an amendment
or supplement to the Proxy Statement, CBT or KnowledgeWell, as the case may be,
shall promptly inform the other company of such occurrence and cooperate in
filing with the SEC or its staff.
6.2 Access to Information. Subject to any applicable contractual
confidentiality obligations (which each party shall use its reasonable best
efforts to cause to be waived) each party shall afford the others and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing Date to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request, including without limitation all information required by CBT's
accountants to perform an audit in accordance with United States Generally
Accepted Accounting Principles ("GAAP") of the financial statements of
KnowledgeWell for the year ended October 31, 1997. No information or knowledge
obtained in any investigation pursuant to this Section 6.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Share Exchange.
6.3 Expenses. Whether or not the Share Exchange is consummated, all fees and
expenses incurred in connection with the Share Exchange including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby (i) by CBT and the
Independent Committee of the Board of Directors of CBT shall be the obligation
of CBT and (ii) by KnowledgeWell and the Shareholders shall be the joint and
several obligation of the Shareholders, provided that if the necessary
approvals under Section 60 of the Ireland Companies Act 1963 have been
obtained, such Third Party Expenses shall be the obligation of Knowledge Well.
6.4 Public Disclosure. Upon execution and delivery of this Agreement by the
parties hereto, CBT and KnowledgeWell shall release a jointly prepared
announcement describing the Share Exchange.
6.5 Consents. KnowledgeWell shall use its reasonable efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required
in connection with the Share Exchange (all of such consents, waivers and
approvals are set forth in KnowledgeWell Disclosure Letter) so as to preserve
all rights of, and benefits to KnowledgeWell thereunder.
6.6 FIRPTA Compliance. On the Closing Date, KnowledgeWell shall deliver to
CBT a properly executed statement in a form reasonably acceptable to CBT for
purposes of satisfying CBT's obligations under Treasury Regulation Section
1.1445-2(c)(3).
6.7 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use its reasonable efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that CBT shall not be required to agree to any divestiture by CBT or
KnowledgeWell or any of CBT's subsidiaries or affiliates of share capital or of
any business, assets or property of CBT or its subsidiaries or affiliates or
KnowledgeWell or its affiliates, or the imposition of any material limitation
on the ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and share capital.
6.8 Notification of Certain Matters. The Shareholders shall give prompt
notice to CBT, and CBT shall give prompt notice to the Shareholders, of (i) the
occurrence or non-occurrence of any event, the occurrence or
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non-occurrence of which is likely to cause any representation or warranty of
the Shareholder and CBT, respectively, contained in this Agreement to be untrue
or inaccurate at or prior to the Closing Date except as contemplated by this
Agreement (including KnowledgeWell Disclosure Letter) and (ii) any failure of
the Shareholders, KnowledgeWell or CBT, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.8 shall not limit or
otherwise affect any remedies available to the party receiving such notice.
6.9 Affiliate Agreements.
(a) Prior to the Exchange Date, each Shareholder shall cause to be delivered
to CBT a certificate of an officer of KnowledgeWell on behalf of KnowledgeWell
identifying all persons who are "affiliates" (as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act) of KnowledgeWell
(collectively, the "KnowledgeWell Affiliates").
(b) Prior to the Exchange Date, KnowledgeWell shall cause each KnowledgeWell
Affiliate to execute and deliver a written agreement in the form attached as
Exhibit C (the "Affiliate Agreement"), that he will not sell, offer to sell, or
otherwise dispose of any of the Ordinary Shares or ADSs, as the case may be,
issued to him pursuant to the Share Exchange, except in compliance with Rule
145 or another exemption for the registration requirements of the Securities
Act. CBT shall be entitled to place appropriate legends on the certificates
evidencing any Ordinary Shares or ADSs, as the case may be, or other CBT
securities to be received by KnowledgeWell Affiliates, and to issue appropriate
stop transfer instructions to the transfer agent for CBT Ordinary Shares and,
if applicable, the Depositary consistent with the terms of such Affiliate
Agreement.
6.10 Additional Documents and Further Assurances. Each party hereto, at the
request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
6.11 NMS Listing. CBT shall authorize for listing on the NMS the ADRs with
respect to the securities issued in connection with the Share Exchange, upon
official notice of issuance.
6.12 Form S-8. CBT shall file a registration statement on Form S-8 for the
CBT Ordinary Shares issuable with respect to assumed KnowledgeWell Options no
later than fifteen business days after the Closing Date.
6.13 Repurchase of "C" Ordinary Shares. William G. McCabe hereby covenants
and agrees that on or prior to the Closing Date he will acquire all of the "C"
Ordinary Shares of IR25p each in the capital of KW Limited in issue from the
holder thereof. Mr. McCabe hereby further covenants and agrees that following
such acquisition, and in any event not later than the Closing Date, he will
exercise the options held by him pursuant to the Option Agreements dated August
31, 1998 in respect of shares in each of KW Limited and KW Group and that in
the event of his failing to exercise such options as aforesaid, such options
shall forthwith lapse and shall be of no further force and effect. Any shares
issued to Mr. McCabe pursuant to the exercise of the foregoing options shall be
deemed to be "KnowledgeWell Shares" for purposes of this Agreement.
6.14 Tax-Free Reorganization. The parties hereto shall not take any action
either prior to or after the Closing that could reasonably be expected to cause
the Share Exchange to fail to qualify as a "reorganization" under Section
368(a) of the Code.
6.15 Resale Registration Statement. CBT shall file, within thirty (30) days
following the Closing Date, a registration statement on Form S-3 with the SEC
covering the resale of the Ordinary Shares and the ADSs representing such
Ordinary Shares received by the Shareholders hereunder. CBT shall use its
reasonable best efforts to cause such registration statement to be declared
effective under the Securities Act as promptly as
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reasonably practicable. Any such registration shall be subject to the terms and
conditions set forth in the Rights Declaration. CBT covenants that with respect
to information contained in the registration statement and supplied by CBT in
connection therewith, such information will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each
Shareholder covenants that with respect to information contained in the
registration statement and supplied in writing by such Shareholder in
connection therewith, such information will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
6.16 Restricted ADR Facility. CBT shall use its reasonable best efforts to
arrange a Restricted ADR Facility at the Bank of New York with respect to the
Ordinary Shares to be issued to the Shareholders hereunder, such that at the
Closing the Shareholders will receive Restricted ADSs (each representing one
restricted Ordinary Share) in lieu of restricted Ordinary Shares.
ARTICLE VII
CONDITIONS TO THE SHARE EXCHANGE
7.1 Conditions to Obligations of Each Party to Effect the Share
Exchange. The respective obligations of each party to this Agreement to effect
the Share Exchange shall be subject to the satisfaction at or prior to the
Closing of the following conditions:
(a) Shareholder Approval. The Share Purchase Agreement, the Share Exchange
and the issuance of CBT Ordinary Shares (or ADSs representing such Ordinary
Shares) pursuant to the Share Exchange shall have been approved by the
shareholders of CBT (who are not also Shareholders) by the requisite vote under
applicable law and CBT's Articles of Association.
(b) No Injunctions or Restraints; Illegality; HSR Act. (i) No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Share Exchange shall be in
effect; (ii) all waiting periods under the HSR Act shall have expired or
terminated early; and (iii) either (A) the Irish Minister for Enterprise and
Employment (the "Minister") shall have informed CBT in writing that he has
decided not to make an order under Section 9 of the Mergers, Take-Overs and
Monopolies (Control) Act, 1978, as amended (the "Mergers Act"), in relation to
the sale and purchase of the Knowledge Well Shares hereunder, (B) the Minister
shall have made a conditional order in relation to such sale and purchase on
terms acceptable to CBT and the Shareholders, (C) the relevant period under
Section 6 of the Mergers Act shall have expired without the Minister having so
informed CBT or having made any order, or (D) the Minister shall have confirmed
that the Mergers Act does not apply.
7.2 Additional Conditions to Obligations of Shareholders. The obligations of
Shareholders to consummate the Share Exchange and the transactions contemplated
by this Agreement shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, exclusively by William G. McCabe and/or Gregory M. Priest, as the
representatives on behalf of the Shareholders:
(a) Representations and Warranties. The representations and warranties of
CBT contained in this Agreement shall have been true and correct in all
material respects as of November 30, 1998. In addition, the representations and
warranties of CBT contained in Section 4.5(a) of this Agreement shall be true
and correct in all material respects on and as of the Closing Date, and the
Shareholders shall have received a certificate to such effect signed by a vice
president of CBT.
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(b) Agreements and Covenants. CBT shall have performed or complied (which
performance or compliance shall be subject to CBT's ability to cure as provided
in Section 9.1(e) below) in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Closing Date, and the Shareholders shall have received a
certificate to such effect signed by a vice president of CBT.
(c) Nasdaq Listing. The CBT ADSs issuable to the Shareholders pursuant to
this Agreement or upon resale of Ordinary Shares issuable to the Shareholders
shall have been authorized for listing on the NMS upon official notice of
issuance.
(d) Restricted ADR Facility. The Restricted ADR Facility shall have been
arranged such that the Shareholders are able to receive Restricted ADRs in lieu
of restricted Ordinary Shares.
7.3 Additional Conditions to the Obligations of CBT. The obligations of CBT
to consummate the Share Exchange and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by CBT:
(a) Representations and Warranties. The representations and warranties of
the Shareholders contained in this Agreement shall have been true and correct
in all material respects as of November 30, 1998. In addition, the
representations and warranties of the Shareholders contained in Sections 2.2
and 3.4 of this Agreement shall be true and correct in all material respects on
and as of the Closing Date. CBT shall have received a certificate with respect
to the foregoing signed by William G. McCabe and/or Gregory M. Priest, as the
representatives on behalf of the Shareholders.
(b) Agreements and Covenants. KnowledgeWell and the Shareholders shall have
performed or complied (which performance or compliance shall be subject to
KnowledgeWell's or the Shareholders' ability to cure as provided in Section
9.1(d) below) in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it or them, as
the case may be, on or prior to the Closing Date, and CBT shall have received a
certificate to such effect signed by the Chief Executive Officer of
KnowledgeWell (to the extent applicable to KnowledgeWell) and by William G.
McCabe and/or Gregory M. Priest, as the representatives on behalf of the
Shareholders (to the extent applicable to the Shareholders).
(c) Legal Opinion. CBT shall have received a legal opinion on Irish law
matters from Mason, Hayes & Curran, Irish legal counsel to KnowledgeWell, in
form and substance reasonably satisfactory to CBT.
(d) Affiliate Agreements. Each of the KnowledgeWell Affiliates shall have
delivered an executed Affiliate Agreement which shall be in full force and
effect.
(e) Employment and Noncompetition Agreements. Each of William G. McCabe,
Gregory M. Priest, Jeffrey Newton, William Beamish, William Lewis and John M.
Grillos shall have executed and delivered to CBT an Employment and
Noncompetition Agreement in form and substance reasonably satisfactory to CBT
and consistent with all applicable laws, and all such Employment and
Noncompetition Agreements shall be in full force and effect.
(f) Audited Financial Statements. If requested by CBT, CBT's independent
accountants shall have completed an audit of the financial statements of
KnowledgeWell. Such audited financial statements shall have been prepared in
accordance with GAAP and shall confirm that the KnowledgeWell Financial
Statements present fairly, in all material respects, the financial position of
KnowledgeWell as of the dates and during the periods indicated therein. Such
audited financial statements shall, in the view of CBT's independent
accountants, satisfy the requirements of Regulation S-X and shall be sufficient
for the requirements of the SEC with respect to CBT's reporting obligations
under the U.S. federal securities laws.
(g) Preference Shares; "C" Ordinary Shares. Immediately prior to the
Closing, each Shareholder shall have voluntarily converted all of his, her or
its shares of KW Preferred into Ordinary Shares of US$0.01 each
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of KW Group on a one-for-one basis, no KW Preferred shall be in issue or
outstanding, and no "C" Ordinary Shares of KW Limited shall be in issue or
outstanding. Any Ordinary Shares issued pursuant to the conversion of the KW
Preferred shall be deemed to be "KnowledgeWell Shares" for purposes of this
Agreement.
(h) William G. McCabe, Gregory M. Priest, Peregrine Company Managers
Limited, William Beamish, John Grillos and Patricia Grillos, ITech Partners
L.P., Finite Properties Limited and Molyneux Secretarial Services Limited shall
have executed a Lock-Up Agreement in the form attached hereto as Exhibit D.
7.4 No Additional Conditions. Except for the conditions set forth in
Sections 7.1, 7.2 and 7.3 of this Agreement, no other statement, term or
provision of this Agreement shall constitute a condition to the obligations of
the parties to consummate the Share Exchange.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW; INDEMNITY
8.1 Survival of Representations, Warranties and Covenants. All
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement and all covenants to be performed prior to the
Closing Date shall not in any respect be extinguished or affected by the
Closing shall survive the Share Exchange for a period ending at 5:00 p.m.,
California time, on the date two (2) years from the Closing Date, provided that
representations and warranties related to Tax shall survive the Share Exchange
for a period ending at 5:00 p.m., California time, on the date six (6) years
from the Closing Date.
8.2 Agreement to Indemnify.
(a) Each Shareholder agrees, jointly and severally, to indemnify and hold
CBT and its affiliates, officers, directors, employees and shareholders
(collectively, the "CBT Indemnitees") harmless against any losses, claims,
damages, costs, expenses or other liabilities (including reasonable attorneys'
fees and expenses) (collectively, "Damages") resulting from (i) any breach of
or inaccuracy in any representations and warranties of the Shareholders set
forth in Article II of this Agreement or in any certificate delivered by the
Shareholders or KnowledgeWell pursuant to this Agreement, or (ii) any breach or
default by KnowledgeWell or the Shareholders of any covenant, obligation or
other agreement of KnowledgeWell or the Shareholders set forth in this
Agreement (each, a "CBT Indemnifiable Claim," which term shall include a claim
made pursuant to the following sentence). In addition, each Shareholder agrees,
severally and not jointly, to indemnify and hold the CBT Indemnitees harmless
against any Damages resulting from any breach of or inaccuracy in any
representations and warranties of such Shareholder set forth in Article III of
this Agreement.
(b) Subject to Section 8.4, the liability of the Shareholders under this
indemnity (other than in respect of Damages resulting from any breach of or
inaccuracy in any representations or warranties of the Shareholders relating to
Tax) shall expire at 5:00 p.m., California time, on the second anniversary of
the Closing Date (the "Two-Year Indemnity Termination Date"), and the liability
of the Shareholders under this indemnity in respect of Damages resulting from
any breach of or inaccuracy in any representations or warranties of the
Shareholders relating to Tax shall expire at 5:00 p.m., California time, on the
sixth anniversary of the Closing Date (the "Six-Year Indemnity Termination
Date" and, collectively with the Two-Year Indemnity Termination Date, the
"Indemnity Termination Dates").
8.3 Escrow Arrangements; Limits of Liability.
(a) In no event shall (i) any Shareholder be liable to CBT, any other CBT
Indemnitees or anyone claiming through either of them under this Article VIII
or any other theory of liability for Damages or other amounts in connection
with the transactions contemplated by this Agreement or any of the Related
Agreements in excess of the lesser of (A) such Shareholder's pro rata share
(assuming exercise of all of such Shareholder's Knowledge Well Options assumed
by CBT regardless of whether such options are vested or unvested) of the
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Acquisition Price and (B) such Shareholder's pro rata share (assuming exercise
of all of such Shareholder's Knowledge Well Options assumed by CBT regardless
of whether such options are vested or unvested) of the aggregate amount of such
Damages or other amounts or (ii) any CBT Indemnitee be reimbursed for any
Damages under this Article VIII or any other theory of liability in connection
with the transactions contemplated by this Agreement or any of the Related
Agreements until the aggregate of all Damages exceeds US$500,000 (after which
the all Damages, including such US$500,000, shall become payable in accordance
with the provisions of this Article VIII). As partial security for the
obligations of each Shareholder pursuant to this Article VIII, the Escrow
Amount shall be deposited with an escrow agent and shall be controlled pursuant
to the terms of the escrow agreement (the "Escrow Agreement") in substantially
the form attached hereto as Exhibit E.
(b) For purposes of determining the amount of any Damages incurred by the
CBT Indemnitees, the amount of any Damages shall be reduced to the extent of
(i) any net tax benefit actually realized by the CBT Indemnitees arising from
the incurrence or payment by the CBT Indemnitees of the indemnifiable loss to
which such Damages relate and after giving full effect to the actual tax effect
of receipt of the indemnification payments to the CBT Indemnitees, if any, and
(ii) any amounts previously received by the CBT Indemnitees pursuant to this
Article VIII for losses resulting from the same facts or events.
(c) Nothing in this Agreement shall in any way diminish any obligation on
the part of CBT under applicable law to attempt to mitigate its loss. If the
amount of any Damages, at any time subsequent to the making of a payment
hereunder in respect thereof, is reduced (i) by recovery, settlement or
otherwise under or pursuant to any insurance coverage or (ii) pursuant to any
claim, recovery, settlement or otherwise against or with any person or entity
that is not an affiliate of a CBT Indemnitee, the amount of such reduction, in
each case less any costs or expenses of recovery (including attorney's fees and
expenses), will be repaid by the CBT Indemnitees to (A) the Escrow Agent to be
controlled pursuant to the terms of the Escrow Agreement if such repayment is
made prior to the Two-Year Indemnity Termination Date or (B) the Shareholders
if such repayment is made after the Two-Year Indemnity Termination Date.
(d) CBT confirms to the Shareholders that, as of November 30, 1998, it had
not formulated nor is it in the process of formulating any claim under this
Agreement. The information supplied by Knowledge Well or its professional
advisers to the Shareholders or their agents, representatives or advisors in
connection with the representations and warranties and indemnities in this
Agreement and the contents of the Knowledge Well Disclosure Letter or otherwise
in relation to the business or affairs of Knowledge Well shall not be deemed a
representation, warranty or guarantee of its accuracy by Knowledge Well to the
Shareholders, and the Shareholders hereby irrevocably waive any claim against
Knowledge Well (and its employees and agents) which any of them might otherwise
have in respect of it.
8.4 Survival of Indemnity; Indemnification Procedures; Time Limits.
(a) The indemnification obligations of each Shareholder pursuant to Section
8.2 for amounts up to the Escrow Amount shall apply only to those claims for
indemnification as to which CBT has given written notice thereof pursuant to
the terms of the Escrow Agreement on or prior to the relevant Indemnity
Termination Date; provided that the foregoing shall not limit the liability of
such Shareholder for Damages incurred by CBT Indemnitees after the relevant
Indemnity Termination Date that result from a CBT Indemnifiable Claim if CBT
Indemnitees have given written notice of such CBT Indemnifiable Claim prior to
the relevant Indemnity Termination Date. CBT and each Shareholder agree that
the indemnification procedures set forth in the Escrow Agreement shall apply to
all claims for Damages up to the Escrow Amount resulting from a CBT
Indemnifiable Claim. Notwithstanding the foregoing, any claim for Damages in
respect of any breach of or inaccuracy in any representation or warranties of
the Shareholders relating to Tax made after the Two-Year Indemnity Termination
Date shall be administered in accordance with paragraph (c) of this Section 8.4
regardless of whether the amount is less than or exceeds the Escrow Amount.
(b) The indemnification obligations of each Shareholder pursuant to Section
8.2 for amounts in excess of the Escrow Amount shall apply only to those claims
for indemnification as to which CBT has given written
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notice thereof pursuant to the terms of paragraph (c) of this Section 8.4 on or
prior to the relevant Indemnity Termination Date; provided that the foregoing
shall not limit the liability of such Shareholder for Damages incurred by CBT
Indemnitees after the relevant Indemnity Termination Date that result from a
CBT Indemnifiable Claim if CBT Indemnitees have given written notice of such
CBT Indemnifiable Claim prior to the relevant Indemnity Termination Date. CBT
and each Shareholder agree that the indemnification procedures set forth in
paragraph (c) of this Section 8.4 shall apply to all claims for Damages in
excess of the Escrow Amount resulting from a CBT Indemnifiable Claim.
(c) If any CBT Indemnitee shall incur Damages that exceed the Escrow Amount,
there shall be delivered to each Shareholder a certificate signed in good faith
on behalf of CBT by an officer of CBT or by a member of the Special Committee
(an "Officer's Certificate") stating that a CBT Indemnitee has paid, properly
accrued, or reasonably anticipates that it will have to pay or accrue Damages
in an amount specified in such Officer's Certificate, with the basis for such
claim set forth in reasonable detail. Each Officer's Certificate shall be
delivered to each Shareholder in the manner specified in Section 10.1 hereof.
In the event CBT becomes aware of a third-party claim which CBT believes may
result in a demand which exceeds the Escrow Amount, CBT shall, as soon as
reasonably practicable, notify each Shareholder of such claim, and each
Shareholder shall be entitled, at their individual expense, to participate in
any defense of such claim. Delay in providing such notice shall not eliminate
such claim except to the extent that the Shareholders are prejudiced thereby.
CBT shall have the right in its sole discretion to settle any such claim;
provided, however, that except with the consent of a given Shareholder, no
settlement of any such claim with third-party claimants shall be determinative
of the validity and quantum of any claim against such Shareholder. In the event
that a given Shareholder has consented to any such settlement, such Shareholder
shall have no power or authority to object to the amount of any claim by CBT
against such Shareholder with respect to such settlement.
8.5 Representative; Power of Attorney.
(a) Each Shareholder hereby appoints Gethin Taylor of Peregrine Company
Managers Limited as agent and attorney-in-fact (the "Representative") for such
Shareholder to give and receive notices and communications, to authorize
delivery to CBT of ADSs or Ordinary Shares, as the case may be, from the Escrow
Amount in satisfaction of claims by CBT, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, such claims, to
perform such other obligations and make such other decisions as are set forth
in the Escrow Agreement, and to take all actions necessary or appropriate in
the judgment of the Representative for the accomplishment of the foregoing.
Such agency may be changed by the Shareholders from time to time upon not less
than thirty (30) days prior written notice to CBT; provided that the
Representative may not be removed unless holders of a two-thirds interest of
the Escrow Amount agree to such removal and to the identity of the substituted
agent. The Representative may resign upon not less than thirty (30) days prior
written notice to CBT and to all holders of an interest in the Escrow Amount.
Any vacancy in the position of the Representative may be filled by approval of
the holders of a majority in interest of the Escrow Amount. No bond shall be
required of the Representative, and the Representative shall not receive
compensation for his or her services. Notices or communications to or from the
Representative shall constitute notice to or from each of the Shareholders.
(b) The Representative shall not be liable for any act done or omitted
hereunder as Representative while acting in good faith and without
recklessness. The Shareholders shall severally indemnify the Representative and
hold the Representative harmless against any loss, liability or expense
incurred without recklessness or bad faith on the part of the Representative
and arising out of or in connection with the acceptance or administration of
the Representative's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Representative.
(c) A decision, act, consent or instruction of the Representative shall be
final, binding and conclusive upon each of such Shareholders, and the Escrow
Agent and CBT may rely upon any such decision, act, consent or instruction of
the Representative as being the decision, act, consent or instruction of each
Shareholder. The Escrow Agent and CBT are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Representative.
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<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement may
be terminated and the Share Exchange abandoned at any time prior to the Closing
Date:
(a) by mutual consent of the Shareholders or their attorneys and CBT;
(b) by CBT or by William G. McCabe and/or Gregory M. Priest, as the
representatives on behalf of the Shareholders, if: (i) the Closing Date has
not occurred by June 30, 1999 (provided that the right to terminate this
Agreement under this clause 9.1(b)(i) shall not be available to any party
whose willful failure to fulfill any obligation hereunder has been the
cause of, or resulted in, the failure of the Closing Date to occur on or
before such date); (ii) there shall be a final nonappealable order of a
federal or state court in the United States or a court in Ireland in effect
preventing consummation of the Share Exchange; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Share Exchange by any Governmental Entity that would make
consummation of the Share Exchange illegal;
(c) by CBT if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Share Exchange, by any Governmental Entity, which would: (i) prohibit
CBT's or KnowledgeWell's ownership or operation of any material portion of
the business of KnowledgeWell or (ii) compel CBT or KnowledgeWell to
dispose of or hold separate, as a result of the Share Exchange, any
material portion of the business or assets of KnowledgeWell or CBT;
(d) by CBT if it is not in material breach of its obligations under this
Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of
KnowledgeWell or any Shareholder and as a result of such breach the
conditions set forth in Section 7.3(a) or 7.3(b), as the case may be, would
not then be satisfied; provided, however, that if such breach is curable by
KnowledgeWell or such Shareholder within thirty (30) days through the
exercise of its reasonable best efforts, then for so long as KnowledgeWell
or such Shareholder continues to exercise such reasonable best efforts CBT
may not terminate this Agreement under this Section 9.1(d) unless such
breach is not cured within thirty (30) days (but no cure period shall be
required for a breach which by its nature cannot be cured);
(e) by William G. McCabe and/or Gregory M. Priest, as the
representatives on behalf of the Shareholders, if KnowledgeWell and the
Shareholders are not in material breach of their respective obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
CBT and as a result of such breach the conditions set forth in Section
7.2(a) or 7.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by CBT within thirty (30)
days through the exercise of its reasonable best efforts, then for so long
as CBT continues to exercise such reasonable best efforts Messrs. McCabe
and/or Priest, as the representatives on behalf of the Shareholders, may
not terminate this Agreement under this Section 9.1(e) unless such breach
is not cured within thirty (30) days (but no cure period shall be required
for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this Section
9.1, it shall be sufficient for such action to be authorized by the Independent
Committee of the Board of Directors of CBT on behalf of CBT or by William G.
McCabe and/or Gregory M. Priest, as the representatives on behalf of the
Shareholders, as the case may be.
9.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of CBT, KnowledgeWell or the
Shareholders, or their respective officers, directors or shareholders, provided
that each party shall remain liable for any breaches of this Agreement prior to
its termination; and provided further that the provisions of Sections 6.3 and
Article X of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
A-43
<PAGE>
9.3 Amendment. Except as is otherwise required by applicable law after the
shareholders of CBT approve this Agreement, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Closing Date, CBT, on the
one hand, and KnowledgeWell and William G. McCabe and/or Gregory M. Priest, as
the representatives on behalf of the Shareholders, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of CBT
by a member of the Independent Committee of the Board of Directors, on behalf
of KnowledgeWell by an officer or director of KW Limited or KW Group, and on
behalf of the Shareholders by William G. McCabe and/or Gregory M. Priest, as
the representatives on behalf of the Shareholders.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to CBT, to:
CBT Group PLC
Belfield Office Park, Clonskeagh
Dublin 4
Ireland
Attention: Jack Hayes / Company Secretary
Telephone No.: 011-353-1-283-0077
Facsimile No.: 011-353-1-208-1296
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven V. Bernard
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to KnowledgeWell, to:
KnowledgeWell, Inc.
1701 Directors Blvd., Suite 920
Austin, Texas 78735
Attention: Chief Executive Officer
Telephone No.: (512) 462-9223
Facsimile No.: (512) 373-7557
A-44
<PAGE>
(c) if to the Representative:
Peregrine Corporate Services Limited
Burleigh Manor
Peel Road
Douglas Isle of Man
Attention: Gethin Taylor
Telephone No.: (441-624) 626-586
Facsimile No.: (441-624) 673-827
(d) if to a Shareholder, at such Shareholder's address as is specified on
Exhibit A to this Agreement.
10.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. As used in this Agreement, the phrase "to the best of
[a party's] knowledge," "to [a party's] knowledge," "[a party] is not aware,"
and similar phrases shall mean the actual knowledge of such party, or of the
officers and directors of such party, after careful consideration of the
matters set forth in the representation that is so qualified and after
performing or causing to be performed a reasonably diligent review of all
files, documents, agreements and other materials in such person's possession or
subject to his or her control. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Successors; Assignment. This Agreement, the schedules
and Exhibits hereto, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer upon
any other person any rights or remedies hereunder; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided. Notwithstanding the foregoing, this Agreement shall be binding upon
and enforceable against administrators, executors, representatives, heirs,
legatees and devisees of the Shareholders.
10.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
10.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. Notwithstanding any provision of
this Agreement to the contrary, the parties expressly agree that reasonable
attorney's fees may be recoverable in connection with any action to enforce
contractual rights under Section 6.15 of this Agreement.
10.7 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable
A-45
<PAGE>
principles of conflicts of laws thereof. Each of the parties hereto hereby
consents to the jurisdiction and venue of any state or U.S. federal court in
California with respect to matters arising out of or related to this Agreement,
agrees that process may be served upon them in any manner authorized by the
laws of the State of California for such persons and waives and covenants not
to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
10.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.10 Share Legends. All certificates representing any of the CBT Ordinary
Shares or ADRs to be issued pursuant to this Agreement shall have endorsed
thereon a restrictive legend substantially as follows:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) Any legend required to be placed thereon by applicable blue sky laws
of any state or under the laws of Ireland.
10.11 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(Remainder of page intentionally left blank)
A-46
<PAGE>
IN WITNESS WHEREOF, CBT, KW Limited, KW Group, the Representative (as to
matters set forth in Section 8.5 only), the Shareholders, the Escrow Agent and
Martin Scully (as to matters set forth in Section 5.1 only) have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
CBT GROUP PLC KNOWLEDGE WELL LIMITED
/s/ Jack Hayes /s/ Martin Scully
By __________________________________ By __________________________________
Name:Jack Hayes Name:Martin Scully
Title:Director Title:Director
KNOWLEDGE WELL GROUP LIMITED ESCROW AGENT
/s/ Martin Scully /s/ Carol Andreacchi
By __________________________________ By __________________________________
Name:Martin Scully Name:Carol Andreacchi
Title:Director Title:Trust Officer
SHAREHOLDER REPRESENTATIVE
/s/ Martin Scully /s/ Gethin Taylor
By __________________________________ By __________________________________
Name:Martin Scully Name:Gethin Taylor
Title:
MARTIN SCULLY
/s/ Martin Scully
_____________________________________
Martin Scully
***SHARE PURCHASE AGREEMENT***
A-47
<PAGE>
EXHIBIT A TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
LIST OF SHAREHOLDERS
Knowledge Well Group Limited
Ronald Conway and Gayle Conway (as trustees of the Conway Family Trust)
Peregrine Company Managers Limited
John Grillos and Patricia Grillos
Card Clear Plc (Directors Pension Scheme)
Itech Partners L.P.
John Todd
The Monument Trust Company Limited (as trustee of the Venture Trust)
Molyneux Secretarial Services Limited
Finite Properties Limited
Gary Glatz
Glatz Charitable Trust
Gregory Priest
Knowledge Well Limited
Ronald Conway and Gayle Conway (as trustees of the Conway Family Trust)
Peregrine Company Managers Limited
John Grillos and Patricia Grillos
Card Clear Plc (Directors Pension Scheme)
Itech Partners L.P.
John Todd
The Monument Trust Company Limited (as trustee of the Venture Trust)
Molyneux Secretarial Services Limited
Finite Properties Limited
Gary Glatz
Glatz Family Partnership
Gregory Priest
The Governor and Company of the Bank of Ireland (as trustee of the MMI
Stockbrokers Business Expansion Fund)
A-48
<PAGE>
EXHIBIT B TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
(See Annex B to Proxy Statement)
A-49
<PAGE>
EXHIBIT C TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
CBT GROUP PLC
AMENDED AND RESTATED AFFILIATE'S AGREEMENT
March 30, 1999
CBT Group PLC
Beech Hill, Clonskeagh
Dublin 4
Ireland
Ladies and Gentlemen:
Reference is made to that certain Affiliate's Agreement (the "Prior
Affiliate's Agreement") dated as of November 30, 1998 made and entered into by
and between the undersigned and CBT Group PLC, a public limited company
organized under the laws of Ireland ("CBT"). This agreement (this "Amended and
Restated Affiliate's Agreement") amends and restates the Prior Affiliate's
Agreement. All rights and obligations under the Prior Affiliate's Agreement are
terminated in their entirety and superseded and governed by this Amended and
Restated Affiliate's Agreement.
Reference is also made to the Amended and Restated Share Purchase Agreement
dated as of March 30, 1999 (the "Purchase Agreement"), made and entered into by
and among CBT, Knowledge Well Limited, a private company formed under the laws
of Ireland ("KW Limited"), Knowledge Well Group Limited, a private company
formed under the laws of Ireland ("KW Group" and, collectively with KW Limited,
"KnowledgeWell"), and the shareholders of KW Limited and KW Group listed on
Exhibit A to the Purchase Agreement (collectively, "Shareholders," and
individually, a "Shareholder"). The Purchase Agreement provides for the
acquisition by CBT of ordinary shares in the capital of each of KW Limited and
KW Group in exchange (the "Share Exchange") for Ordinary Shares or American
Depositary Shares of CBT ("CBT Shares").
The undersigned has been informed that the CBT Shares that the undersigned
will acquire as a result of the Share Exchange will not be registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), but will be
issued in a transaction exempt from the registration requirements of the
Securities Act under Regulation D of the Securities Act; that the Share
Exchange constitutes a transaction covered by Rule 145 ("Rule 145") of the
Rules and Regulations of the U.S. Securities and Exchange Commission (the
"Commission") under the Securities Act; that the undersigned may be deemed to
be an "affiliate" of KnowledgeWell within the meaning of Rule 145; and that,
accordingly, the CBT Shares that the undersigned will acquire in connection
with the Share Exchange may be disposed of only in conformity with the
provisions of Rule 145 and Rule 144 of the Rules and Regulations of the
Commission or pursuant to a registration statement declared effective under the
Securities Act and the other limitations described herein.
The undersigned understands that the representations, warranties and
agreements set forth herein will be relied upon by counsel for CBT in rendering
opinions regarding legal consequences of the Share Exchange.
The capitalized terms used and not defined herein shall have the meanings
set forth in the Purchase Agreement.
1. In consideration of the benefits accruing to the undersigned as a result
of the Share Exchange, the undersigned represents, warrants and agrees as
follows:
(a) The undersigned has full power to execute this Amended and Restated
Affiliate's Agreement and to make the representations, warranties and
agreements herein and to perform the undersigned's obligations hereunder.
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<PAGE>
(b) Appendix A attached hereto sets forth all of the CBT Shares owned or
to be received by the undersigned in connection with the transactions
contemplated by the Purchase Agreement, if any, including all other equity
securities of CBT, or rights to acquire any of the foregoing, as to which
the undersigned has sole or shared voting or investment power.
(c) The undersigned will not sell, transfer or dispose of any CBT Shares
or other equity securities of CBT that the undersigned may acquire in
connection with the Share Exchange, or any securities that may be paid as a
dividend or otherwise distributed thereon or with respect thereto or issued
or delivered in exchange or substitution therefor (all such shares and
other securities being herein sometimes collectively referred to as
"Restricted Securities"), or any option, right or other interest with
respect to any Restricted Securities, unless such sale, transfer or
disposition is effected as provided in Section 3 hereof.
2. CBT agrees to use its reasonable best efforts to file all reports and
data with the Commission necessary to permit the undersigned to sell Restricted
Securities pursuant to and otherwise in conformity with Rule 145(d) under the
Securities Act. The undersigned understands that CBT is under no obligation to
register the sale, transfer, or other disposition of any Restricted Securities
by or on behalf of the undersigned or to take any other action necessary in
order to make compliance with an exception from registration available, other
than as set forth herein and in the Purchase Agreement.
3. The undersigned understands that the provisions of Rule 145 restrict the
undersigned's public resales of Restricted Securities until such time as the
undersigned has "beneficially owned" (within the meaning of Rule 144(d) of the
Securities Act) the Restricted Securities for a period of at least one year (or
in some cases two years) and thereafter if and for so long as the undersigned
is an affiliate of CBT. The undersigned may make unrestricted resales of
Restricted Securities pursuant to Rule 145(d)(2) if the undersigned has
beneficially owned the Restricted Securities for at least one year and is not
an affiliate of CBT and CBT meets the public information requirements of Rule
144(c). The undersigned may make unrestricted resales of Restricted Securities
pursuant to Rule 145(d)(3) if the undersigned has beneficially owned the
Restricted Securities for at least two years and is not, and has not been for
at least three months, an affiliate of CBT. Unless and until the restriction
"cut-off" provisions of Rule 145(d)(2) or Rule 145(d)(3) become available,
public resales of Restricted Securities may only be made by the undersigned in
compliance with the requirements of Rule 145(d)(1).
Rule 145(d)(1) permits public resales of Restricted Securities only (a)
while CBT meets the public information requirements of Rule 144(c), (b) in
"broker's transactions" in accordance with Rule 144(f) and Rule 144(g), and (c)
where the aggregate number of Restricted Securities sold at any time together
with all sales of CBT American Depositary Shares ("ADSs") sold for the
undersigned's account during the preceding three-month period does not exceed
the greater of (i) one percent of the CBT ADSs outstanding or (ii) the average
weekly volume of trading in CBT ADSs on all national securities exchanges
and/or reported through the automated quotation system of a registered
securities association, during the four calendar week period preceding any such
sale (the "Volume Limitations").
4. The undersigned also understands restrictive legends referencing the
restrictions described in Section 3 hereof shall be printed on the American
Depositary Receipts with respect to the CBT ADSs or certificates representing
the CBT Ordinary Shares, as the case may be.
5. This Amended and Restated Affiliate's Agreement and all action taken
hereunder in accordance with its terms shall be binding upon and inure to the
benefit of CBT, its subsidiaries and their respective successors and assigns
and the undersigned and his or her respective successors, assigns, heirs,
legatees, devisees, executors, administrators and legal representatives and any
pledgee holding Restricted Securities as collateral.
6. All notices and other communications required or permitted hereunder
shall be in writing and shall be delivered by hand or delivered by overnight
courier, freight prepaid, or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
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<PAGE>
(a) if to CBT to:
CBT Group PLC
Beech Hill, Clonskeagh
Dublin 4
Ireland
Attention: Jack Hayes / Company Secretary
Fax: 011-353-1-208-1296
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Steven V. Bernard
Fax: (650) 493-6811
(b) if to the undersigned, to:
-------------------------------
-------------------------------
-------------------------------
Attention: _____________________
Fax: ___________________________
Each such notice or other communication shall for all purposes of this
Amended and Restated Affiliate's Agreement be treated as effective when
received, and shall in any event be deemed to have been received (i) when
delivered, if delivered personally or sent by telecopy and confirmed in writing
or (ii) four (4) business days after the business day of deposit with overnight
courier, addressed and shipped as aforesaid.
7. The undersigned has carefully read this Amended and Restated Affiliate's
Agreement and discussed its requirements and other applicable limitations upon
the sale, transfer or other disposition of the Restricted Securities and other
CBT securities owned by the undersigned, to the extent the undersigned felt
necessary, with the undersigned's counsel or with counsel for KnowledgeWell or
CBT.
Very truly yours,
_____________________________________
By: _________________________________
Name:
Title:
Agreed to and accepted:
CBT GROUP PLC
By: ___________________________
Name:
Title:
A-52
<PAGE>
APPENDIX A
RESTRICTED SECURITIES
<TABLE>
<CAPTION>
Type of
Securities Number of Shares
---------- ----------------
<S> <C>
</TABLE>
A-53
<PAGE>
EXHIBIT D TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
(See Annex D to Proxy Statement)
A-54
<PAGE>
EXHIBIT E TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
(See Annex C to Proxy Statement)
A-55
<PAGE>
ANNEX B
AMENDED AND RESTATED DECLARATION OF REGISTRATION RIGHTS
<PAGE>
EXHIBIT B TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
AMENDED AND RESTATED DECLARATION OF REGISTRATION RIGHTS
This Amended and Restated Declaration of Registration Rights ("Declaration")
is made as of March 30, 1999 by CBT Group PLC, a public limited company
organized under the laws of Ireland ("CBT" or the "Company") in connection with
an Amended and Restated Share Purchase Agreement (the "Share Purchase
Agreement") of even date herewith among the Company, Knowledge Well Group
Limited and Knowledge Well Limited, two private companies formed under the laws
of Ireland (collectively "KnowledgeWell"), and the shareholders of
KnowledgeWell ("Shareholders"). The Share Purchase Agreement provides for the
acquisition of all of the ordinary shares in the capital of KnowledgeWell by
the Company (the transaction hereinafter referred to as the "Share Exchange").
This Declaration amends and restates that certain declaration made as of
November 30, 1998 (the "Prior Declaration") by CBT. All rights and obligations
under the Prior Declaration are terminated in their entirety and superseded and
governed by this Declaration.
1. Definitions. As used in this Declaration:
(a) "CBT ADSs" means American Depositary Shares of CBT, each
representing one CBT Ordinary Share.
(b) "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
(c) "Form S-3" means such form under the Securities Act as in effect on
the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC which similarly permits inclusion or
incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
(d) "Registrable Securities" means the CBT Ordinary Shares (or
restricted CBT ADSs) issued to Shareholders pursuant to the Share Purchase
Agreement, including all CBT ADSs into which such CBT Ordinary Shares may
be converted, together with all other CBT Ordinary Shares issued in respect
thereof (by way of stock split, dividend or otherwise).
(e) "SEC" means the United States Securities and Exchange Commission.
(f) "Securities Act" means the United States Securities Act of 1933, as
amended.
Capitalized terms not otherwise defined herein have the meanings given to
them in the Share Purchase Agreement.
2. Registration. CBT shall use its reasonable best efforts to cause the
Registrable Securities issued pursuant to the transactions contemplated by the
Share Purchase Agreement to be registered under the Securities Act so as to
permit the resale thereof, and in connection therewith shall prepare and file
with the SEC within thirty (30) days following the closing of the Share
Exchange and shall use its reasonable best efforts to cause to become effective
a registration statement on Form S-3 or on such other form as is then available
under the Securities Act covering the Registrable Securities; provided,
however, that Shareholders shall provide CBT with all such information as may
be necessary under the Securities Act with respect to ownership of the
Registrable Securities for use in connection with any such registration
statement or prospectus. Such provision of information is a condition precedent
to the obligations of CBT pursuant to this Declaration. CBT shall not be
required to effect more than one (1) registration under this Declaration. The
offering made pursuant to such registration shall not be underwritten.
3. Postponement of Registration. Notwithstanding Section 2 above, CBT shall
be entitled to postpone filing the registration statement pursuant to Section 2
for a reasonable period of time, but not in excess of forty-five (45) calendar
days after the applicable deadline, if the board of directors of CBT, acting in
good faith, determines that there exists material nonpublic information about
CBT which the board of directors does not wish to disclose in a registration
statement but which information would otherwise be required by the Securities
Act to be disclosed in the registration statement.
B-1
<PAGE>
4. Obligations of CBT.
(a) Subject to the limitations of Sections 2 and 3 above and Section 10
below, CBT shall (i) prepare and file with the SEC the registration
statement in accordance with Section 2 hereof with respect to the
Registrable Securities and shall use its reasonable best efforts to cause
such registration statement to become effective as promptly as practicable
after filing and to keep such registration statement effective until the
second anniversary of the closing of the Share Exchange; (ii) prepare and
file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary, and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities proposed to be
registered in such registration statement until the second anniversary of
the closing of the Share Exchange; (iii) furnish to Shareholders such
number of copies of any prospectus (including any preliminary prospectus
and any amended or supplemented prospectus) in conformity with the
requirements of the Securities Act, and such other documents, as
Shareholders may reasonably request in order to effect the offering and
sale of the shares of the Registrable Securities to be offered and sold,
but only while CBT shall be required under the provisions hereof to cause
the registration statement to remain current; and (iv) use its reasonable
best efforts to register or qualify the shares of the Registrable
Securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as Shareholders shall reasonably
request (provided that CBT shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general
consent to service of process in any such jurisdiction where it has not
been qualified).
(b) CBT shall notify Shareholders (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to the registration statement or any post-effective amendment, when
the same has become effective; (ii) of any request by the SEC or any other
federal or state governmental authority during the period of effectiveness
of the registration statement for amendments or supplements to the
registration statement or related prospectus or for additional information
relating to the registration statement; (iii) of the issuance by the SEC or
any other federal or state governmental authority of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) of the receipt by CBT
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose; or (v) of the happening of any event which makes any
statement made in the registration statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes
in the registration statement or prospectus so that, in the case of the
registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. CBT may, upon the happening of any
event (A) of the kind described in clauses (ii), (iii), (iv), or (v) hereof
or, (B) that, in the judgment of CBT's board of directors, renders it
advisable to suspend use of the prospectus for no more than ninety (90)
days in the aggregate in any twelve (12) month period of time due to
pending corporate developments, public filings with the SEC or similar
events, suspend use of the prospectus on written notice to Shareholders, in
which case Shareholders shall discontinue disposition of Registrable
Securities covered by the registration statement or prospectus until copies
of a supplemented or amended prospectus are distributed to Shareholders or
until Shareholders are advised in writing by CBT that the use of the
applicable prospectus may be resumed. CBT shall use its reasonable best
efforts to ensure that the use of the prospectus may be resumed as soon as
practicable. CBT shall use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement, or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment. CBT shall,
promptly following the occurrence of any event contemplated by clause (v),
prepare a supplement or post-effective amendment to the registration
statement or a supplement to the related prospectus or any document
incorporated therein by reference or
B-2
<PAGE>
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities being sold thereunder, such
prospectus will not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(c) In connection with any offering of Registrable Securities registered
pursuant to this Declaration, CBT shall (x) furnish Shareholders, at CBT's
expense, with un-legended certificates representing ownership of the
Registrable Securities being sold in such denominations as Shareholders
shall request and (y) instruct the transfer agent and registrar of the
Registrable Securities to release any stop transfer orders with respect to
the Registrable Securities being sold.
5. Availability of Form S-3. CBT represents that if Form S-3 (or a successor
form) is not available for use by CBT, CBT shall use its reasonable best
efforts to satisfy the requirements of Form S-3 at the earliest possible time.
CBT further represents that it believes it is currently eligible to utilize
Form S-3 and currently believes that there is no material nonpublic information
which would preclude it from filing a registration statement on Form S-3.
6. Expenses. CBT shall pay all of the out-of-pocket expenses incurred in
connection with any registration of Registrable Securities pursuant to this
Declaration, including all SEC, NASD and blue sky registration and filing fees,
printing expenses, transfer agents' and registrars' fees, and the reasonable
fees and disbursements of CBT's outside counsel and independent accountants.
Notwithstanding the foregoing, Shareholders shall pay any and all brokerage
fees, applicable transfer taxes, if any (including stamp transfer taxes imposed
by Irish law) and depositary fees, if any, in connection with the deposit of
the Registrable Securities, if applicable, and the subsequent sale by
Shareholders of the Registrable Securities.
7. Additional Obligations of CBT; Reports under the Exchange Act. CBT agrees
to:
(a) use its reasonable best efforts to file with the SEC in a timely
manner all reports and other documents required of CBT under the Securities
Act and the Exchange Act; and
(b) furnish to Shareholders forthwith upon request (i) a written
statement by CBT that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of CBT and (iii) such other information as may be reasonably
requested in availing Shareholders of any rule or regulation of the SEC
which permits the selling of any Registrable Securities pursuant to Form S-
3.
8. Assignment of Registration Rights. The rights, duties and obligations of
CBT pursuant to this Declaration may not be assigned. The rights, duties and
obligations of Shareholders pursuant to this Declaration may not be assigned or
transferred except (x) by will or the laws of descent and distribution, or (y)
to a family member of a Shareholder, or a trust of which a family member is the
beneficiary; provided however, in the event of an assignment or transfer
pursuant to clauses (i), or (ii), such assignee or transferee gives CBT notice
that he, she or it is an assignee or transferee of Registrable Securities under
this Section 8, provides CBT with his, her or its name and address and the
number of Registrable Securities acquired, and agrees to be bound as a
Shareholder by all of the terms of this Declaration. Nothing herein shall be
construed to modify Shareholders' obligations under the Affiliate's Agreement
signed by Shareholders pursuant to the Share Purchase Agreement.
9. Amendment of Registration Rights. The registration rights granted
hereunder may only be amended by a written amendment signed by Shareholders
holding a majority of the Registrable Securities and CBT.
10. Termination. The registration rights set forth in this Declaration shall
terminate with respect to Shareholders (and the shares held by Shareholders
shall cease to constitute Registrable Securities) upon the earlier of (i) such
time as all of the Registrable Securities then held by Shareholders can be sold
by Shareholders in a three (3) month period in accordance with Rule 144 under
the Securities Act and (ii) the second anniversary of the closing of the Share
Exchange.
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<PAGE>
11. Obligations of Shareholders. By exercising any rights hereunder, a
Shareholder shall be deemed to assume all obligations hereunder as though such
Shareholder was a signatory hereto.
[Remainder of page intentionally left blank]
B-4
<PAGE>
IN WITNESS WHEREOF, CBT has executed this Declaration as of the date first
above written.
CBT GROUP PLC
By: _________________________________
Name: _______________________________
Title: ______________________________
B-5
<PAGE>
ANNEX C
AMENDED AND RESTATED ESCROW AGREEMENT
<PAGE>
EXHIBIT E TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
AMENDED AND RESTATED ESCROW AGREEMENT
THIS AMENDED AND RESTATED ESCROW AGREEMENT (this "Escrow Agreement") is made
and entered into as of March 30, 1999 by and among CBT Group PLC, a public
limited company formed under the laws of Ireland ("CBT"), the shareholders of
Knowledge Well Limited, a private company formed under the laws of Ireland ("KW
Limited"), and the shareholders of Knowledge Well Group Limited, a private
company formed under the laws of Ireland ("KW Group" and, collectively with KW
Limited, "KnowledgeWell") (individually, a "Shareholder" and collectively, the
"Shareholders"), Jack Hayes, as trustee pursuant to the Trust Agreement as
defined herein (the "Trustee"), U.S. Bank Trust National Association (the
"Escrow Agent"), and Gethin Taylor, as representative of the Shareholders (the
"Representative"). This Escrow Agreement amends and restates that certain
escrow agreement made and entered into as of the 30th day of November, 1998
(the "Prior Escrow Agreement") by and among the parties hereto. All rights and
obligations under the Prior Escrow Agreement are terminated in their entirety
and superseded and governed by this Escrow Agreement.
RECITALS
WHEREAS, CBT, the Shareholders and KnowledgeWell have entered into a Share
Purchase Agreement dated as of November 30, 1998, as amended and restated as of
March 30, 1999 (the "Share Purchase Agreement").
WHEREAS, Article VIII of the Share Purchase Agreement provides that the
parties hereto shall enter into an Escrow Agreement with respect to a portion
of the total American Depository Shares ("ADSs") or Ordinary Shares of CBT
transferred to the Shareholders in connection with the transactions
contemplated by the Share Purchase Agreement.
NOW, THEREFORE, in consideration of the promises contained herein and in the
Share Purchase Agreement and other good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1. Share Purchase Agreement. The Escrow Agent hereby acknowledges receipt of
a copy of the Share Purchase Agreement, but, except for reference thereto for
definitions of certain words or terms not defined herein, the Escrow Agent is
not charged with any duties or responsibilities with respect thereto.
Capitalized terms used and not defined herein shall have the meanings set forth
in the Share Purchase Agreement unless the context requires otherwise.
2. Purpose; Effectiveness. This Escrow Agreement has been executed and
delivered, and the deposit of the Escrow Amount hereunder will be made, for the
purpose of reimbursing and providing compensation for those Damages (as defined
in the Share Purchase Agreement) that CBT or any of its affiliates has incurred
or reasonably anticipates incurring by reason of any CBT Indemnifiable Claim
(as defined in the Share Purchase Agreement). Transfers of Escrow Shares (as
defined below) to Jack Hayes, as Trustee under the Trust Agreement attached
hereto as Exhibit A (the "Trust Agreement"), shall be the non-exclusive remedy
of CBT against each of the Shareholders for any such CBT Indemnifiable Claim.
This Escrow Agreement shall become effective at the Closing Date.
3. Escrow Fund.
(b) Upon effectiveness of this Escrow Agreement, CBT shall deliver or
cause to be delivered to the Escrow Agent such number of ADSs or Ordinary
Shares registered in the name of each of the Shareholders, as the case may be,
which ADSs or Ordinary Shares will be endorsed in blank for transfer to the
Trustee pursuant to the terms of this Escrow Agreement, representing the Escrow
Amount (collectively, the "Escrow Shares")
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<PAGE>
required to be placed in escrow pursuant to Section 8.3 of the Share Purchase
Agreement. Each Shareholder shall also execute and deliver an Irrevocable
Assignment Separate from Certificate in the form attached hereto as Exhibit B
to the Escrow Agent. "Escrow Fund" shall mean the Escrow Shares which, as of
the date of determination, remain subject to this Escrow Agreement. The Escrow
Agent shall not be required to inquire as to or examine the number of Escrow
Shares it receives pursuant to the Share Purchase Agreement. The Escrow Fund
shall be held by the Escrow Agent subject to the terms and conditions
hereinafter set forth.
(b) Each Shareholder shall be responsible for any tax liability
attributable to the placement of the Escrow Shares in the escrow and the
payment of any dividends or other amounts payable to the Shareholders with
respect to the Escrow Shares. Each Shareholder, severally and not jointly,
agrees to assume any and all obligations relating to his, her or its Escrow
Shares imposed now or hereafter by any applicable tax law with respect to the
transfer of Escrow Shares under this Escrow Agreement, and to indemnify and
hold the Escrow Agent harmless from and against any liability relating to his,
her or its Escrow Shares on account of taxes, assessments, additions for late
payment, interest, penalties and other expenses, or other governmental charges
to which the Escrow Agent may be or become subject in connection with or which
arises out of this Escrow Agreement, including reasonable costs and expenses
(including reasonable legal fees and expenses), interest and penalties.
4. Escrow Stock. The number of ADSs or Ordinary Shares representing the
Escrow Amount is listed on Schedule A hereto.
5. Representative.
(a) The Representative shall have full power and authority to represent
the Shareholders and their successors with respect to all matters arising under
this Escrow Agreement, including, without limitation, the execution and
delivery of any forms or other documents to effect a transfer of all or part of
the Escrow Shares to the Trustee pursuant to Section 7 hereof, and all actions
taken by the Representative hereunder shall be binding upon the Shareholders
and their successors as if expressly done by, or confirmed and ratified in
writing by, each of them. Without limiting the generality of the foregoing, the
Representative shall have full power and authority to interpret all the terms
and provisions of this Escrow Agreement and to consent to any amendment hereof
on behalf of the Shareholders and such successors. All action to be taken by
the Representative hereunder shall be taken by or at his or her written
direction or pursuant to such other method as the Representative, by written
notice to CBT and the Escrow Agent, shall designate.
(b) The Representative may act upon any instrument or other writing
believed by such Representative in good faith to be genuine and to be signed or
presented by the proper person and shall not be liable in connection with the
performance by him or her of his or her duties pursuant to the provisions of
this Escrow Agreement, except for his or her own willful default or
recklessness. The Representative shall be, and hereby is, indemnified and saved
harmless, jointly and severally, by the Shareholders from all losses, costs and
expenses that may be incurred by the Representative as a result of such
Representative's involvement in any arbitration or litigation arising from
performance of his or her duties hereunder, provided that such arbitration or
litigation shall not result from any action taken or omitted by the
Representative as a result of his or her willful default or recklessness.
(c) The Representative shall not be entitled to compensation for his or
her services rendered hereunder. However, the Representative shall be
reimbursed by Shareholders for reasonable counsel fees and other reasonable
out-of-pocket expenses incurred in connection with the provisions of this
Escrow Agreement.
(d) The Representative, or any successor to him or her hereafter
appointed, may resign and shall be discharged of such Representative's duties
hereunder upon the appointment of a successor Representative as hereinafter
provided. In case of the Representative's resignation, death or inability to
act as Representative, upon receipt of notice thereof, a successor or
successors shall be named by the remaining Shareholders. Each successor
Representative shall have all the power, authority, rights and privileges
hereby conferred upon the original Representative, and the term
"Representative" as used herein shall be deemed to include each such successor
Representative.
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<PAGE>
(e) The Representative shall take all actions, execute all documents and
otherwise cooperate fully with any request by CBT or the Trustee to transfer
Escrow Shares as required by this Agreement or to otherwise effect the purpose
of this Escrow Agreement.
6. Escrow Period; Distribution Upon Termination of Escrow Period. The Escrow
Fund shall remain in existence two (2) years after the Closing Date (the
"Escrow Period"). At the close of business on the date the Escrow Period
terminates (the "Termination Date"), the Escrow Period shall terminate with
respect to all of the Escrow Fund; provided, however, that the amount of the
Escrow Fund which in the reasonable judgment of the Special Committee of the
Board of Directors of CBT formed in connection with the Share Exchange (the
"Special Committee"), subject to objection of the Representative and the
subsequent arbitration of the matter in the manner provided in Section 7
hereof, is necessary to satisfy any unsatisfied CBT Indemnifiable Claim
specified in any Officer's Certificate (as hereafter defined) delivered to the
Escrow Agent prior to termination of the Escrow Period with respect to facts
and circumstances existing prior to the termination of such Escrow Period,
shall remain in the Escrow Fund (and the Escrow Fund shall remain in existence)
until such claims have been resolved. As soon as all such claims have been
resolved, the Escrow Agent shall deliver to the Shareholders all Escrow Shares
remaining in the Escrow Fund and not required to satisfy such claims. Any
delivery of Escrow Shares pursuant to this Section 6 shall be of full shares,
and the Escrow Agent shall sell the number of Escrow Shares that shall equal
the aggregate of all fractions to which the Shareholders would otherwise be
entitled. The Escrow Agent shall distribute the remaining Escrow Shares and the
proceeds of such sale to each Shareholders as is pro rata to his or her
proportional ownership in the KnowledgeWell Shares sold to CBT pursuant to the
Share Purchase Agreement; provided that, if a Shareholder shall have been
severally and not jointly liable for a CBT Indemnifiable Claim under the terms
of the Share Purchase Agreement, such Shareholder's pro rata distribution of
Escrow Shares shall be appropriately reduced.
7. Assertion of Claims.
(a) If any CBT Indemnitee shall incur Damages within the Escrow Period,
there shall be delivered to the Escrow Agent and the Representative a
certificate signed in good faith on behalf of CBT by an officer of CBT or by a
member of the Special Committee (an "Officer's Certificate") stating that a CBT
Indemnitee has paid, properly accrued, or reasonably anticipates that it will
have to pay or accrue Damages in an amount specified in such Officer's
Certificate, with the basis for such claim set forth in reasonable detail.
Subject to Sections 7(b), 7(c), 8 and 9 hereof, as soon as practicable (but not
earlier than fifteen (15) calendar days, nor later than thirty (30) calendar
days, after delivery to the Escrow Agent and the Representative of such
Officer's Certificate) the Escrow Agent shall transfer, deliver and assign to
Jack Hayes, as Trustee under the Trust Agreement, such number of the Escrow
Shares (rounded down to the nearest whole share) as is equal to the number
resulting from dividing the amount of such Damages by the closing price of an
ADS on the trading day immediately prior to the Closing Date, as reported on
the Nasdaq National Market. Each Officer's Certificate shall be delivered to
the Escrow Agent and the Representative in the manner specified in Section 11
hereof, and shall contain thereon a representation of the mailing of a copy
thereof to the Representative.
(b) Unless, within fifteen (15) calendar days after delivery to the
Escrow Agent and the Representative of any Officer's Certificate, the
Representative gives written notice to CBT and the Escrow Agent, and said
written notice is received by both CBT and the Escrow Agent within said fifteen
(15) calendar day period, that he or she disputes in good faith the claim set
forth in such Officer's Certificate, with the basis for such dispute set forth
in reasonable detail, such Officer's Certificate shall constitute full
authority to the Escrow Agent to take the action provided for by the preceding
paragraph and shall be conclusive on all parties hereto. If the Representative
gives such notice, the Escrow Agent shall not transfer, deliver or assign to
the Trustee any Escrow Shares pursuant to this Section 7 until either (i) it
receives the written consent of the Representative or (ii) there is a final
decision of an arbitration panel appointed in accordance with the provisions of
Section 9 and the Escrow Agent receives the written final decision in
accordance with Section 9 hereof.
(c) Nothing in this Escrow Agreement shall create or be deemed to create
any interest by way of charge or otherwise in favor of CBT in the Escrow Shares
or Escrow Fund.
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<PAGE>
8. Third-Party Claims. In the event CBT becomes aware of a third-party claim
which CBT believes may result in a demand against the Escrow Fund, CBT shall
notify the Representative of such claim, and any of the Representative or each
Shareholder shall be entitled, at their individual expense, to participate in
any defense of such claim. Delay in providing such notice shall not eliminate
such claim except to extent that the Shareholders are prejudiced thereby. CBT
shall have the right in its sole discretion to settle any such claim; provided,
however, that except with the consent of the Representative, no settlement of
any such claim with third-party claimants shall be determinative of the
validity and quantum of any claim against the Escrow Fund. In the event that
the Representative has consented to any such settlement, the Representative
shall have no power or authority to object under any provision of this Escrow
Agreement to the amount of any claim by CBT against the Escrow Fund with
respect to such settlement.
9. Arbitration. If the Representative delivers to CBT and the Escrow Agent a
timely notice pursuant to Section 7(b) above disputing in good faith the amount
of any claim or that any claim is covered hereby or if any other dispute arises
with respect to this Escrow Agreement, then a CBT (in consultation with the
members of the Special Committee) and the Representative shall use their best
efforts to resolve such dispute. In the event of resolution of such dispute,
CBT and the Representative shall both execute a memorandum setting forth such
resolution and, if applicable, the amount of any damages payable to the Trustee
on behalf of CBT, and shall furnish such memorandum to the Escrow Agent. In the
event CBT and the Representative are unable to resolve such dispute within
twenty (20) calendar days from CBT's receipt of the Representative's written
notice disputing a claim or from the date of receipt of written notice with
respect to any other dispute arising with respect to this Escrow Agreement,
then either party may demand, by written notice to the other, that such issue
shall be settled by binding arbitration to be held in San Francisco, California
(an "Arbitration Demand"). All claims shall be settled by three arbitrators in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association (the "Arbitration Rules"). The Representative and CBT
shall each designate one (1) arbitrator within fifteen (15) calendar days after
the delivery of the Arbitration Demand. Such designated arbitrators shall
mutually agree upon and shall designate a third arbitrator (the "third
arbitrator"). The final decision of a majority of the arbitrators shall be
furnished to the Representative, CBT and the Escrow Agent in writing and shall
constitute a conclusive determination of the issue in question, binding upon
all parties and shall not be contested by any of them. Each party shall bear
its own fees (including its designated arbitrator's fees and attorney's fees)
and other expenses associated with the arbitration. The non-prevailing party
shall bear all other fees and costs associated with such arbitration, except
that the parties shall each pay fifty percent (50%) of the fees of the third
arbitrator.
10. Adjustments to Escrow Shares; Dividends; Voting.
(a) If the Escrow Agent shall receive any securities in respect of or in
exchange for any of the Escrow Shares held by it, whether by way of dividends,
share splits, recapitalizations, liquidations, mergers, consolidations, split-
ups, spin-offs, redemptions, exchanges or conversions of shares and the like
("New Shares"), the Escrow Agent shall hold in escrow such securities and the
same shall be subject to all of the provisions of this Escrow Agreement
relating to the Escrow Fund. Notwithstanding the foregoing, the Shareholders
shall retain the rights to receive any cash dividends or distributions payable
with respect to their Escrow Shares, and such cash dividends or distributions
shall be distributed currently to the Shareholders. New Shares issued in
respect of Escrow Shares which have been released from the Escrow Fund, if any,
shall not be added to the Escrow Fund, but shall be distributed to the holders
of such released Escrow Shares.
(b) Each Shareholder shall have all voting rights with respect to the
Escrow Shares contributed to the Escrow Fund on behalf of each of them for so
long as such Escrow Shares are held in the Escrow Fund.
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<PAGE>
11. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered by hand or delivered by
overnight courier, freight prepaid, or sent via facsimile (with acknowledgment
of complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
<TABLE>
<C> <S>
(a) if to CBT: CBT Group PLC
Beech Hill, Clonskeagh
Dublin 4
Ireland
Attention: Jack Hayes / Company
Secretary
Fax: 011-353-1-208-1296
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Steven V. Bernard
Fax: (650) 493-6811
(b) if to a Shareholder: At such Shareholder's address as forth
below such Shareholder's name on the
signature pages hereto
(c) if to the Representative, to: Gethin Taylor
c/o Peregrine Company Managers Limited
Burleigh Manor
Peel Road
Douglas
Isle of Man
Fax: 011-44-0-1-624-612-960
(g) if to the Escrow Agent, to: U.S. Bank Trust National Association
One California Street, 4th Floor
San Francisco, CA 94111
Attention: Carol Andreacchi
Fax: (415) 273-4593
(h) if to the Trustee, to: Jack Hayes, as Trustee
c/o CBT Group PLC
Beech Hill, Clonskeagh
Dublin 4
Ireland
Fax: 011-353-1-208-1296
</TABLE>
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective when received, and shall in any event be
deemed to have been received (i) when delivered, if delivered personally or
sent by telecopy and confirmed in writing or (ii) four (4) business days after
the business day of deposit with overnight courier, addressed and shipped as
aforesaid.
12. Escrow Agent's Protection. In performing any duties under this
Agreement, the Escrow Agent shall not be liable to any party for consequential
damages, (including, without limitation lost profits) losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (i) any act or
failure to act made or omitted in good faith, or (ii) any action taken or
omitted in reliance upon any written instrument, including any written
statement or affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine, nor will the
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<PAGE>
Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or
determining the scope of any representative authority. The Escrow Agent shall
not act on the oral instructions of any party. In addition, the Escrow Agent
may consult with legal counsel in connection with the Escrow Agent's duties
under this Escrow Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with the advice
of counsel. The Escrow Agent is not responsible for determining and verifying
the authority of any person acting or purporting to act on behalf of any party
to this Escrow Agreement.
13. Controversies. If any controversy arises among the parties to this
Escrow Agreement, or with any other party, concerning the subject matter of
this Escrow Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and Escrow Shares and may wait for
settlement of any such controversy pursuant to the provisions of Section 9 of
this Escrow Agreement. In such event, the Escrow Agent will not be liable for
interest or damages. Furthermore, the Escrow Agent may, at its option, file an
action of interpleader requiring the parties to such controversy to answer and
arbitrate pursuant to Section 9 of this Escrow Agreement any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and Escrow Shares held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and which the parties to such controversy jointly
and severally agree to pay. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Escrow Agreement.
14. Indemnification of Escrow Agent. The parties hereto (excluding the
Escrow Agent) and their respective successors and assigns agree jointly and
severally to indemnify and hold the Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable costs
of investigation, counsel fees, including allocated costs of in-house counsel
and disbursements that may be imposed on the Escrow Agent or incurred by the
Escrow Agent in connection with the performance of his or her duties under this
Escrow Agreement, including but not limited to any litigation arising from this
Escrow Agreement or involving its subject matter (but excluding any and all
losses, claims, damages, liabilities, and expenses attributable to the gross
negligence or wilful misconduct of the Escrow Agent).
15. Escrow Agent Fees. Reasonable fees and expenses for the services
rendered by the Escrow Agent pursuant to the provisions of this Escrow
Agreement (including reasonable fees and disbursements of its counsel incurred
in connection with the performance by it of such services) shall be paid to the
Escrow Agent. Such fees and expenses shall be paid by CBT.
16. Successor Escrow Agent. The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to CBT and the Representative;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent, which shall be accomplished as
hereinafter provided. CBT and the Representative shall use their best efforts
to mutually agree on a successor escrow agent within thirty (30) days after
receiving such notice. If CBT and the Representative fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent, which shall be a bank or trust company
organized under the laws of the United States of America or of the State of
California and have a combined capital and surplus of not less than
US$10,000,000. The successor escrow agent shall execute and deliver to CBT and
the Representative a written instrument accepting such appointment and it
shall, without further acts, be vested with the estates, properties, rights,
powers, and duties of the predecessor Escrow Agent as if originally named as
Escrow Agent. Upon such appointment, the Escrow Agent shall be discharged from
any further duties and liability under this Agreement.
17. Escrow Agent Acceptance and Procedures. U.S. Bank Trust, National
Association, hereby agrees to act as Escrow Agent under this Escrow Agreement.
18. Successors and Assigns. This Escrow Agreement and all action taken
hereunder in accordance with its terms shall be binding upon and inure to the
benefit of CBT, its subsidiaries, the other CBT Indemnitees, the Escrow Agent
and their respective successors and assigns, the Shareholders and their
respective successors, assigns, heirs, executors, administrators and legal
representatives, and the Representative and his or her successors.
C-6
<PAGE>
19. Counterparts. This Escrow Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same instrument.
20. Governing Law. This Escrow Agreement shall be governed by and construed
in accordance with the internal laws of the State of California, without regard
to conflicts of law principles.
[Remainder of page intentionally left blank]
C-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this Escrow
Agreement to be duly executed as of the day and year first above written.
CBT GROUP PLC
By: _________________________________
Name:
Title:
REPRESENTATIVE
-------------------------------------
Name: Gethin Taylor
TRUSTEE
-------------------------------------
Name: Jack Hayes
ESCROW AGENT
By: _________________________________
Name: Carol Andreacchi
Title: Trust Officer
SHAREHOLDER:
-------------------------------------
Address: ____________________________
-------------------------------
-------------------------------
-------------------------------
C-8
<PAGE>
SCHEDULE A
TO ESCROW AGREEMENT
<TABLE>
<CAPTION>
Number of
Shareholder Escrow Shares
----------- -------------
<S> <C>
</TABLE>
C-9
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
IRREVOCABLE ASSIGNMENT SEPARATE FROM CERTIFICATE
For Value Received, ________________________________________________________
hereby sell(s), assign(s) and transfer(s) to __________________________________
- -------------------------------------------------------------------------------
(insert name, address, social security number or tax I.D. number)
shares of the stock of _____________________________________________________
represented by certificates(s) No(s). inclusive, standing in the name of the
undersigned on the books of said Company (Trustee). The undersigned does (do)
hereby irrevocable constitute and appoint _____________________________________
attorney to transfer the said stock or bond(s) as the case may be, on the
books of the within named Company (Trustee) with full power of substitution in
the premises.
IMPORTANT--READ CAREFULLY: The
signature(s) on this assignment must
correspond with the name(s) on the
face of the certificate in every
particular, without alternation or
enlargement, or any change. A
separate assignment is required for
each issue. A separate assignment is
also required for each certificate
on a sell order. The signature(s) of
the assignor(s) must be guaranteed
hereon.
Dated: ______________
-------------------------------------
(Signature)
-------------------------------------
(Signature)
SIGNATURE GUARANTEED
C-10
<PAGE>
ANNEX D
FORM OF LOCK-UP AGREEMENT
<PAGE>
EXHIBIT D TO AMENDED AND RESTATED SHARE PURCHASE AGREEMENT
LOCK-UP AGREEMENT
March 30, 1999
CBT Group PLC
Belfield Office Park, Clonskeagh
Dublin 4
Ireland
Ladies and Gentlemen:
Reference is hereby made to that certain Amended and Restated Share Purchase
Agreement, dated as of March 30, 1999 (the "Share Purchase Agreement") by and
among CBT Group PLC, a public limited company formed under the laws of Ireland
("CBT"), Knowledge Well Limited, a private company formed under the laws of
Ireland ("KW Limited"), Knowledge Well Group Limited, a private company formed
under the laws of Ireland ("KW Group" and, collectively with KW Limited,
"KnowledgeWell"), and the shareholders of KW Limited and KW Group listed on
Exhibit A thereto (collectively, "Shareholders," and individually, a
"Shareholder"). Terms not otherwise defined in this Lock-Up Agreement have the
meanings ascribed to such terms in the Share Purchase Agreement.
In consideration of CBT's agreement to enter into the Share Purchase
Agreement, and for other good and valuable consideration, receipt of which is
hereby acknowledged, the undersigned Shareholder hereby agrees (i) from the
Closing Date until October 1, 1999 (the "Lock-Up Period"), not to offer to
sell, contract to sell or otherwise sell, dispose of or grant any rights with
respect to (each, a "Disposition") any Ordinary Shares or American Depositary
Shares issued to the undersigned Shareholder either in the Share Exchange or
upon exercise of options assumed by CBT in connection with the Share Exchange
(collectively, the "Securities") and (ii) from the termination of the Lock-Up
Period until October 1, 2000, not to effect Dispositions of more than fifty
percent (50%) of the Securities. Notwithstanding the foregoing, the undersigned
may pledge or otherwise utilize the Securities to collateralize a loan for cash
if the exercise by the pledgee of its rights under the applicable loan and/or
pledge agreement could not result in a Disposition in violation of clauses (i)
and (ii) of this paragraph.
The foregoing restriction shall not prohibit Dispositions (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree to be bound by this
Lock-Up Agreement or (ii) with the prior consent of a majority of the members
of the Board of Directors of CBT who are not Shareholders.
The foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-Up Period even if such Securities would be disposed of by
someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including without
limitation any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities.
D-1
<PAGE>
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Very truly yours,
_____________________________________
(signature)
Name: _______________________________
(print or type)
Accepted as of the date
first set forth above:
CBT GROUP PLC
By: _________________________________
Name:
Title:
D-2
<PAGE>
ANNEX E
FAIRNESS OPINION
<PAGE>
[LETTERHEAD OF LEHMAN BROTHERS]
November 29, 1998
Independent Committee of
The Board of Directors
c/o Mr. Jack Hayes
CBT Group Plc
Beech Hill
Clonskeagh
Dublin 4, Ireland
Members of the Independent Committee:
We understand that CBT Group Plc ("CBT" or the "Company") and Knowledge
Well, Ltd. and Knowledge Well Group Limited (together, "KnowledgeWell") intend
to enter into a Share Purchase Agreement, to be dated as of November 30, 1998
(the "Purchase Agreement") pursuant to which each shareholder of KnowledgeWell
will receive 0.1635 ordinary shares of CBT (as further described below, the
"Exchange Ratio") for each KnowledgeWell Share (as defined in the Purchase
Agreement) (the "Proposed Transaction"). The "Exchange Ratio" is calculated as
the quotient (rounded to the nearest 1/10,000) determined by dividing 4,837,209
by the sum of (i) the total number of KnowledgeWell Shares in issue immediately
prior to the Closing (as defined in the Share Purchase Agreement) plus (ii) the
total number of shares in KnowledgeWell of any class issuable upon exercise of
all options, warrants and similar rights outstanding immediately prior to the
Closing; such Exchange Ratio thus calculated currently equals 0.1635. We
further understand that William McCabe and Gregory Priest, directors of the
Company, own approximately 77% of the equity of KnowledgeWell (excluding
options) and, following the completion of the Proposed Transaction, will own
approximately 6% (excluding options) of the ordinary shares of the Company and
become Chairman and Chief Executive Officer, respectively. The terms and
conditions of the Proposed Transaction are set forth in more detail in the
Purchase Agreement.
We have been requested by the Independent Committee of the Board of
Directors of the Company to render our opinion with respect to the fairness,
from a financial point of view, to the Company of the Exchange Ratio to be paid
by the Company in the Proposed Transaction. We have not been requested to opine
as to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Purchase
Agreement and the specific terms of the Proposed Transaction, including with
respect to the management of the Company following the Proposed Transaction,
(2) publicly available information concerning the Company that we believe to be
relevant to our analysis, including the Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, (3) financial and operating information
with respect to the business, operations and prospects of KnowledgeWell and the
Company furnished to us by KnowledgeWell and the Company, respectively, (4) a
trading history of the Company's American Depository Shares from April 13, 1995
to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (5) a comparison of the historical financial
results and present financial condition of the Company with those of other
companies that we deemed relevant, (6) a comparison of the historical financial
results and present financial condition of KnowledgeWell with those of other
companies that we deemed relevant, (7) third-party research analysts' quarterly
and annual earnings estimates for the Company, (8) a comparison of the
financial terms of the Proposed Transaction with the financial terms of certain
other transactions that we deemed relevant, and (9) the potential pro forma
financial effects of the Proposed Transaction on the Company, including
operating synergies, revenue enhancements and other strategic benefits expected
by managements of the Company and KnowledgeWell to result from a combination of
the businesses of the Company and KnowledgeWell. In addition, we have had
discussions with
E-1
<PAGE>
the managements of the Company and KnowledgeWell concerning their respective
businesses, operations, assets, financial conditions and prospects, and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company and
KnowledgeWell that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading in any material respect. With
respect to the financial projections of KnowledgeWell, upon advice of
KnowledgeWell, we have assumed that such projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of KnowledgeWell as to the future financial
performance of KnowledgeWell and that KnowledgeWell will perform in accordance
with such projections. However, in performing our analysis, we have not been
provided with, and did not have access to, financial projections of CBT
prepared by the management of CBT. Accordingly, with respect to the future
financial performance of CBT, upon the direction of the Company, we have
assumed that the estimates of third-party research analysts (in particular,
BancBoston Robertson Stephens in a report dated October 13, 1998 and Goldman
Sachs in a First Call Note dated November 6, 1998) are a reasonable basis upon
which to analyze and evaluate the future financial performance of the Company
and that the Company will perform substantially in accordance with such
estimates. With respect to the projected operating synergies, revenue
enhancements and other strategic benefits expected to result from the
combination of the business of CBT and KnowledgeWell (the "Projected
Synergies"), upon advice of the Company and KnowledgeWell, we have assumed that
such Projected Synergies have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the managements of the
Company and KnowledgeWell and that such Projected Synergies will be achieved
substantially as projected. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of KnowledgeWell and have
not made or obtained any evaluations or appraisals of the assets or liabilities
of KnowledgeWell. Our opinion necessarily is based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be paid
by the Company in the Proposed Transaction is fair to the Company.
We have acted as financial advisor to the Independent Committee in
connection with the Proposed Transaction and will receive a fee for our
services which is contingent upon the consummation of the Proposed Transaction.
In addition, the Company has agreed to indemnify us for certain liabilities
that may arise out of the rendering of this opinion. In the ordinary course of
our business, we actively trade in the securities of the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Independent Committee of the
Board of Directors of the Company and is rendered to the Independent Committee
in connection with its consideration of the Proposed Transaction. This opinion
is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote with respect
to the Proposed Transaction.
Very truly yours,
Lehman Brothers
/s/ Todd J. Zelek
By: _________________________________
Todd J. Zelek
Managing Director
E-2
<PAGE>
CBT GROUP PUBLIC LIMITED COMPANY
THIS PROXY FOR THE EXTRAORDINARY GENERAL MEETING IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned Member of CBT Group PLC, a public limited company organized
under the laws of the Republic of Ireland (the "Company"), hereby acknowledges
receipt of the Notice of Extraordinary General Meeting of Shareholders and Proxy
Statement, each dated May 4, 1999, and hereby appoints Jack Hayes and
Jennifer M. Caldwell, and each of them, proxies and attorneys-in-fact, each with
full power of substitution, or of as proxy and attorney in fact
(see Note 2 below), on behalf and in the name of the undersigned, to represent
the undersigned at the Company's Extraordinary General Meeting to be held at
11:00 a.m. on June 3, 1999 at The Shelbourne Hotel, St. Stephens
Green, Dublin 2, Ireland and at any adjournments thereof, and to vote all
shares which the undersigned would be entitled to vote if then and there
personally present, on all matters set forth on the reverse side hereof.
NOTES:
1. A proxy may (i) vote on a show of hands or on a poll, (ii) demand or join
in demanding a poll and (iii) speak at the Extraordinary General Meeting.
2. If it is desired to appoint as proxy any person other than those set forth
above, please delete the names set forth above and insert the name and
address of your own proxy in the space provided. The alteration should be
initialed. A proxy need not be a shareholder of the Company.
3. In the case of a corporation, this form must be executed either under its
Common Seal or under the hand of an officer or attorney duly authorized.
4. In the case of joint holders, the signature of any one of them will
suffice, but the names of all joint holders should be shown. The vote of
the senior joint holder who tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes of the other joint holders,
and for this purpose seniority shall be determined by the order in which
the names stand in the Register of Members in respect of the joint holding.
5. To be effective, the proxy form and the power of attorney or other
authority, if any, under which it is signed, or a notarially certified copy
of such power or authority must be deposited with the Company's Registrars,
Bank of Ireland, Registrar Department, P.O. Box 4044, 4th Floor, Hume
House, Ballsbridge, Dublin 4, Ireland, not less than 48 hours before the
time appointed for the holding of the Extraordinary General Meeting or
adjourned Extraordinary General Meeting.
6. Any alterations made to this proxy form should be initialed.
7. On a poll a person entitled to more than one vote need not use all his or
her votes or cast all the votes he or she uses in the same way.
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY
IN THE ENVELOPE PROVIDED.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED "FOR" EACH OF THE PROPOSALS SET FORTH BELOW.
THE INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
FIRST PROPOSAL AND THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE SECOND
PROPOSAL
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
------------ ------------ ------------
<S> <C> <C> <C>
SPECIAL BUSINESS
1) THAT the Share Purchase Agreement dated November 30, 1998, as [_] [_] [_]
amended and restated as of March 30, 1999, made between the
Company, Knowledge Well Limited ("KWL"), Knowledge Well Group
Limited ("KWGL"), and the shareholders of KWL and KWGL in the
form produced to the Meeting and initialled by the Chairman
for the purposes of identification (a copy of which was
included in the Proxy Statement circulated to all the members
of the Company on May 5, 1999) relating to the acquisition by
the Company of all of the shares in the capital of each of KWL
and KWGL (collectively "Knowledge Well") in exchange for
ordinary shares of IR9.375p each in the capital of the Company
("Ordinary Shares") (or American Depositary Shares represent-
ing such Ordinary Shares) and the assumption of all outstanding
options to purchase shares in the capital of Knowledge Well
(the "Share Exchange") such Share Exchange and the issuance of
Ordinary Shares (or American Depositary Shares representing
such Ordinary Shares) pursuant to such Share Exchange be,
and they each hereby are, approved.
2) THAT the 1994 Share Option Plan (the "1994 Plan") be and it is [_] [_] [_]
hereby amended to increase the total number of shares reserved
for issuance thereunder by 2,000,000 Ordinary Shares of
IR9.375p each and the directors of the Company be and they are
hereby authorized to do such acts and things as they may consider
necessary or expedient to establish and carry into effect the
increase in the number of shares available for issuance under
the 1994 Plan.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Mark here if you plan to attend the Extraordinary Mark here, and indicate below, for a change of
General Meeting. [_] address. [_]
</TABLE>
Please sign exactly as name appears below. When shares are held by joint
tenants, the signature of any one of them will suffice, but the names of all
joint holders should be shown. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, this form must be executed either under its Common Seal or under
the hand of an officer or attorney duly authorized. If a partnership, please
sign in partnership name by authorized person.
Date: ____________________, 1999
Signature:______________________________
________________________________________
(Print Name)
Date: ____________________________, 1999
Signature:______________________________
________________________________________
(Print Name)
