Free Proposed Scheduling Order - District Court of Colorado - Colorado

Case 1:04-cv-01006-RPM

Document 136-3

Filed 12/30/2005

Page 1 of 5

EXHIBIT B LEAD PLAINTIFFS' STATEMENT OF UNDISPUTED FACTS

1.

On October 22, 2003, Quovadx issued a press release announcing a

historic software, training, maintenance and support agreement with an Indian conglomerate, InfoTech Network Group ("InfoTech"), pursuant to which Quovadx would realize revenues of $7.6 million (the "InfoTech Contract"). See Declaration of Marcela A. Kirberger filed December 1, 2005("Kirberger Decl."), Ex. 1. 2. Quovadx further announced that it had already recognized $4.6

million of the total amount of the InfoTech Contract during the third quarter of 2003 and expected to recognize the remainder over the next four quarters. Id. 3. In a separate press release also issued on October 22, 2003, the

Company reported its "highest quarterly revenue" in the Company's history, and record software revenue of $7.8 million. Kirberger Decl., Ex. 2. The release further stated that the "total revenue for the third quarter of 2003 was $19.9 million, up 33% from $15.0 million from the same period [the previous year]." Id. 4. On November 4, 2003, the Company announced its intention to

acquire Rogue Wave Software ("Rogue Wave") in a cash and stock transaction valued at $71 million." Kirberger Decl., Ex. 3. 5. On November 3, 2003, a day before the announcement to acquire

Rogue Wave was made, Quovadx filed its Form 10-Q for the quarter ending September 30, 2003. 6. That Form 10-Q, containing the financial statements of Quovadx

for the third quarter of 2003, was signed by defendants Sweeney and Scherping, who certified that it fully complied with the requirements of the Securities Exchange Act of 1934, and that the information contained presented, in all material respects, the financial condition and results of Quovadx's operations. Kirberger Decl., Ex. 5.

Case 1:04-cv-01006-RPM

Document 136-3

Filed 12/30/2005

Page 2 of 5

7.

The financial statements for Quovadx for the third quarter of 2003

incorporated in the Form 10-Q represented that revenues for that quarter were $19.9 million. Those amounts included $4.6 million in revenues attributable to purported sales to InfoTech. 8. On November 4, 2003, Quovadx issued a press release announcing

the acquisition of Rogue Wave. The acquisition was structured as an exchange offer whereby Quovadx would acquire all of the outstanding stock of Rogue Wave for $4.09 in cash and 0.5292 of a share of Quovadx common stock for each share of Rogue Wave common stock. Kirberger Decl. Ex., 3. 9. Based on the average closing price of Quovadx stock for the five

trading days ending on October 21, 2003, the aggregate consideration was valued at $6.85 a share. Id. 10. On November 12, 2003, Quovadx filed a Registration Statement

with the SEC on Form S-4 in connection with its offer to exchange the common stock of Rogue Wave. Quovadx incorporated by reference its Form 10-Q for the third quarter, ending on September 30, 2003 into the Registration Statement. Kirberger Decl., Ex. 6. 11. On December 10, 2003, Quovadx filed a Second Amendment to

the Registration Statement on Form S-4 in connection with the Exchange Offer which became effective on December 19, 2003. 12. The Registration Statement included Quovadx's financial results

for the third quarter of fiscal year 2003 -- which included the purported InfoTech revenue. 13. All of the Individual Defendants signed the Registration Statement.

Kirberger Decl., Ex. 7. 14. On December 19, 2003, Quovadx completed the acquisition of all

of the outstanding shares of Rogue Wave. The total purchase price for the acquisition was $79.1 million, including 5,656,670 shares of Quovadx common stock, exchange of

Case 1:04-cv-01006-RPM

Document 136-3

Filed 12/30/2005

Page 3 of 5

stock options valued at $3.4 million, cash of $8.0 million net of cash acquired and $3.9 million in merger-related costs. Kirberger Decl., Ex. 8. 15. On March 15, 2004, Quovadx announced that it would delay the

filing of its annual report on Form 10-K for the year ended December 31, 2003. According to Quovadx, this delay was necessary because it had to restate its 2003 third quarter financial results and revise its previously announced preliminary 2003 fourth quarter and full year financial results. Kirberger Decl., Ex. 9. 16. The March 15 press release explained that the restatement was

caused by the Company's "unsuccessful" efforts to collect funds from letters of credit opened by InfoTech and, as a result, the Company had to restate and remove all revenue from sales to InfoTech from the Company's published financial reports for fiscal year 2003. Id. 17. As a result of the restatement of the third quarter-2003, "software

license revenues were reduced by $4.6 million to $3.2 million and total revenues were reduced from $19.9 million to $15.2 million." Id. In addition, "[n]et loss calculated in accordance with generally accepted accounting principles (GAAP) for the quarter was, at the time of the restatement] $(5.3) million or $(0.17) per share compared to the originally reported GAAP net loss of $(1.1) million or $(0.03) per share. Deferred revenue was reduced by $3.0 million." Id. 18. Also on March 15, the Company hosted a call for investors where

Sweeney reassured investors and analysts that because InfoTech had issued new letters of credit, the funds would be collected. Id. 19. After the March 15 announcement, the price of Quovadx stock fell

approximately 29%, closing at $3.58 per share on March 16, 2003. 20. The Company continued to reassure the investing public that while

it had to remove all revenue associated with these contracts from its published financial reports for 2003, it still expected to book such revenue in 2004.

Case 1:04-cv-01006-RPM

Document 136-3

Filed 12/30/2005

Page 4 of 5

21.

On April 12, 2004, the Company issued a press release announcing

it had retained the firm of Hogan & Hartson L.L.P. to conduct a special review of the InfoTech relationship as a result of a formal SEC investigation into the March 15 restatement. Kirberger Decl., Ex. 10. 22. Also on April 12, 2004, Quovadx announced the resignation of

defendants Sweeney and Scherping. Kirberger Decl., Ex. 11. 23. Following the April 12 announcements, Quovadx's stock price

suffered a sharp drop, closing at $2.90 per share. Kirberger Decl., Ex. 12. 24. On May 13, 2004, the Company issued a press release in

connection with its investigation into the InfoTech problem. 25. In the May 13, 2004 press release, the Company confirmed that it

had received "no payments from InfoTech under the distribution agreement executed on September 8, 2003" pursuant to which Quovadx had shipped InfoTech $14.1 million worth of software products. Kirberger Decl., Ex. 13. The Company further disclosed that "[p]rior to the distribution agreement with Quovadx, [InfoTech] had not been a software distributor or sold software." In addition, the Company was not able to

determine "that the purported line of credit maintained by InfoTech at a bank in India now exists or has existed, that such line of credit was secured by liquid assets, or that it was capable of backing letters of credit to be established by InfoTech to secure payment under the distribution agreement." Id. 26. The May 13, 2004 press release also revealed that "Quovadx no

longer expect[ed] such letters of credit, or any other credit facilities established by InfoTech, to be a source of payment by InfoTech." 27. The audit committee investigation confirmed that Quovadx's

former management had induced InfoTech to enter into the distribution agreement by paying the Indian company $2.46 million, and that "InfoTech would not have entered into the distribution agreement without concurrently entering into the outsourcing

Case 1:04-cv-01006-RPM

Document 136-3

Filed 12/30/2005

Page 5 of 5

agreement." The investigation uncovered an additional inducement to InfoTech to enter into the distribution agreement in exchange for an additional $10 million in outsourcing services to be purchased yearly by Quovadx. Id. 28. The investigation report exposed that certain payments to InfoTech

totaling $2.9 million were made "for the purpose of enabling InfoTech to establish the letters of credit required to secure InfoTech's payment obligations under the distribution agreement." Id. 29. In a press release on May 14, 2004, the Company announced that it

had "severed relations with its former president and CEO Lorine Sweeney and CFO Gary Scherping" and further, had discontinued severance payment to these former executives and demanded the return of monies already paid as severance, compensation and bonuses. Kirberger Decl., Ex. 14. 30. Following the May 14, 2004 announcement, Quovadx stock fell to

$1.00 a share. Kirberger Decl., Ex. 12. 31. The Company's Registration Statement on Form S-4, signed by

each Individual Defendant and filed with the SEC, incorporated the Company's financial results for the third quarter of 2003, results which the Company later admitted were materially misstated. 32. The price of Quovadx stock dropped 79% from $4.91 on

December 19, 2003, the date the acquisition of Rogue Wave was consummated, to $1.03 on May 17, 2004, the date this suit was brought. Id.