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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File No. 0-30043

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divine, inc.(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

36-4301991(I.R.S. Employer
Identification Number)1301 North Elston Avenue,
Chicago, Illinois(Address of Principal Executive Offices)

60622(Zip Code)


Registrant's telephone number, including area code: (773) 394-6000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

|Title of Each Class                             |  | Name of Exchange On Which Registered
|----------------------------------------------- |  | ------------------------------------
|Class A Common Stock, par value $.001 per share |  | Nasdaq National Market              

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Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý

The aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates (as defined by regulations of the Securities and
Exchange Commission) of the registrant was approximately $183,189,352 at March 27, 2002 (based on the closing sale price on the Nasdaq National Market, Inc. ("Nasdaq") on
March 27, 2002). At March 27, 2002 the registrant had issued and outstanding an aggregate of 457,145,645 shares of class A common stock.

Documents Incorporated by Reference

Those sections or portions of the registrant's proxy statement for the Annual Meeting of Stockholders to be held on May 21, 2002,
described in Part III hereof, are incorporated by reference in this report.

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TABLE OF CONTENTS

|Item No. |    |                                                                                       |  | Page
|-------- | -- | ------------------------------------------------------------------------------------- |  | ----
|         |    | Special Note on Forward-Looking Statements                                            |  | 2   
|Part I   |    |                                                                                       |  |     
|1        | .  | Business                                                                              |  | 3   
|2        | .  | Properties                                                                            |  | 25  
|3        | .  | Legal Proceedings                                                                     |  | 26  
|4        | .  | Submission of Matters to a Vote of Security Holders                                   |  | 28  
|Part II  |    |                                                                                       |  |     
|5        | .  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 29  
|6        | .  | Selected Financial Data                                                               |  | 30  
|7        | .  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 31  
|7        | A. | Quantitative and Qualitative Disclosures About Market Risk                            |  | 52  
|8        | .  | Financial Statements and Supplementary Data                                           |  | 53  
|9        | .  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 103 
|Part III |    |                                                                                       |  |     
|10       | .  | Directors and Executive Officers of the Registrant                                    |  | 104 
|11       | .  | Executive Compensation                                                                |  | 105 
|12       | .  | Security Ownership of Certain Beneficial Owners and Management                        |  | 105 
|13       | .  | Certain Relationships and Related Transactions                                        |  | 105 
|Part IV  |    |                                                                                       |  |     
|14       | .  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 106 

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects, and
opportunities. We have tried to identify these forward-looking statements by using words such as "may," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate," and similar
expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties, and other factors that could cause our actual
results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties, and other factors include:



See
"Item 1. BusinessRisk Factors" for a description of these factors. Other matters, including unanticipated events and conditions, also may cause our actual future results
to differ materially from these forward-looking statements. We cannot assure you that our expectations will prove to be correct. In addition, all subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements mentioned above. You should not place undue reliance on these forward-looking
statements. All of these forward-looking statements are based on our expectations as of the date of this report. Except as required by federal securities laws, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future events, or otherwise.

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PART I

ITEM 1.    BUSINESS

divine Overview

divine, inc. is a service and software company focused on solutions for the extended enterprise. We help our clients maximize profits through better
collaboration, interaction, and knowledge sharing throughout their entire value chain, including suppliers, partners, employees, and customers. We facilitate our customers' integration of advanced
enterprise Web solutions with their business strategies and existing infrastructures by providing a combination of professional services, Web-based technology, and managed applications
capabilities. We focus our offerings on Global 5000 and high-growth middle market firms and service over 20,000 customers through three principal business groups:



We
have forged strategic partnerships and alliances with a number of leading organizations to strengthen the delivery of open and extensible e-business solutions to our
customers. Our technology integrates with leading server platforms such as BEA WebLogic, IBM WebSphere, Microsoft Windows NT, and Sun Solaris. Additionally, we have joined the alliance programs of key
vendors such as BEA, Hewlett-Packard, IBM, Microsoft, Computer Associates, Netscape, Oracle, and Sun/iPlanet to extend support to our mutual customers and introduce our solutions into new arenas.
While these alliances add value to all of our constituencies, they also provide us and our partners with additional technical, marketing, and sales resources to expedite the development and delivery
of complete e-business solutions.

Our
principal offices are located at 1301 N. Elston Avenue, Chicago, Illinois 60622, telephone number (773) 394-6600. We also have satellite offices located throughout
North America, Europe, Asia, and Australia. Our homepage is located on the Web athttp://www.divine.com, where you can find additional information about
us; however, that information generally is not targeted at investors and is not part of this Report. All references to "we," "us," "our," and "divine" refer to divine, inc. and its consolidated
subsidiaries.

divine History

We were incorporated as divine interVentures, inc. on May 7, 1999 and commenced operations on June 30, 1999. We began by engaging in
business-to-business e-commerce through a community of associated companies in which we invested. From September 30, 1999 to December 31, 2000, we
acquired interests in 40 associated companies, established a total of 13 associated companies whose opportunities were consistent with our former business strategy, while further developing our
operational procedures and capabilities.

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In
February 2001, we announced our strategy to focus primarily on enterprise Web solutions, and changed our name to divine, inc. Since then, interests in our associated
companies that provide Web-based technology, software, professional services, and managed applications are no longer reflected separately but have become integrated into our core business
strategy and operating model as a fully integrated set of products and services. Our other associated companies, offering software and services focused on e-commerce and vertical markets,
were included in our divine interVentures portfolio. As of December 31, 2001, we have completely written off our investments in the associated companies in our divine interVentures portfolio,
other than amounts included in available-for-sale securities.

We
have executed a disciplined acquisition strategy enabling us to acquire market-leading technology, significant intellectual property, and world-class talent that round out our
extended enterprise solutions. We have acquired companies providing professional services, Web-based technology, and managed services, positioning us to provide comprehensive solutions and a single
point of accountability to our customers.

divine Strategy

Our goal is to become the recognized leader in advanced enterprise Web solutions that offer global businesses the ability to improve collaboration, workflow, and
business relationships through delivery of a powerful combination of technology, software, services and managed applications. As the flow of information becomes more liberated and complex, we believe
that a new breed of provider must unite the skills and emerging technologies required to create the advanced enterprise Web solutions that allow companies to go beyond transaction processing. In order
to reach this goal, we have adopted these key strategic objectives:



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divine Business Groups



Our Professional Services group offers clients a single source for a comprehensive range of services required to successfully design, develop, and implement
integrated solutions. This group applies its expertise in technology, infrastructure, and marketing services across a broad spectrum of leading technologies. From legacy systems integration to brand
extension, we deploy solutions designed to improve clients' productivity and competitive position, enable them to more fully engage business communities, optimize enterprise knowledge, and improve
core value-chain processes.

Our
Professional Services employees have demonstrated expertise in the following areas:



Our Software Services group provides the technologies and applications that organizations need to optimize the outer reaches of their value
chaintheir customers and other constituencies. Over the last decade, companies have invested billions of dollars in technology infrastructure systems, and now face the challenge of
extending them into customer, partner, and supplier communities. To help our customers meet this challenge, divine Software Services provides industry-leading software services in the following areas:





divine's Managed Services group provides solutions, including managed hosting and applications platforms, for complex, mission-critical applications. We build and
engineer managed hosting solutions

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from the ground up to support the highest levels of application availability. The applications platform provides the technical infrastructures that organizations need to implement and manage their
systems cost-effectively, reliably, and without over-burdening resources. Our managed services include providing, configuring, operating, and maintaining the hardware,
software, and network technologies necessary to implement and support complex applications. We also offer additional service options, such as scalability and architecture testing, storage solutions,
and security services, including firewalls. divine Managed Services supplies solutions that deliver:



divine Products and Services



divine MindAlignenables entire organizations to communicate in real time and work together on solutions, regardless of the
location of the participants. Secure and centrally managed, divine MindAlign offers a wealth of advanced features such as presence awareness, rich content and data sharing, content filtering, instant
message history, back-chat search tools, real-time partner access, security and authentication, structured content and delivery, co-branding, and auditorium mode.

divine OpinionWareprovides a platform for deploying and structuring dialogue. It allows knowledge workers and management
across an organization's infrastructure to create, publish, and distribute Web content and analyze feedback and discussion touch-points, resulting in higher-quality interactions, better
decision-making, and increased loyalty. OpinionWare is designed to help clients increase web site time and traffic by facilitating customization of their sites for their customers. Clients using
OpinionWare can use their existing tools to collect data and conduct surveys that reflect and maintain their existing brand presence on the Web. Other advanced features include web site integration
and external data integration, which eliminates the need to repeatedly redevelop questions for multiple surveys.

divine ShowCaseprovides solutions designed to increase business-to-business collaboration and
selling. It enables the creation, publication, and distribution of live and on-demand multimedia to large audiences through Web-based environments. divine ShowCase also
virtually eliminates dependency on third parties for webcasts. By fully integrating video, audio, and data, it provides a complete medium for remote learning. It also offers an ideal solution for
internal and external training and communication, and stores presentations for future use. ShowCase is scalable and customizable and offers the security and advanced features necessary to meet
business mandates for reducing travel costs, shortening new product launch times, and quickly updating international teams on corporate strategy.

divine Athenacaptures and stores documents and knowledge from across an enterprise and makes them available from a single
point of access. Athena can operate as a stand-alone application or as part of an enterprise portal and is designed to promote knowledge sharing through easy access to vital information. Users can
search and retrieve documents in Lotus Notes or Word, topical e-mails from experts within an organization, or information from other data repositories. By allowing users to

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pull information on request, and pushing relevant content to the right business owners, Athena enables better informed business decisions.

divine fuseis a centralized, Web-based project team collaboration tool that streamlines and simplifies project management
processes. By integrating project management tools, document management capabilities, and real-time communication tools, divine fuse provides a complete solution for bringing together widely dispersed
teams and global organizations. Accessible from any web browser, it allows users to monitor multiple projects from a single interface and generate customized reports to better manage and collaborate
around projects. divine fuse promotes effective communications in real time, keeping internal staff, partners, and customers up-to-speed.



divine Content Serveris a modular set of content-driven applications for e-business projects such as enterprise
portals, department sites, customer/partner Web sites, and commerce implementations. It is engineered to enable users to manage information, customize interactions, and integrate
back-office data. divine Content Server mixes robust content functionality with a high-performance technology base and provides an open, extensible framework for growth. It is
an ideal solution for large organizations requiring a single, cost-effective platform that can deploy information-rich applications and initiatives such as portals, marketing
campaigns, business-to-business catalogs, and publications. Licensed by more than 300 customers in 43 countries, divine Content Server has been recognized as an
industry leader by Forrester Research's Tech Rankings and awarded the Market Engineering Award from Frost and Sullivan.

divine Participant Serveras the platform of choice for divisions or departments lacking large technical teams, that need to
rapidly deploy a feature-rich, user-focused Web site that is connected to enterprise applications. This solution supports efficient management of Web content through features
that encourage consistent site design and branding. Participant Server also automates content workflow from authors to reviewers to viewers. By providing a streamlined interface, Participant Server
enables business users to easily update their sites without having to learn new tools. divine Participant Server is currently used by more than 150 customers, including American Express Travel
Services, Sharp Electronics, and Eastman Chemical.

divine Enterprise Content Centerworks within intranets, extranets, and portals to extend business benefits. Providing a
channel for the delivery of business content, aggregated content purchasing, controlled costs and personalization at the desktop, this solution helps businesses streamline practices, increase
productivity, and lower costs of ownership. It is also a gateway to one of the largest Extensible Markup Language (XML) repositories of business information in the world, enabling users to search
across multiple information sources. One key feature isReal-Time News, which delivers news feeds from premium sources selected and
customized by customers.Streaming Mediaallows users to create, distribute, and manage video over the Web, creating an ideal outlet for broadcasting
presentations, e-learning materials and meetings.Content e-Procurementlets individuals search and order information services
from over 200,000 premium content sources, whileTrackerprovides a clear understanding of which content and tools are used by and add actual value to
an organization.



divine Conversationsis a powerful collection of voice-based customer contact tools that allows call centers to contact more
customers, use fewer agents, and track all information through its monitoring and reporting features. This solution combines predictive dialing with campaign management capabilities, enabling
companies to significantly reduce abandonment and nuisance rates, while improving overall call center efficiency and productivity.

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divine XChangeis an award-winning customer contact solution specifically designed for call centers where campaigns, data,
interface, and scripting rules constantly change. XChange is designed to operate on existing networks, using existing fileservers and data tools, and works with phone systems, e-mail, fax,
and voice-over-Internet protocal. It offers increased productivity for the telemarketing, fundraising, market research, and polling industries and gives call centers an
extensive array of affordable options without sacrificing daily ease-of-use.



divine Synchrony Suitecombines integrated communication channels with other legacy data, allowing agents an instant and
complete view of the customer, including all historical contact channels and interactions. divine Synchrony features Agent Anywhere, which connects contact centers across the globe with the same data
and application servers and also allows employees the flexibility of working from home. Shared Agent supplies access to multiple campaigns from a single screen or view, so that agents can handle
interactions for different groups or divisions within the organization.

divine NetAgent Suiteorganizes multiple communication channels into a standardized interface, permitting customers to
interact via e-mail, Computer Telephony Integration (CTI)-based voice, voice-over-Internet protocal, or live Web chat. NetAgent EMAIL supports increases in the
quantity and accuracy of e-mail processing. NetAgent ANSWER is an intelligent, auto-response application that filters incoming e-mails and provides timely
responses. NetAgent CHAT routes requests to appropriate agents and allows multiple simultaneous online sessions. NetAgent TELEPHONY enables call centers to integrate inbound Public Branch
Exchange/Automated Call Distribution (PBX/ACD) calls and desktop phones with NetAgent CHAT. NetAgent WIRELESS provides wireless monitoring of call center performance, while NetAgent INTERNATIONAL
permits communication around the globe in over a dozen languages.



divine Global Library Servicesdelivers high-quality personal service, comprehensive management reporting, and
industry-leading Web-based solutions to manage and access print and electronic journals.



Acquisition and Procurement Servicesprovides Web-based solutions that manage the challenges presented by the acquisition,
organization, and management of information resources in corporations worldwide.



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Electronic Content Servicesprovides simple solutions for accessing, licensing, evaluating, and delivering e-content to the
desktop.



divine Content Packagesfacilitate global desktop to authoritative, industry-specific research materials. For a flat fee,
users can efficiently search content and the Internet at the same time. Clients also have the option to license content from several sources to create custom packages.The
Special Collection is an online business library including 70 million pages of full-text content from over 7,000 sources such as trade journals and
business, medical, and scientific publications.Additional Premium Contentincludes resources such as Reuters Online, Investext, Corptech, and real-time
newswires. All content is available on a platform-neutral web interface and users can access it through alternative search methods. divine Content Packages bring about increased employee productivity,
enhanced competitor intelligence, and improved decision-making, typically accompanied by rapid return on investment.

divine Search Toolkitis a hosted search solution that can be installed on a client's Web, extranet, or intranet site. It can
perform full-text searches of the client's site, internal content, vertical, or custom-defined sections or divine's libraries. A turn-key solution, Search Toolkit enables the client to control its
"look and feel" and see results displayed in the client interface; yet it requires no investment in hardware, software, or human capital. Extremely secure and simple to implement, Search Toolkit can
search virtually any type of database or file format.

divine RivalEye,a Web-based custom microsite, features information on a company's industry, competitors, customers, supply
chain, or other designated topics. Easy-to-use monitoring of the external business environment enables quick and effective decision-making that can lead to new opportunities and increased revenues.
Clients use RivalEye as a competitive intelligence or business planning tool, anticipating change and adjusting strategies as regular updates and dynamic content provide timely coverage. Key
differentiators of this solution include unlimited access across the enterprise, use of Custom Search Folders, and access to vast databases of licensed content and large web databases.
Clients experience savings in employee time because divine handles development and updates.

divine SinglePointis a fully hosted solution, developed and maintained by divine's staff, that allows knowledge workers
simultaneously use all of their information sources, such as licensed subscription sources, the Web, and an online business library of 70 million pages, with one login, one search, and one user
interface. Advanced search technology helps users to easily and efficiently get results that are ranked by relevance and classified to a uniform standard. Simple interface, integrated login, and
customized document access control allow SinglePoint to be rolled out enterprise-wide, simplifying seat administration and fostering shared access of relevant information.

divine Product Training

Education Serviceprovides user administration and system administration training to ensure successful implementation and support for each
solution. We also deliver training programs that increase organizational adoption and effective employee utilization of divine product solutions.

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Trainingis designed around specific client needs and the target audience. Training offerings include instructor-led and
Web-based delivery. Instructor-led courses are offered at client sites or hosted at our state-of-the-art Education Centers. Additional
customized training and knowledge transfer sessions are also available to meet more intensive client needs.

Product Support and Customer Serviceprovides our customers with efficient, high quality support delivered by highly skilled professionals
and leveraged by well-defined processes. We utilize divine's own product suites for a world-class approach to customer service. Support team members are focused on meeting customers' business needs as
well as providing complete knowledge about divine's suite of products. To achieve our goals, we offer continuous global support to customers including access to our agents via phone, e-mail and the
Web. Technical support is available anytime to answer questions about products or assist with technical issues.

Sales and Marketing



We market and sell our solutions using a combination of direct and indirect distribution channels We also use a variety of marketing programs, executed through
our channels and partners, to build awareness for our offerings and generate sales leads. We target Global 5000 and high-growth middle market firms, primarily in the financial services,
insurance, energy, pharmaceutical, biotechnology, and telecommunications industries. Our overall sales approach typically includes on-site technical systems evaluations performed by our
pre-sales staff, followed by product demonstrations and negotiations with our sales staff.

Direct Sales.Our principal sales channel is our direct sales organization, which is organized primarily by geographic
regions. Our sales efforts are concentrated primarily in North America and Europe, but also extend to Asia and Australia. We also maintain an inside sales organization that uses our call centers as
prospecting tools to identify and develop qualified leads with existing clients for follow up by the direct sales organization.

Indirect Sales through Strategic Alliances.We complement our direct sales efforts with indirect sales channels through
strategic alliances with Value-Added Resellers (VARs), Original Equipment Manufacturers (OEMs), systems integrators, and other partners in both domestic and international markets.

Marketing.We support our sales efforts with a variety of marketing programs designed to build brand awareness, attract
prospects, and retain clients, including: market research and industry analysis; press releases; industry analyst briefings; customer relationship/loyalty marketing programs; partner marketing
programs; our web site (www.divine.com); email and direct mail marketing programs; offline and online seminars and webinars; trade shows, speaking engagements; and co-sponsored partner
programs. Our internal marketing organization produces materials describing our core capabilities, including new services and product upgrades, such as brochures, data sheets, and white papers as well
as online presentations and demonstrations to support the sales staff.



divine's Professional Services group delivers and sells its services through a network of branch offices located throughout North America, Europe, Asia, and
Australia.

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We offer software services through a direct sales organization with offices worldwide, and we maintain a network of distributors and VARs to
re-license our products. Our VARs and distributors are independent organizations that perform some or all of the following functions for our products: sales and marketing; systems
implementation; and integration and ongoing consulting and technical support. We believe that our VARs and distributors have significant influence over product choices made by our customers and that
our VAR and distributor relationships are an important element in our marketing, sales, and implementation efforts. In addition, we maintain strategic alliances with entities that provide
complementary products and services, and that have the ability to influence the customer's selection of software services.



We market and sell our managed services primarily using our direct sales organization. In addition, we utilize direct mail and telemarketing campaigns targeted at
information technology decision makers and advertising in magazines targeted at developers and information service professionals. We also advertise online and exhibit at trade shows and conferences.

Acquisitions

Through integrating the products and services of acquired companies into our infrastructure, divine extends a broader array of offerings and delivers greater
value to all our constituencies. We introduce combined product suites to gain financial and market leverage from incremental revenue and operational efficiencies of integration.

Since
January 2001, we have completed numerous acquisitions, including:



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We
anticipate that the integration of these companies into our products and services offering will help us to deliver a combination of professional services, software services, and
managed services to our

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customers. Our business strategy includes the acquisition of other businesses that are complementary to ours, including other providers of enterprise software products or professional services.

Competition

The market for our products and services is relatively new, intensely competitive, fragmented, quickly evolving, and subject to rapid technological change. We
believe the primary competitive factors in our markets include breadth of offerings, price, flexibility, scalability, functionality, ease of use, ease of deployment, reputation, brand awareness,
service, and support. We expect competition to continue to increase in the future.

We
will compete with a variety of companies in each product and solutions category, independently or on an integrated basis. Some of divine's competitors include:



We
may not be able to compete successfully against current and future competitors, and competitive pressures faced by us could hurt our business and financial results. Furthermore, many
of our current and potential competitors have longer operating histories, significantly greater financial, technical,
product development and marketing resources, greater name recognition and a larger customer base than we do. As a result, they may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the development, promotion, and sale of their products and solutions than we can. Also, larger companies such as IBM, Microsoft,
Seibel, and Oracle may expand their product lines and bundle their products to discourage users from buying competing offerings. Additionally, many competitors have established and will likely
continue to establish cooperative relationships among themselves or with third parties in order to increase their market penetration.

Government Regulations and Legal Uncertainties

Due to the Internet's popularity and increasing use, new laws and regulations may be adopted that could have an adverse effect on us. In particular, states may
impose discriminatory, multiple, or special taxes on the Internet in the event the current moratorium on the application of these taxes, due to end on November 1, 2003, is not extended. If this
moratorium ends, Federal taxes also may be imposed on the use of the Internet. These state and federal taxes could cause a decrease in the volume of e-commerce and, therefore, the demand
for our products and services. The enactment of any additional laws or regulations, including international laws and regulations, could impede the growth of the Internet and e-commerce,
which could decrease our revenue and place additional financial burdens on our business.

Federal,
state, or foreign agencies have also adopted, and may continue to adopt, laws or regulations affecting the use of outbound call processing systems. These laws or regulations
could limit the market for our products, or expose us to liability, which could adversely affect our business, operating results, and financial condition.

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Proprietary Rights

We rely on a combination of patent, copyright, trade secret, and trademark laws, confidentiality procedures, and contractual provisions to protect our proprietary
rights in our products and technology. We hold numerous United States and foreign patents covering processes and technologies used in telephony-based call management systems, such as inbound/outbound
call blending, call progress analysis, and screen pops of the called person's account information. We also hold several patents that assert claims for certain aspects or uses of electronic commerce
software, such as distributed commerce; secure, real-time payment using credit and debit cards over the Internet; and the use of "electronic shopping carts" and session identifiers. We
have a number of pending domestic and foreign patent applications on innovations for which patents have not yet been issued and we continually assess our technology for potential patent filings.

We
require software licensees to enter into license agreements that impose certain restrictions on their use of our software. We have also taken steps to avoid disclosure of our trade
secrets, including requiring those persons with access to our proprietary technology and information to enter into confidentiality agreements with us. In addition to our United States common law
rights in our trademarks and service marks, we pursue the registration of our trademarks and service marks in the United States Patent and Trademark Office and equivalent foreign agencies.

Employees

As of December 31, 2001, we had approximately 3,600 employees. We believe that our relations with our employees are generally good.

Risk Factors

We have incurred significant losses in the past, and we expect to incur additional losses in the future.

We incurred net losses of approximately $9,407,000 for the period from inception on May 7, 1999 through December 31, 1999, aproximately $470,319,000
for the year ended December 31, 2000, and approximately $369,824,000 for the year ended December 31, 2001. The majority of these losses in 1999 and 2000 were related to the consolidated
operations of our associated companies and charges we took to reduce the carrying values of these associated companies. The majority of our loss in 2001, however, was related to the operation of our
business and our operation of businesses we have acquired. We expect to incur additional losses for at least the next year. In addition, changes to our business strategy, operating plans, and product
lines, and any restructuring activity, may cause us to incur additional expenses. Our financial results also will be affected by our operation of businesses that we may acquire in the future, some of
which may have incurred substantial losses.

Our
operating plan depends on us achieving significant increases in revenue and cash receipts and significant decreases in expenses. There is a substantial risk, however, that our
revenue and cash receipts will not grow at a sufficient rate, and that we will not be able to reduce our expenses to keep them in line with our revenue. If we are unable to meet our revenue and
expense management goals, we will need to significantly reduce our workforce, sell certain of our assets, enter into strategic relationships or business combinations, discontinue some or all of our
operations, or take other similar restructuring actions. While we expect that these actions would result in a reduction of recurring costs, they also may result in a reduction of recurring revenues
and cash receipts. It is also likely that we would incur substantial non-recurring costs to implement one or more of these restructuring actions.

Our liquidity is limited.

We have never generated positive cash flows from operations. Our current liquidity and capital resources are limited. To succeed, we must in the near term reduce
our rate of cash consumption and

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improve our cash position. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources."

Our stockholders may be significantly diluted.

We are exploring a number of alternatives to generate cash, including acquiring other entities that have substantial cash balances, selling certain assets, and
new debt or equity financings. We do not currently have in place any agreements to provide us any of these sources of funds, and these sources of funds may not be available to us on favorable terms,
if they are available to us at all. In addition, any of these transactions also could result in significant equity dilution to the holders of our common stock at the time of the transaction, or later.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources."

If our common stock is delisted from the Nasdaq National Market, the liquidity, visibility, and price of our common stock may decrease.

Since our initial public offering in July 2000, our common stock has been listed on the Nasdaq National Market. Shares of our common stock could be
delisted from the Nasdaq National Market if we fail to satisfy the continued listing requirements of the Nasdaq National Market, including the minimum bid price of $1.00 per share. On
February 14, 2002, we received a letter from Nasdaq informing us that, among other things, for the past 30 consecutive trading days, the price of our common stock had closed below the $1.00 per
share requirement for continued inclusion in the Nasdaq National Market. In addition, the letter notified us that if the minimum bid price for our common stock had not closed above $1.00 for at least
10 consecutive trading days before May 15, 2002, our common stock would be delisted from the Nasdaq National Market, pending any appeals to Nasdaq that we may make. In the event that our common
stock has not regained compliance with this minimum bid price requirement by May 15, 2002, we intend to appeal any delisting procedure and to submit to our stockholders a proposal to effect a
reverse stock split through a share combination.

If
our common stock is delisted from the Nasdaq National Market, we would be forced to list our common stock on the Nasdaq SmallCap Market, OTC Bulletin Board, or some other quotation
medium, depending upon our ability to meet the specific listing requirements of those quotation systems. If this happens, an investor might find it more difficult to buy and sell, or to obtain
accurate price quotations for, shares of our common stock. This lack of visibility and liquidity could further
decrease the price of our common stock. In addition, delisting from the Nasdaq National Market might negatively impact our reputation and, as a consequence, our business.

We have been in business for only two years, have little operating history, and have a new business strategy that may continue to change, which makes it difficult to evaluate
our business.

We were formed in May 1999 and began operations as an Internet holding company engaged in business-to-business
e-commerce through a community of associated companies. We announced a new strategy to focus on enterprise Web solutions in February 2001. Because we have only recently begun
operating under this new business strategy, there is limited data upon which you can evaluate our prospects. As we continue to analyze business plans and internal operations in light of market
developments, we may decide to make further substantial changes in our business plan and organization. These changes in business strategy may include moving into areas in which we have little or no
experience. Furthermore, our future business strategy will depend on our ability to successfully acquire and integrate other businesses as we continue to seek to expand our portfolio of products and
services. We are, and will remain for the foreseeable future, subject to risks, expenses, and uncertainties frequently encountered by young companies, and it will continue to be difficult to evaluate
our business and its likelihood of success.

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Our overall performance and quarterly operating results may fluctuate and will be affected by the revenues and expenses generated from the products and services of businesses
we acquire and will be affected by fluctuations in the sales of these products and services.

We expect the revenues of businesses we acquire to comprise a significant portion of our revenues in the future. In particular, we expect the revenues of
RoweCom Inc., a provider of knowledge resources which we recently acquired, to represent a significant portion of our revenues because RoweCom historically has recognized as revenue its cost of
the knowledge resource it sells plus the fee retained by RoweCom. Fluctuations in the revenues generated from our offering of customer interaction management ("CIM") solutions, content management,
knowledge resources, and professional services will likely impact our overall performance, and risks relating to our CIM solutions, content management, knowledge resources, and professional services
may affect our success as a whole.

Moreover,
our revenues and results of operations have varied substantially from quarter to quarter. We expect large fluctuations in our future quarterly operating results due to a number
of factors, including:



Because
RoweCom's cash flow is seasonal in nature, RoweCom periodically will have to rely on financing from us or third parties to support its needs for working capital. RoweCom has an
established practice of paying publishers 30 to 60 days before receipt of its customers' funds. Consequently, RoweCom anticipates making substantial additional expenditures in the fourth
quarter of each year, while receiving the majority of its cash receipts relating to those purchases late in the first quarter of the following year. Given these seasonal cash flow imbalances, if
RoweCom has an unexpected demand for liquid capital, or does not have financing available on commercially reasonable terms, or at all, when needed, it could have a material adverse effect on our
future results of operations and financial condition.

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If we do not successfully implement our acquisition strategy or address the risks associated with acquisitions, our growth and ability to compete may be impaired.

Our business strategy includes the acquisition of other businesses that are complementary to ours, including other providers of enterprise software products,
professional services, or managed applications. We may not be able to identify suitable acquisition candidates available for sale at reasonable prices, consummate any acquisitions, or successfully
integrate any acquired businesses into our operations. Acquisitions, including our recently completed acquisitions of eshare communications, Inc., Open Market, Inc., RoweCom Inc.,
Eprise Corporation, and Data Return Corporation, and our pending acquisition of Delano Technology Corporation, involve a number of special risks and challenges, including:



If
we are unable to successfully implement our acquisition strategy or address the risks associated with acquisitions, our growth and ability to compete may be impaired.

If
we engage in future acquisitions, we might finance these acquisitions with available cash, the proceeds from possible debt financing, the issuance of additional equity securities
(common or preferred stock), or a combination of the foregoing. We may not be able to arrange adequate financing on acceptable terms. If we proceed with one or more significant future acquisitions, we
may use a substantial portion of our available cash to consummate the acquisitions. If we consummate one or more significant acquisitions by issuing additional equity securities, the market price of
our common stock could decline and stockholders could suffer significant dilution. Furthermore, sellers may be reluctant to accept divine common stock as consideration at its recent price level and
given its historical volatility, in which case our ability to complete further acquisitions could be significantly limited.

For
most of the businesses that we may acquire, we will likely have to record significant goodwill and other intangible assets, and generally accepted accounting principles may require
us to recognize substantial amortization charges on the other intangible assets, reducing our future reportable earnings. We also will have to periodically test our goodwill and other intangible
assets for impairment. If we determine that the value of the goodwill and/or the intangible assets have been impaired, we will be required to recognize substantial charges that would adversely affect
our operating results. In addition, these acquisitions could involve significant non-recurring acquisition-related charges, such as the write-off or write-down of
software development costs or other intangible items.

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Our failure to retain key personnel may negatively affect our business.

Our success depends on our ability to retain senior executives and other key employees who are critical to the continued advancement, development, and support of
our products and services and ongoing sales and marketing efforts. The loss of any key personnel or any significant group of employees could negatively affect our future business and prospects. If our
management does not succeed in their roles, or we are not able to effectively allocate management responsibilities and cause our officers and senior managers to operate effectively as a group, our
business could be negatively affected.

Employee
morale and our ability to attract and retain qualified employees may also be adversely affected by the decline and substantial fluctuation in the market price of our common
stock since its initial public offering, as many of our employees hold options with exercise prices far greater than our recent stock price.

Revenues from our professional services division are difficult to predict because they are derived from project-based engagements.

For the year ended December 31, 2001, we derived approximately 77% of our revenues from professional services. Almost all of these revenues were from
project-based client engagements, which vary in size and scope. As a result, the revenues of our professional services division are difficult to predict because a client that accounts for a
significant portion of these revenues in one period may not generate a similar amount of revenues, if any, in subsequent periods. In addition, because many of our professional services engagements
involve sequential stages, each of which may represent a separate contractual commitment, a client may choose not to retain us for subsequent stages of an engagement or for new professional services
projects.

If we cannot keep our billable professionals engaged on client projects, our future revenues could decline and our operating results could be adversely affected.

Virtually all the client contracts of our professional services division allow the client to terminate our services on relatively short notice and do not
guarantee us any specific or minimum amount of business from the client. To the extent that any significant clients decrease their use of our professional services, delay an engagement, or terminate
their relationship with us, the revenues of our professional services division could decline substantially and our overall operating results could be adversely affected to the extent we are unable to
quickly redeploy our billable professionals to other client engagements.

We may not be able to compete successfully against current and future competitors, and competitive pressures faced by us could hurt our business and financial results.

The market for our products and services is intensely competitive, fragmented, and subject to rapid change. We compete with a variety of companies that provide
software services, professional services, and managed services independently or on an integrated basis. We may not be able to compete successfully against current and future competitors, and
competitive pressures faced by us could hurt our business and financial results. Furthermore, many of our current and potential competitors have longer operating histories; significantly greater
financial, technical, product development, and marketing resources; greater name recognition; and a larger customer base than we do.

If we do not expand our customer base, we may never become profitable and our stock price will likely decline.

The market for many of our products and services is newly emerging. As a result, we cannot accurately estimate the potential demand for them. We believe that
market acceptance of many of our products and services will depend principally on our ability to:



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Our
inability to accomplish any of the foregoing may limit our ability to expand our customer base. If our customer base does not expand, we may never become profitable and our stock price will likely
decline.

Our success depends upon the market for Internet services, which, along with the general economy, is experiencing a downturn.

During late 2000 and 2001, and particularly since September 11, 2001, the market for Internet services and technology experienced a significant decline.
This decline is at least partly attributable to funding difficulties experienced by many companies, a general economic slowdown, and instability in the financial markets. These developments have
caused many of our current and potential customers and clients to cancel, reduce, and/or delay some projects. A prolonged economic slowdown or continued uncertainty about the future of the market for
Internet services also will adversely affect our business and financial results. If demand for our products and services does not improve, increased competition for business may result in significant
decreases in the prices we charge for our products and services. The market for our products and services may not improve in a timely manner or to the extent necessary to allow us to achieve and
sustain profitability or viability in the near future.

Our success will depend upon the ability of our products to work with a large variety of hardware, software, database, and networking systems.

The success of our products will depend on the ability of our products to integrate and be compatible with customer systems, particularly hardware systems,
operating systems, and data sources, as well as or better than competing products. The success of our products will also depend on the ability of our existing products to work well with one another,
with new products we develop, and with new software developed by third parties. We currently serve, and intend to continue to serve, a customer base with a wide variety of hardware, software,
database, and networking systems. If we cannot support an increasing number of systems in the future, we might not gain broad market acceptance.

Customers will be less likely to accept our products if we are unable to introduce in a timely manner new software products and enhancements that meet industry requirements.

The market for our software products is subject to rapid technological change, changing customer needs, frequent new product introductions, and evolving industry
standards that may render our existing products and services obsolete. As a result, unforeseen changes in customer and technological
requirements for application features, functions, and technologies could limit our ability to develop market share or could rapidly erode our position in those markets in which we have an established
presence. Our growth and future operating results will depend in part upon our ability to develop and introduce new applications that anticipate, meet, or exceed technological advances in the
marketplace, meet changing customer requirements, respond to competitive products, and achieve market acceptance.

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New products, platforms, and language support typically require long development and testing periods. New products or enhancements may not be released according to schedule or may
contain defects when released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products, or customer claims against us, any of which could harm our
business. Our product acquisition, development, and testing efforts have required, and are expected to continue to require, substantial investments. We may not possess sufficient resources to make
these necessary investments.

We
also expect to develop and introduce new and enhanced versions of products as an integrated suite. In addition to the risks and uncertainties inherent in the development and
introduction of new products, we will face significant challenges in developing and introducing new products and versions that work together effectively and allow customers to achieve the benefits of
a broader product offering. We may not be able to identify or overcome these challenges.

If we cannot cross-sell the products and services of our acquired companies to our other customers, we will not achieve one of the expected benefits of our
acquisitions.

After we acquire a company, we intend to offer the products and services of that company to our existing customers and the customers of our other acquired
companies, and to offer our products to the existing customers of the acquired company. One company's customers may not have an interest in the other companies' products and services. If we fail to
cross market our products and services, we will not achieve one of the expected benefits of our acquisitions, and this failure could have a material adverse effect on our business, financial
condition, and operating results.

Our business may be adversely affected if there are defects in our software or we are unable to acquire third-party software or hardware that is error-free.

Software products as complex as those that we offer may contain errors that could occur at any point in a product's life cycle. We have, in the past, discovered
software errors in certain of our products and have experienced delays in shipment or implementation of products or services during the period required to correct these errors. Despite extensive
testing by us and by our current and potential customers, errors in our software may be found in the future. This could result in a loss of, or delay in, market acceptance and sales; diversion of
development resources; injury to our reputation; or increased service and warranty cost. In particular, the call center environment is characterized by a wide variety
of standard and non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time consuming and will limit our ability
to uncover all defects prior to shipment and installation at a customer's location. We also license certain software used in our products from third parties, and our products are designed to operate
on certain hardware platforms manufactured by third parties. Third-party software or hardware may contain errors that we depend upon others to correct. These errors could cause problems with the
installation and operation of our products, which could harm our business.

We may face potential liability to customers if our servers, systems, or products, or our customers' systems, fail.

Our software, portal, and applications products and managed and professional services are often critical to the operation of our customers' businesses and provide
benefits that may be difficult to quantify. If one of our servers, systems, or products, or a customer's system, fails, the customer could make a claim for substantial damages against us, regardless
of our responsibility for that failure. The limitations of liability set forth in our contracts may not be enforceable in all instances and may not otherwise protect us from liability for damages. Our
insurance coverage may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims. In addition, the insurer might disclaim coverage as to any future
claim. If we experience one or more large claims against us that exceed available insurance coverage or result in changes in our insurance policies,

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including premium increases or the imposition of large deductible or co-insurance requirements, our business and financial results could be hurt.

We could lose our competitive advantage if we fail to adequately protect our proprietary rights, and any related litigation could be costly and time consuming.

We rely on a combination of patent, copyright, trade secret, and trademark laws, confidentiality procedures, and contractual provisions to protect our proprietary
rights in our products and technology. These measures may not be adequate to protect our trade secrets and proprietary technology. As a result, unauthorized third parties may copy or otherwise obtain
and use our products or technology. We may not be able to detect all instances of infringement. Furthermore, we may be subject to additional risks as we enter into transactions in countries where
intellectual property laws are not well developed or are poorly enforced. Legal protection of our rights may be ineffective in these countries. If we must engage in litigation to defend and enforce
our intellectual property rights, either domestically or in other countries, we could face substantial costs and diversion of resources, regardless of the outcome of that litigation. Any future
attempt by us to enforce our intellectual property rights might not be successful, might result in royalties that are less than the cost of such enforcement efforts, or might result in the loss of the
intellectual property altogether. Even if we succeed in protecting our intellectual property, others may independently develop similar technologies or products that do not infringe on our intellectual
property.

Other companies may claim that our products infringe their intellectual property rights, which could harm our business.

Third parties may claim that we are infringing their intellectual property rights. We expect that the risk of infringement claims will rise as the number of
products and competitors in our industry grows and the functionality of products in different industry segments overlaps. To develop our services and products, we may need to acquire licenses for
intellectual property to avoid infringement of a third party's product. These licenses may not be available on commercially reasonable terms, if at all. Former employers of our present and future
employees may assert claims that these employees improperly disclosed confidential or proprietary information to us. Any such claims could be time-consuming to defend, result in costly
litigation, divert management's attention and resources, cause product shipment delays, or require us to pay money damages or enter into royalty or licensing agreements. These royalty or licensing
agreements may not be available on terms acceptable to us, if at all. In the event of a successful claim of product infringement against us and our failure or inability to license the infringed or
similar technology on commercially reasonable terms, or at all, our business, operating results, and financial condition could be materially and adversely affected.

We may not be able to prevent online security breaches, which could interrupt our operations, damage our reputation, and expose us to liability.

A party that is able to circumvent our security systems or the security systems of our customers could steal proprietary information or cause interruptions in our
operations. Security breaches also could damage our reputation and expose us to a risk of loss or litigation and possible liability. Our insurance policies have coverage limits and exclusions that may
prevent reimbursement for losses caused by security breaches. Furthermore, our servers may be vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions. We
may need to expend significant additional capital and other resources to protect against security breaches or to alleviate problems caused by any breaches. Despite these efforts, we may not be able to
prevent all security breaches.

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Restrictions relating to the privacy of Internet users and the collection and use of online data could limit the utility of the personalization functionality of our products
and, therefore, the attractiveness of those products to customers.

One of the principal features of the products of eshare communications, Inc., Open Market, Inc., Eprise Corporation, and Data Return Corporation,
each of which we recently acquired, and Delano Technology Corporation, which we recently agreed to acquire, is the ability to develop and maintain profiles of online users to assist business managers
in personalizing content and in displaying tailored commercial offers to specific online users. By limiting the ways that this feature can be used, proposed and existing legal restrictions on the
collection and use of information relating to Internet users could materially and adversely impact eshare's, Open Market's, Eprise's, Data Return's, and Delano's
products. For example, legislation has been proposed in some jurisdictions that would regulate the practice of placing small information files, or "cookies," on a user's hard drive to gather
information. Likewise, regulation of the practice of online preference marketing is also under consideration in many jurisdictions. Moreover, legislation regulating online and offline data collection
is already in place in the United States and elsewhere, including the European Union. Although regulatory and legislative efforts in this area are relatively new and still developing, they continue to
gain attention, and continued regulation and legislation in this area could adversely affect the demand for eshare's, Open Market's, Eprise's, Data Return's, and Delano's products.

Our key personnel have entered into non-compete agreements that could prevent us from engaging in certain activities and acquiring interests in some companies.

Andrew J. Filipowski, our chairman and chief executive officer; Michael P. Cullinane, our executive vice president, chief financial officer, and treasurer
and a director; and Paul L. Humenansky, our president and chief operating officer and a director, have entered into consulting and non-compete agreements with PLATINUM technologyInternational,inc., now a wholly owned subsidiary of Computer Associates
International, Inc. These agreements prohibit Mr. Filipowski until June 29, 2007, and each of Messrs. Cullinane and Humenansky until June 29, 2004, from
participating or engaging, directly or indirectly, in the development, manufacture, marketing, or distribution of any products or services offered by PLATINUM as of March 29, 1999, or any
products or services offered by PLATINUM after that date in the development of which they had actively participated. PLATINUM was, as of March 29, 1999, and continues to be, engaged in the
business of developing, marketing, and supporting software products for managing information technology infrastructures and providing related professional services. As of March 29, 1999,
PLATINUM also offered products and services for the creation, deployment, and management of Web content. Under these agreements, Messrs. Filipowski, Cullinane, and Humenansky also are
prohibited from soliciting, or assisting another person to solicit or attempt to solicit, persons or entities that were current customers of PLATINUM or its affiliates before the end of the respective
consulting periods of Messrs. Filipowski, Cullinane, and Humenansky, unless the solicitation of these customers is for goods or services unrelated to any activity that competes with PLATINUM.

To
manage divine's business effectively in light of these agreements, divine has consulted with PLATINUM and Computer Associates before making any acquisition to confirm that a breach of
these agreements would not result. These consulting and non-compete agreements could limit our business opportunities, which could impair our success.

Delays in sales and the implementation cycle for CIM solutions and managed applications could adversely affect us.

If we experience delays in, or cancellations of, sales or implementations of CIM solutions and managed applications, our business and financial results could be
hurt. To sell these products, we generally must provide a significant level of education to prospective customers regarding their use and benefits. In addition, prospective customers generally make a
significant commitment of resources in

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connection with the implementation of these products. For these and other reasons, the length of time between the date of initial contact with the potential customer and the installation and use of
these solutions has generally been six months or more. Our implementation cycle could be lengthened in the future by delays over which we have little or no control, increases in the size and
complexity of our installations, and the number of third-party systems with which our products must be integrated. In addition, any unexpected delays in individual implementations could generate
negative publicity and expose us to liability claims from our customers.

Our strategy to expand our international operations is subject to many unique risks that may prevent us from maintaining or increasing our international revenues.

A significant element of our business strategy is to expand our operations in international markets. For example, we expect our recent acquisitions of RoweCom,
Open Market, eshare, and marchFIRST GmbH to significantly increase our international presence, as each of these companies generates a significant amount of its revenues outside the United States. This
projected expansion will require significant management attention and financial resources. Because of the difficulty in penetrating new markets, we may not be able to maintain or increase
international revenues. Our international operations are subject to a number of inherent risks, which will increase as the international operations expand, including:



Although
expenses incurred in foreign countries typically have been denominated in the local currencies, revenues generated by international sales typically have been paid in U.S.
dollars, British pounds, or Euros. We could experience fluctuations in currency exchange rates in the future that would have a material adverse impact on our international operations.

Our growth in operations will likely depend upon the successful development of direct and indirect sales channels.

Our ability to achieve significant revenue growth in the future will greatly depend on our ability to recruit and train sufficient technical and direct sales
personnel and to outsource effectively our customer-support functions. We also believe that our future growth will depend on our ability to continue to develop and maintain indirect sales channels,
including VARs and distributors. Additionally, our investment of significant resources to develop these indirect sales channels could adversely affect our operating results if they do not generate
sufficient additional revenues.

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If
we are unable to recruit and retain qualified VARs and distributors, our results of operations could be adversely affected. Increased indirect sales also could adversely affect our
average selling prices and result in lower gross margins because lower unit prices typically are charged on sales made through indirect channels. Sales of products through indirect channels will
reduce our gross profits from our services because VARs and distributors provide these services.

As
indirect sales increase, our direct contact with our customer base will decrease, and we may have more difficulty accurately forecasting sales, evaluating customer satisfaction, and
recognizing emerging customer requirements. In addition, VARs and distributors may develop, acquire, or market products competitive with our products. Our strategy of marketing products directly to
customers and indirectly through VARs and distributors may result in distribution channel conflicts. Our direct sales efforts may compete with those of our indirect channels and, to the extent
different VARs and distributors target the same customers, VARs and distributors may also come into conflict with each other. Any channel conflicts that develop may have a material adverse effect on
our relationships with VARs and distributors or hurt our ability to attract new VARs and distributors.

The market price of our common stock may continue to be volatile, which could cause litigation against us and prevent our stockholders from reselling their shares at or above
the prices at which they acquired them.

From our initial public offering in July 2000 through the date of this report, the price per share of our common stock has ranged from a high of $12.44 to
a low of $0.42. The market price of our common stock has been, and is likely to continue to be, highly volatile and subject to wide fluctuations due to various factors, many of which are beyond our
control, including:



In
addition, there have been large fluctuations in the prices and trading volumes of securities of many technology, Internet, CRM, and CIM product and related professional-service
companies. Broad market and industry factors may decrease the market price of our common stock. As a result, our stockholders may be unable to resell their shares of our common stock at or above the
prices at which
they were acquired. In the past, volatility in the market price of a company's securities has often led to securities class action litigation. This litigation could result in substantial costs to us
and divert our attention and resources, which could harm our business. Declines in the market price of our common stock or failure of the market price to increase could also harm our ability to retain
key employees, our access to capital, and other aspects of our business, which also could harm our business.

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Our stockholder rights plan and provisions in our certificate of incorporation, our by-laws, and Delaware law could delay or deter tender offers or takeover
attempts that may offer our stockholders a premium for their common stock.

Our stockholder rights plan and provisions in our certificate of incorporation, our by-laws, and Delaware law could make it more difficult for a third
party to acquire control of us, even if that transaction would be beneficial to our stockholders. These impediments include:



The
existence of the stockholder rights plan and these provisions may deprive our stockholders of an opportunity to sell their shares at a premium over prevailing prices. The potential
inability of our stockholders to obtain a control premium could adversely affect the market price for our common stock.

ITEM 2.    PROPERTIES

Our corporate headquarters and principal operating facilities are currently located in approximately 126,000 square feet of leased space at
1301 N. Elston Avenue, Chicago, Illinois, which is rented under a lease with 8 years remaining. We also have administrative and other offices in approximately 76,000 square
feet of office space in Lisle, Illinois, which is rented under a lease with nine years remaining, and an office for our professional services group in approximately 50,000 square feet of
office space in Chicago, Illinois, which is rented under a lease with nine years remaining.

We
also have a number of other substantial offices that we have assumed in connection with our various business acquisitions. These offices include:



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We
are also leasing space for operational, professional services group, sales, and support centers located throughout North America, Europe, Asia, and Australia.

Our
offices are sufficient to meet our present needs, and we do not anticipate any difficulty in securing additional office space, as needed, on terms acceptable to us. We are also
attempting to sublease or terminate various of the leases for offices of the businesses that we acquired as we consolidate and integrate our acquired business operations, eliminate redundancies, and
reduce our workforce.

ITEM 3.    LEGAL PROCEEDINGS

We are a party to various claims and litigation that involve routine matters incidental to the operation of our business. In addition, we are a party to the
following legal proceedings.



On September 14, 2001, Open Market, Inc., which we acquired on October 19, 2001, was served with a complaint filed on behalf of El Universal
On Line de Mexico, S.A. de C.V. in the Middlesex County Superior Court for the Commonwealth of Massachusetts. The complaint alleges, among other things, that certain Open Market software purchased by
El Universal through a representative of Open Market did not perform as warranted or represented, that Open Market breached implied warranties on international sale of goods, and that it fraudulently
induced El Universal to purchase the software. El Universal is claiming damages, including consequential damages for, among other things, loss of business, of approximately $5,000,000. We filed a
motion to dismiss the case in October 2001. We are in the early stages of the litigation. We intend to defend the case vigorously.



Six putative class actions were filed between June 14, 2000 and August 10, 2000, against Open Market and certain of its officers and directors in
the United States District Court for the District of Massachusetts. These actions, each filed on behalf of an alleged class of Open Market stockholders who purchased Open Market common stock between
November 18, 1999 and April 18, 2000, allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. In particular, they allege, among other things, that during the putative class period, the defendants sought to mislead the investing public by overstating Open Market's prospects and the
quality of its products. The plaintiffs are seeking monetary damages and other appropriate relief. On January 25, 2001, the court entered an order consolidating these actions into one action.
This consolidated case is captioned:In re:Open Market Securities Litigation, C.A. No. 00-CV-11162. On
April 13, 2001, the plaintiffs filed their consolidated class action complaint. On May 29, 2001, Open Market filed a motion seeking dismissal of all counts of the consolidated complaint.
On August 3, 2001, the plaintiffs' filed their motion in opposition to the defendants' motion to dismiss. On September 7, 2001, the defendants filed their reply to the plaintiffs'
opposition motion. On November 20, 2001, the court heard oral argument on the defendants' motion to dismiss. We are in the early stages of the litigation, but we believe Open Market and the
other defendants have meritorious defenses against this suit. If the court denies the motion to dismiss, we intend to defend the case vigorously.

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IMC is a former customer of eshare communications, Inc., which we acquired on October 23, 2001. IMC purchased, from eshare, software and maintenance
on a PhoneFrame network obtained from AT&T. In May 1999, IMC filed suit in Ontario, Canada against eshare and AT&T. This lawsuit alleges breach of contract, negligence, misrepresentation, and/or
conspiracy, and claims damages of $10,000,000. Notwithstanding this claim, IMC recently offered to settle the case for $250,000. eshare declined the settlement offer, and discovery is scheduled to
begin in the near future. We are in the early stages of the litigation, and intend to defend the case vigorously.



On February 22, 2001, RoweCom Inc., which we acquired on November 6, 2001, was served with a lawsuit brought by two former employees and
shareholders of RoweCom, David Rifkin and Julie Beckerman. In that case, the plaintiffs alleged that RoweCom had breached its employment agreements with the plaintiffs, resulting in constructive
termination of their employment with RoweCom. In addition, the plaintiffs alleged that RoweCom failed to register certain securities with the Securities and Exchange Commission, causing the plaintiffs
to be unable to sell their RoweCom stock at an advantageous price. The lawsuit seeks damages of $1,400,000. We are in the early stages of the litigation. RoweCom believes that the lawsuit is without
merit and we intend to defend the case vigorously.



RoweCom and Data Return are each one of numerous companies that have been named as defendants by purchasers of securities in public offerings in certain purported
class actions brought in the U.S. District Court for the Southern District of New York,In re:Initial Public Offering Securities Litigation,
21 MC 92 (SAS), On behalf of Plaintiff, et al. v. RoweCom Inc., et al., and On behalf of Plaintiff, et al. v.
Data Return Corp., et al. The complaints also name one or more of each company's underwriters and certain officers and directors of each company in their respective initial public offerings. The
complaints allege violations of the federal securities laws regarding statements in each company's initial public offering registration statement and prospectus concerning the underwriters' activities
in connection with the underwriting of each company's common shares to the public. The actions seek rescission of the plaintiff's alleged purchases of common shares and other damages and costs
associated with the litigation. Various plaintiffs have filed similar actions asserting virtually identical allegations against more than 100 other companies.

We
are in the early stages of this litigation, believe that we have meritorious defenses to these lawsuits, and will vigorously defend them.



On November 2, 2001, CyberGuard Corporation filed a lawsuit against Data Return in the United States District Court of the Southern District of Florida
alleging Data Return breached a Master Purchase and Sale Agreement by discontinuing the purchase of certain hardware and software firewalls. CyberGuard is seeking, among other remedies, damages of
approximately $4,200,000. Data Return has responded that the firewalls never functioned properly and that it was not obligated to purchase malfunctioning equipment. We have denied all of CyberGuard's
allegations and have moved to dismiss the complaint. We intend to defend the case vigorously.

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Electro Rent Corp filed suit against divine, inc. alleging breach of contract, unjust enrichment and conversion in connection with certain leased
equipment. Electro Rent is seeking, among other remedies, approximately $1,200,000. divine has recently answered the complaint. We intend to defend the case vigorously.



On December 1, 2001, Aero Fulfillment Services, Inc. ("Aero") filed suit against Oracle Corporation and divine/Whitman-Hart, Inc ("dWH")
alleging breach of contract, unjust enrichment/restitution, negligent
misrepresentation, and breach of fiduciary duty by dWH. Aero is seeking in excess of $1,500,000 in damages from dWH. dWH believes that these claims are without merit as the conduct at issue occurred
prior to dWH's acquisition of certain of the assets of marchFIRST, Inc. and dWH did not assume responsibility for the liability attendant to such conduct.

Aero
has yet to effect service of process on dWH in this action. Representatives of Aero and dWH are currently engaged in settlement discussions, though no settlement has been reached.
If a settlement cannot be reached and Aero effects service of process on dWH, we intend to vigorously defend this action.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The following summarizes the votes of our stockholders at a Special Meeting of Stockholders held on October 19, 2001:

|Matter                                                                                                               |  | For         |  | Against |  | Abstain |  | Non-Vote |  | Shares Voted
|-------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ------- |  | ------- |  | -------- |  | ------------
|Proposal to approve the issuance of divine, inc. Class A common stock in the merger with eshare communications, Inc. |  | 110,140,342 |  | 514,779 |  | 93,466  |  | 0        |  | 110,748,587 
|Proposal to approve the issuance of divine, inc. Class A common stock in the merger with Open Market, Inc            |  | 110,098,730 |  | 512,974 |  | 136,883 |  | 0        |  | 110,748,587 

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our class A common stock is traded on the Nasdaq National Market, Inc. ("Nasdaq") under the symbol "DVIN." On December 31, 2001, the last
reported sale price of our common stock on Nasdaq was $0.74 per share. At March 27, 2002, there were approximately 2,250 record holders of our common stock. The table below sets forth
the high and low sales prices per share of our common stock on Nasdaq for the periods indicated.

We
have not paid any dividends on our common stock. We intend to continue to retain any earnings to finance our growth and for general corporate purposes. We do not anticipate paying any
dividends in the foreseeable future.

Market Information

|                                                     |             | Common Stock
|---------------------------------------------------- | ----------- | ------------
|
|Period From July 11, 2000 (initial public offering): |             |             
|                                                     | 3rd Quarter |             
|                                                     | 4th Quarter |             
|Year Ended December 31, 2001:                        |             |             
|                                                     | 1st Quarter |             
|                                                     | 2nd Quarter |             
|                                                     | 3rd Quarter |             
|                                                     | 4th Quarter |             

Recent Sales of Unregistered Securities

We issued 5,500,000 shares of our class A common stock in December 2001 to pay, in full, promissory notes issued to the former stockholders of Synchrony
Communications, Inc. in connection with our acquisition of 100% of the stock of Synchrony in October 2001. We also issued warrants to purchase 44,756 shares of our class A common stock
in connection with this acquisition in October 2001.

In
October 2001, we acquired, through divine/Whitman-Hart, inc., one of our wholly owned subsidiaries, the assets of marchFIRST, Inc.'s HostOne application hosting unit. We
issued 8,196,722 shares of our class A common stock to Microsoft Corporation in exchange for the cancellation of debt owned by marchFIRST to Microsoft in connection with this acquisition in
October 2001.

In
November 2001, we issued 8,000,000 shares of our class A common stock in connection with our acquisition of the 62.6% of Latin Amercian Econetworks N.V. (known also as Dolphin
Interventures) that we did not already own.

In
November 2001, we issued 165,667 shares of our class A common stock to certain former management of SageMaker, Inc. in connection with our acquisition of
SageMaker in May 2001.

In
December 2001, we issued 255,937 shares of our class A common stock to certain former employees of Parlano, Inc. in connection with our acquisition of Parlano in
September 2001.

In
December 2001, we issued 4,801,368 shares of class A common stock in connection with our acquisition of Softmetric, Inc.

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Unless
otherwise noted, all of our class A common stock issued in the transactions described above were issued in transactions exempt from registration pursuant to Section
4(2) and Rule 506 of the Securities Act of 1933, as amended.

ITEM 6.    SELECTED FINANCIAL DATA

The following selected financial data has been derived from our audited consolidated financial statements for the years ended December 31, 2001 and 2000
and the period from May 7, 1999 (inception) through December 31, 1999. You should read this information together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

|                                                                       |  |   |             |   |   | Period from
May 7, 1999
(inception)
through
December 31,
1999 |  
|---------------------------------------------------------------------- |  | - | ----------- | - | - | ------------------------------------------------------------- | -
|
|
|
|Consolidated Statement of Operations Data:                             |  |   |             |   |   |                                                               |  
|Revenues                                                               |  | $ | 199,598     |   | $ | 44,079                                                        |  
|Total operating expenses                                               |  |   | 531,270     |   |   | 346,621                                                       |  
|Net loss applicable to common stockholders                             |  |   | (369,824    | ) |   | (528,182                                                      | )
|Basic and diluted net loss per share applicable to common stockholders |  | $ | (2.06       | ) | $ | (7.84                                                         | )
|Shares used in computing basic and diluted net loss per share          |  |   | 179,224,722 |   |   | 67,390,746                                                    |  
|                                                                       |  |   |             |   |   |                                                               |  
|
|
|Consolidated Balance Sheet Data:                                       |  |   |             |   |   |                                                               |  
|Cash and cash equivalents                                              |  | $ | 104,480     |   | $ | 252,533                                                       |  
|Working capital                                                        |  |   | 79,907      |   |   | 254,228                                                       |  
|Total assets                                                           |  |   | 874,711     |   |   | 420,181                                                       |  
|Long-term obligations                                                  |  |   | 101,294     |   |   | 7,777                                                         |  
|Total stockholders' equity                                             |  | $ | 251,759     |   | $ | 367,883                                                       |  

For
an explanation of the determination of the number of shares used in computing basic and diluted net loss per share, see Note 1(p) of the notes to our
consolidated financial statements.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We provide extended enterprise solutions for our base of over 20,000 customers. We offer Web-based software and technology that allows the critical
business units and functional areas of our clients to operate in a more cohesive manner. We also offer the services necessary to deploy these software solutions and to integrate them with existing
software and technical systems. Our product and service offerings allow us to provide a comprehensive solution for our clients. Additionally, we offer our customers a single point of accountability as
our solutions extend across the enterprise. Our extended enterprise solution is comprised of the following key components:



We
focus on Global 5000 and high-growth middle market firms, government agencies, and educational institutions. We expect that our revenues in future periods will be
generated principally through our extended enterprise solutions.

We
began operations as divine interVentures, inc. on June 30, 1999, engaging in business-to-business e-commerce through a community of
associated companies in which we invested. In 1999 and 2000, we acquired interests in 40 associated companies, established a total of 13 associated companies when we identified opportunities
consistent with our former business strategy, and also further developed our operational procedures and capabilities.

In
February 2001, we announced our strategy to primarily focus on enterprise Web solutions and changed our name to divine, inc. Since that time, we have not reflected
separately our interests in associated companies that provide solutions for the extended enterprise. Instead, the operations of these businesses are considered a part of our core business strategy.
Our remaining associated companies, offering software and services focused on e-commerce and vertical markets, were included in our divine interVentures segment. As of December 31,
2001, we have completely written off our investments in the associated companies in our divine interVentures portfolio, other than amounts included in available-for-sale securities. We do not expect
to invest additional funds into these companies in future periods.

Through
integrating the products and services of acquired companies into our infrastructure, we extend a broader array of offerings and delivers greater value to all our constituencies.
We introduce combined product suites to gain financial and market leverage from incremental revenue and operational efficiencies of integration.

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Since
January 2001, we have completed numerous acquisitions, including:



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We
anticipate that the integration of these companies into our products and services offering will help us to deliver a combination of professional services, software services, and
managed services to our customers. Our business strategy includes the acquisition of other businesses that are complementary to ours, including other providers of enterprise software products or
professional services.

Effect of Various Accounting Methods on the Consolidated Financial Statements

As previously discussed, we have held ownership interests in many associated companies since our inception. Under our new strategic focus, our acquisitions are
almost exclusively acquisitions of 100% of the stock of certain companies that fit our operating strategy. The following discussion regarding the principles of consolidations is meant to explain how
we accounted for investments in associated companies focused on e-business and vertical markets, which accounted for the majority of our consolidated operations in 1999 and 2000. These companies were
considered part of our divine interVentures portfolio throughout 2001. The significance of the operations of these associated companies on our consolidated operations decreased throughout 2001, and as
of December 31, 2001, we had completely written off our investments in the associated companies in our divine interVentures portfolio, other than amounts included in available-for-sale
securities.



Associated companies in which we own, directly or indirectly, more than 50% of the outstanding voting power are accounted for under the consolidation method of
accounting. Under this method, an associated company's results of operations are reflected within our consolidated statement of operations. Earnings or losses attributable to other stockholders of a
consolidated associated company are identified as "minority interest" in our consolidated statement of operations. Minority interest adjusts our consolidated net results of operations to reflect only
our share of the earnings or losses of a

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consolidated associated company. As of December 31, 2001, we did not reflect any minority interest liability on our consolidated balance sheet. The results of operations of our consolidated
associated companies are reflected in our consolidated financial statements from the acquisition date of the related company.



Associated companies in which we own 50% or less of the outstanding voting power, but over which we exercise significant influence, are accounted for under the
equity method of accounting. Whether or not we exercise significant influence with respect to an associated company depends on an evaluation of several factors including, among other things,
representation on the associated company's board of directors, ownership percentage, and voting rights associated with our holdings in the associated company. Under the equity method of accounting, an
associated company's results of operations are not reflected within our consolidated operating results. However, our share of the earnings or losses of that associated company is identified as "equity
in losses of associated companies" in our consolidated statement of operations.

The
net effect of an associated company's results of operations on our results of operations is generally the same under either the consolidation method of accounting or the equity
method of accounting, because, under each of these methods, only our share of the earnings or losses of an associated company is reflected in the net loss in our consolidated statement of operations.
However, the presentation of the consolidation method differs dramatically from the equity method of accounting. The consolidation method presents associated company results in the applicable line
items within our consolidated financial statements. In contrast, the equity method of accounting presents associated company results in a single category, "equity in losses of associated companies"
within our consolidated statement of operations.



Associated companies not accounted for under either the consolidation or the equity method of accounting are accounted for under the cost method of accounting.
Under this method, our share of the earnings and losses of these companies is not included in our consolidated statements of operations unless earnings or losses are distributed.

We
record our ownership interest in equity securities of our associated companies accounted for under the cost method at the lesser of cost or fair value. Those cost method associated
companies that have readily determinable fair values based on quoted market prices are classified in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."

Deconsolidation

In October 2000, Oilspot.com, Inc. ("Oilspot") repurchased an amount of its shares from us that reduced our ownership in Oilspot from 55.6% to
28.5%. As part of this transaction, the $1,500,000 note payable by us to Oilspot, and the related interest due, was cancelled. Immediately following that repurchase, we exchanged our remaining
ownership interest in Oilspot for an ownership interest of 3.0% in FuelQuest, Inc. in connection with the acquisition of Oilspot by FuelQuest. Beginning in October 2000, we accounted for
our investment in FuelQuest on the cost basis.

In
January 2001, we restructured our ownership interest in i-Street, Inc. (i-Street), such that our voting ownership in i-Street was
reduced from 63.8% to 25.1%. Beginning in January 2001, we accounted for our interest in i-Street under the equity method.

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Results of Operations

We were formed in May 1999. The discussion below regarding our results of operations includes comparisons between the year ended December 31, 2001,
the year ended December 31, 2000, and the period from May 7, 1999 (inception) through December 31, 1999 (period ended December 31, 1999). However, as of December 31,
1999, our business was in the very early stage and consisted mainly of a relatively small number of equity interests in business-to-business internet companies (associated
companies). Additionally, for the year ended December 31, 2000, our operations were derived almost exclusively from our ownership interests in these associated companies, many of which were in
the early stages of devlopment. Throughout 2001, as we have acquired companies that fit into our strategy of providing extended enterprise solutions, these associated companies have accounted for a
continuously decreasing portion of our operations. The changes in our core business since our inception significantly affect the comparability of our operations for the year ended December 31,
2001, the year ended December 31, 2000, and the period ended December 31, 1999, so as to make such a comparison almost meaningless.



Beginning in the first quarter of 2001, we segregated our operations into two operating segments. Our software, services, and hosting segment encompasses the
operations surrounding our core strategy of delivering extended enterprise solutions. Our divine interVentures segment encompasses the operations of our remaining portfolio of associated companies,
focusing primarily on e-commerce and vertical markets. Our operations for the year ended December 31, 2001 were considerably different than our operations for the year ended
December 31, 2000. This is because, beginning in 2001, we changed our business strategy from being an Internet holding company actively engaged in business-to-business
e-commerce through our community of associated companies to becoming a leader in Web-based solutions for the extended enterprise. Our operations during this period were
significantly affected by our acquisitions in 2001, which have provided us with a larger customer base and an increased revenue stream. During the year ended December 31, 2000, our operations
resulted primarily from our consolidated associated companies in the business-to-business e-commerce sector, many of which were in the early stages of development
and generated significant losses with comparably low revenue. All of these consolidated associated companies have discontinued operations, have been sold, or are now included as part of our core
business strategy. Additionally, we held investment interests in eight associated companies accounted for under the equity method of accounting as of December 31, 2001 which carried no book
value on our consolidated balance sheet as of that date. Conversely, we held investment interests in 15 associated companies accounted for under the equity method as of December 31, 2000 that
carried approximately $57,000,000 of book value on our consolidated balance
sheet as of that date. This decrease in equity-method associated companies has led to decreases in our equity in losses of associated companies.



We generated revenues totaling $199,598,000 for the year ended December 31, 2001, which is an increase of $155,519,000 over revenues of $44,079,000 for the
year ended December 31, 2000. The total revenues for the year ended December 31, 2001 included $46,224,000 from the sale of products, all of which was generated by our software, services, and
hosting segment. Product revenues included $26,567,000 from software sales contracts, $8,020,000 from sales of computer hardware, and $8,702,000 from sales of content. Revenues generated from sales of
content, as well as $20,303,000 of the revenues generated from software sales contracts, was generated in the fourth quarter of 2001. The increase in these revenues in the fourth quarter reflects the
impact on our revenues of significant acquisitions during the quarter, namely RoweCom (content) and eshare, Open Market, and Eprise (software sales

35

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contracts). The total revenues also included $153,374,000 from the sale of services, generated almost exclusively by our software, services and hosting segment, which included $137,554,000 from the
operations of divine/Whittman-Hart, $7,042,000 from managed services, and $3,712,000 from software implementation services. At December 31, 2001, we had deferred revenue of $303,663,000, of
which $269,316,000 related to sales of content. This deferred revenue will result in a significant increase in our revenues recognized during 2002.

For
the year ended December 31, 2000, we generated revenues of $44,079,000. The total revenues for the year ended December 31, 2000 included $5,316,000 from the sale of
products, including $2,267,000 related to on-line sales of retail goods and $2,787,000 related to software sales contracts. The total revenues also included $38,763,000 from the sale of
services, including $9,646,000 from web design services, $6,396,000 from marketing and public relations services, $4,524,000 from software maintenance contracts, $4,446,000 from Web-based
advertising, $3,492,000 from facilities management, $2,388,000 from hosting services, and $2,296,000 from inventory management services. Revenues of $8,605,000 were generated from transactions with
our equity method associated companies for the year ended December 31, 2000.



For the year ended December 31, 2001, our cost of revenues were $179,853,000, exclusive of $740,000 of amortization of stock-based compensation. This is an
increase of $139,642,000 over the $40,211,000 (exclusive of $1,274,000 of amortization of stock-based compensation) cost of revenues we incurred for the year ended December 31, 2000. Cost of
revenues for the year ended December 31, 2001 included $155,963,000 of direct costs of providing services, which consisted principally of $138,735,000 of salaries and benefits, $3,685,000 of
rent and facilities services,$5,646,000 of travel costs, and $5,199,000 of office
and computer supplies expense. Cost of revenues for 2001 also included $23,890,000 of direct costs of providing products. Of the direct costs of providing products, $19,106,000 was incurred in the
fourth quarter of 2001. The increase in these costs in the fourth quarter reflects the impact on our cost of revenues of significant acquisitions during the quarter, namely RoweCom, eshare, Open
Market, and Eprise. At December 31, 2001, we had deferred publisher costs of $238,522,000 related to sales of content. These deferred costs will result in a significant increase in our cost of
revenues recognized during 2002.

Cost
of revenues for the year ended December 31, 2000 included $35,941,000 of direct costs of providing services, consisting primarily of salaries and benefits, professional
services, rent and facilities services, supplies expenses, and marketing expenses. Cost of revenues for 2000 also included $4,270,000 of direct costs of providing products.



For the year ended December 31, 2001, we incurred selling, general, and administrative expenses of $176,649,000, exclusive of $8,613,000 of amortization of
stock-based compensation. This represents an increase of $26,205,000 over the $150,444,000 (exclusive of $46,367,000 of amortization of stock-based compensation) of selling, general, and
administrative expenses for the year ended December 31, 2000. These expenses for the year ended December 31, 2001 consisted primarily of $93,887,000 of employee benefits and related
compensation, $12,143,000 of travel costs, $20,064,000 of facility costs, consisting primarily of rent expense, $12,120,000 of fees for professional services, including legal, consulting, and
accounting, and $11,268,000 of depreciation expense.

Selling,
general, and administrative expenses for the year ended December 31, 2000 consisted primarily of $73,606,000 of employee benefits and related compensation, $16,289,000 of
marketing costs, $12,000,000 of travel costs, $9,820,000 of facility costs, consisting primarily of rent expense, and $9,752,000 of fees for professional services, including legal, consulting, and
accounting.

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For the year ended December 31, 2001, we incurred research and development expenses of $37,004,000 exclusive of $314,000 of amortization of stock-based
compensation. This represents an increase of $24,968,000 over the $12,036,000 (exclusive of $428,000 of amortization of stock-based compensation) of research and development expenses for the year
ended December 31, 2000. These expenses for the year ended December 31, 2001 consisted primarily of $27,636,000 of employee benefits and related
compensation, $2,833,000 of professional fees, and $2,486,000 of facility costs. Research and development expenses for the year ended December 31, 2000 consisted primarily of $5,792,000 of
employee benefits and related compensation, $2,677,000 of professional fees, and $1,779,000 of marketing expenses.



For the year ended December 31, 2001, we recorded bad debt expense of $23,379,000. This represents an increase of $17,193,000 over the $6,186,000 of bad
debt expense recorded for the year ended December 31, 2000. Bad debt expense for the year ended December 31, 2001 related mainly to accounts receivable of the publicly traded companies
acquired by us in the fourth quarter of 2001, as well as uncollectible accounts receivable of divine/Whittman-Hart.



For the year ended December 31, 2001, we incurred amortization expense of $16,091,000 on our goodwill and other intangible assets. This represents a
decrease of $4,997,000 from the $21,088,000 of amortization expense recorded by us for the year ended December 31, 2000. The decrease is mainly due to the fact that our goodwill and other
intangible assets were significantly reduced in the last half of 2000 because of impairment charges.



For the year ended December 31, 2001, we recorded in-process research and development charges of $13,741,000. Acquired in-process technology
charges relate to acquisitions in which a portion of the purchase price was allocated to acquired in-process technology and expensed immediately because the technology acquired had not reached
technological feasibility based on the status of design and development activities. No such charges were recorded during the year ended December 31, 2000.



For the year ended December 31, 2001, we recorded impairment charges of $37,864,000 related to intangible and other assets. This represents a decrease of
$19,762,000 from the $57,626,000 of similar impairment charges recorded for the year ended December 31, 2001. These charges included, but were
not limited to, write-offs of our goodwill and other intangible assets associated with our acquisitions of SageMaker and DataBites, and our acquisition of certain assets of marchFIRST.
Also included in these impairment charges for the year ended December 31, 2001 was our write-off of notes receivable from certain of our employees related to the exercise of stock
options and costs associated with an agreement to shut down the operations of Emicom.

For
the year ended December 31, 2000, we recorded impairment charges of $57,626,000 for other than temporary declines in the carrying value of certain consolidated associated
companies. These charges included, but were not limited to, write-offs of our investments in BeautyJungle, Brandango, and OfficePlanIt, each of which have ceased all meaningful operations.

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For the year ended December 31, 2001, we recorded impairment charges of $25,000,000 on prepaid co-location and bandwidth services. This prepaid
asset was originally recorded when we entered into an agreement with Level 3 Communications for the purchase of a minimum of $100,000,000 of co-location and bandwidth services over a
four-year period. Of this amount, $25,000,000 would have been credited to us as consideration for Level 3's purchase of our common shares in a private placement concurrent with our IPO in
July 2000. In August 2001, we agreed to repurchase the 5,555,555 shares of our Class A common stock owned by Level 3 in exchange for $5,555,555 and warrants to purchase 2,200,000
shares of our class A common stock at an exercise price of $1.19 per share. We also agreed to cancel our agreement relating to the purchase of $100,000,000 of co-location and
bandwidth services and to eliminate our prepaid credit of $25,000,000.



For the year ended December 31, 2001, we recorded impairment charges of $12,022,000 related mainly to certain operating leases of
divine/Whittman-Hart. These charges consisted of the net value of future cash payments to honor operating leases on facilities that we are no longer utilizing. For the year ended
December 31, 2000, we recorded an impairment charge of $10,961,000, including declines in the carrying value of property owned by us, improvements made to properties that we no longer consider
recoverable and charges related to certain of our operating leases, consisting mainly of the net value of future cash payments to honor operating leases on facilities that we are no longer utilizing.



For the year ended December 31, 2001, we incurred a non-cash expense of $10,200,000 related to the issuance, prior to our initial public
offering (IPO), of shares of restricted stock and grants of options to employees, directors, and consultants under our 1999 Stock Incentive Plan with exercise prices lower than the fair value of the
class A common stock on the dates of grant. We also incurred a one-time charge of $132,000 related to the issuance of options to members of our advisory committee. Also for the year
ended December 31, 2001, we recovered $665,000 of previously recognized compensation expense related to non-vested options of terminated employees, and we repurchased a total of
99,362 shares of restricted class A common stock that were previously owned by terminated employees.

During
September 2000, we reduced the exercise price of options granted, and restricted stock purchased, under our stock incentive plan prior to our IPO to $9.00 being the IPO price of
our class A common stock, if the exercise price of such options or the purchase price of such restricted shares was greater than the IPO price, and if the holder agreed to the change. We also
repurchased during September 2000, 3,820,735 shares of restricted class A common stock, issued upon exercise of options granted under our 1999 Stock Incentive Plan, at the respective exercise
prices, which ranged from $4.50 to $9.00. Any consideration in excess of the exercise price, as adjusted, was refunded to these holders. As a result of the downward repricing of restricted shares and
options, we recorded a one-time stock-based compensation charge of $3,209,000. Each of the holders of the repurchased restricted stock received a replacement option grant for the same
number of shares with an exercise price of $9.00 per share. All of these replacement options are exercisable and vest as to 25% of the options on the first anniversary of the original option grant,
and thereafter in equal monthly installments over the next three years. For those replacement options repriced downward, we will recognize stock-based compensation expense for any amount by which the
fair value of our class A common stock exceeds $9.00 per share during the remaining vesting period. For the year ended December 31, 2000, we repurchased an additional 613,774 shares of
restricted class A common stock from terminated employees.

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From
January 1, 2000 through September 21, 2000, we incurred an additional non-cash expense of $5,896,000 related to our issuance to our employees of shares of
common stock of our majority-owned associated companies that we established. Effective September 22, 2000, we repurchased these minority interests from our employees. These repurchases were
made at the initial investment cost plus 8% for our executive officers and at two times the initial investment cost for the other employees that owned those shares. The aggregate purchase price for
all of these shares was $93,000. As a result of these repurchases, we accelerated our recognition of the remaining $18,330,000 of stock-based compensation related to these shares.



Interest income for the year ended December 31, 2001 was $8,932,000 and was earned from the investment of our available cash balances. This is a decrease
of $6,651,000 from the $15,583,000 of interest income earned during the year ended December 31, 2000. Interest expense for the year ended December 31, 2001 was $3,681,000 and was
incurred primarily from our long-term debt. This is an increase of $1,824,000 over the $1,857,000 of interest expense incurred during the year ended December 31, 2000, which was
incurred primarily from notes payable to associated companies.



Other expense, net for the year ended December 31, 2001 was $4,135,000. This is an increase of $3,834,000 over the $301,000 of other expense for the year
ended December 31, 2000. Other expense, net for the year ended December 31, 2001 consisted primarily of other than temporary declines in fair value of $14,711,000 and $4,181,000 in our
available-for-sale investments in CMGI, and 360networks, respectively, offset by the sale of our investments in Farms.com, Ltd. and Sequoia Software Corporation, which resulted in realized gains of
$7,225,000 and $6,611,000, respectively. Additionally, we recorded a gain on disposal of assets of $367,000 and other net gains of $554,000.



We recorded no income tax provision or benefit for the years ended December 31, 2001 and 2000. Because we have no history of taxable income through
December 31, 2001, the tax benefit associated with our net losses has been fully reserved. As of December 31, 2001 we had total net operating loss carryforwards of $116,546,000, of which
$27,608,000 may be utilized by us to reduce future consolidated taxable income, if any. Of the total net operating loss carryforwards, $43,235,000 are attributable to majority-owned subsidiaries not
includible in our consolidated tax group. Although each majority-owned subsidiary excluded from our consolidated tax group may utilize its net operating loss carryforwards to reduce separate future
income taxes, if any, such carryforwards may not offset our consolidated taxable income, if any. Of the total net operating loss carryforwards, $45,703,000 relate to pre-acquisition net
operating losses attributable to acquired companies. Our ability to utilize such pre-acquisition losses is substantially limited by current tax laws. In addition, our utilization of the
net operating loss carryforwards may be limited under Internal Revenue Code Section 382 as a result of prior ownership changes. The net operating loss carryforwards will expire from 2019
through 2021.

In
assessing whether or not the deferred tax assets will be realized, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized.
Based upon our historical net operating losses and projections for future tax losses, we believe it is more likely than not that we
will not realize the deferred tax assets. Thus, we have provided a full valuation allowance against the net deferred tax assets as of December 31, 2001.

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Minority interest of approximately $4,270,000 and $18,169,000 represents the non-controlling stockholders' share of our consolidated associated
companies' net losses for the years ended December 31, 2001 and 2000, respectively.



Net gain on stock transactions of associated companies of $667,000 for the year ended December 31, 2001 relates to the net increase in the value of our
investments in associated companies resulting from the issuance of stock by these companies to outside investors at prices higher than the value at which we have carried these investments and other
stock transactions of these associated companies. The net gain for the year ended December 31, 2001 was attributable to issuances of stock by Outtask, which accounted for $199,000, and other
associated companies, which accounted for $468,000. Net gain on stock transactions of associated companies of $4,375,000 for the year ended December 31, 2000 was attributed mainly to issuances
of stock by Launchworks, which accounted for $4,430,000 and closerlook, which accounted for $847,000. The gain was reduced by a loss of $1,011,000 resulting from the redemption of shares by Mercantec.



Equity in losses of associated companies resulted from our minority ownership interests we account for, or accounted for, under the equity method. Equity in
losses of associated companies includes our proportionate share of equity method associated companies' losses, which totaled $13,317,000 in net losses for the year ended December 31, 2001 and
$53,627,000 in net losses for the year ended December 31, 2000. Equity in losses of associated companies also includes amortization of our net excess investment over the equity in the net
assets of these associated companies, which totaled $6,287,000 for the year ended December 31, 2001 and $36,994,000 for the year ended December 31, 2000.



For the year ended December 31, 2001, we recorded impairment charges of $36,633,000 for other than temporary declines in the carrying values of certain
equity and cost method associated companies. As of December 31, 2001, we have completely written off our investments in associated companies accounted for under the equity basis and cost basis
of accounting. For the year ended December 31, 2000, we recorded impairment charges of $113,125,000 for other than temporary declines in the carrying values of certain equity and cost method
associated companies. These charges included the write-down of our net investment in BidBuyBuild to $200,000, which was the value at which it was sold in October 2000, and the
write-down of our net investment in iSalvage to $72,000. iSalvage has ceased all meaningful business operations. The impairment charges also included write-offs of our
investments in CapacityWeb, Entrepower, PocketCard, and Whiplash, each of which has ceased all meaningful operations. In conjunction with the sale of BidBuyBuild, we also received a warrant to acquire
5% of the shares of BidBuyBuild with an exercise price of approximately $100,000. In addition, the carrying values of certain other equity and cost method associated companies were written down to
their estimated fair values as of December 31, 2000.



For the year ended December 31, 2001, we reported an extraordinary gain of $12,032,000, which included $11,195,000 and $837,000, respectively, related to
our acquisitions of the outstanding equity that we did not already own of Emicom and Latin Capital. These extraordinary gains represented the excess of the fair value of the net assets acquired over
the fair value of our consideration given in

40

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conjunction with these acquisitions. We did not report an extraordinary gain for the year ended December 31, 2000.



During the year ended December 31, 2000, we acquired controlling majority voting interests in BeautyJungle.com, Inc., bid4real.com, inc.,
NetUnlimited, Oilspot.com, Inc., Panthera Productions LLC, Parlano, Inc., ViaChange.com, Inc., Web Design Group and Westbound Consulting, Inc., and made contributions to
our wholly owned subsidiary, Skyscraper Management, L.L.C., through which we managed Skyscraper Ventures, L.P. as general partner, for total aggregate consideration of $68,043,000, including
$5,000,000 in the form of promissory notes, all of which have since been paid. In addition, we issued a total of 10,000,000 shares of our series F preferred stock, with a fair value of $4.80
per share, in connection with our acquisition of Parlano. These shares were converted into 1,666,666 shares of class A common stock upon completion of our initial public offering. We also
acquired significant minority ownership interests in 18 new associated companies, which we account for under the equity method of accounting, for total consideration of $216,388,000, including
$75,971,000 in the form of promissory notes, all of which have since been paid. In addition, we issued a total of 3,000,000 shares of our series F preferred stock, with a fair value of $4.80
per share, which converted into 499,999 shares of class A common stock upon completion of our initial public offering, in connection with our acquisitions of two of the 18 equity method
companies, closerlook and Perceptual Robotics. In April 2000, we made an additional investment in OpinionWare.com, Inc., an associated company since December 1999, that caused
OpinionWare to become a consolidated associated company, whereas it was an equity method associated company prior to this additional investment. In August 2000, we made an additional investment
in iFulfillment, Inc., an associated company since January 2000, that caused us to account for iFulfillment as a consolidated associated company instead of an equity method associated
company.



We generated revenues totaling $44,079,000 for the year ended December 31, 2000, which is an increase of $43,042,000 over revenues of $1,037,000 for the
period ended December 31, 1999. The total revenues for the year ended December 31, 2000 included $5,316,000 from the sale of products, including $2,267,000 related to on-line
sales of retail goods and $2,787,000 related to software sales contracts. The total revenues also included $38,763,000 from the sale of services, including $9,646,000 from web design services,
$6,396,000 from marketing and public relations services, $4,524,000 from software maintenance contracts, $4,446,000 from Web-based advertising, $3,492,000 from facilities management,
$2,388,000 from hosting services, and $2,296,000 from inventory management services. Revenues of $8,605,000 were generated from transactions with our equity method associated companies for the year
ended December 31, 2000. Substantially all of these revenues were generated by the operations of our associated companies.

For
the period ended December 31, 1999, we generated revenues of $1,037,000. These revenues included $275,000 in management fees as general partner of Platinum Venture Partners I
and II. These revenues also included $272,000 related to software sales contracts and maintenance contracts of mindwrap, one of our consolidated associated companies. Other sources of revenues
included $135,000 in Web-based advertising, and other infrastructure service revenues such as public relations, consulting
and facilities management. Revenues of $293,000 were generated from transactions with our equity method associated companies for the period ended December 31, 1999.

41

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For the year ended December 31, 2000, our cost of revenues were $40,211,000, exclusive of $1,274,000 of amortization of stock-based compensation. This is
an increase of $39,183,000 over the $1,028,000 (exclusive of $5,000 of amortization of stock-based compensation) cost of revenues we incurred for the period ended December 31, 1999. Cost of
revenues for the year ended December 31, 2000 included $35,941,000 of direct costs of providing services, which consisted principally of salaries and benefits, professional services, rent and
facilities services, supplies expenses, and marketing expenses. Cost of revenues for 2000 also included $4,270,000 of direct costs of providing products. Cost of revenues for the period ended
December 31, 1999 included $794,000 of direct costs of providing services, consisting primarily of salaries and benefits, and $234,000 of direct costs of providing products.

The
types of revenues to which the cost of revenues for the year ended December 31, 2000 were attributed included web consulting ($10,385,000 cost of revenues), public relations
revenues ($6,972,000 cost of revenues), facilities management services ($4,272,000 cost of revenues), inventory management services ($3,716,000 cost of revenues), Web-based advertising
($3,402,000 cost of revenues), commissions revenue ($3,190,000 cost of revenues) and hosting services and related product sales ($5,351,000 cost of revenues).

The
types of revenues to which the cost of revenues for the period ended December 31, 1999 were attributed included management fees ($236,000 cost of revenues), software and
related maintenance revenues ($165,000 cost of revenues), Web-based advertising ($160,000 cost of revenues), and other infrastructure service revenues such as public relations, consulting,
and facilities management ($466,000 cost of revenues).



For the year ended December 31, 2000, we incurred selling, general, and administrative expenses of $150,444,000, exclusive of $46,367,000 of amortization
of stock-based compensation. This represents an increase of $142,482,000 over the $7,962,000 (exclusive of $740,000 of amortization of stock-based compensation) of selling, general, and administrative
expenses for the period ended December 31, 1999. These expenses for the year ended December 31, 2000 consisted primarily of $73,606,000 of employee benefits and related compensation,
$16,289,000 of marketing costs, $12,000,000 of travel costs,
$9,820,000 of facility costs, consisting primarily of rent expense, and $9,752,000 of fees for professional services, including legal, consulting, and accounting. Selling, general, and administrative
expenses for 1999 included $3,851,000 of employee benefits and related compensation, $1,449,000 of travel costs, $865,000 of professional services, and $332,000 of facility costs.



For the year ended December 31, 2000, we incurred research and development expenses of $12,036,000, exclusive of $428,000 of amortization of stock-based
compensation. This represents an increase of $11,903,000 over the $133,000 (exclusive of $2,000 of amortization of stock-based compensation) of research and development expenses for the period ended
December 31, 1999. These expenses for the year ended December 31, 2000 consisted primarily of $5,792,000 of employee benefits and related compensation, $2,677,000 of professional fees,
and $1,779,000 of marketing expenses.



For the year ended December 31, 2000, we recorded bad debt expense of $6,186,000. We recorded no bad debt expense for the period ended December 31,
1999.

42

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For the year ended December 31, 2000, we incurred amortization expense of $21,088,000 on our intangible assets. This represents an increase of $20,493,000
over the $595,000 of amortization expense for the period ended December 31, 1999. The increase was due to the substantial number of investments in associated companies that we made in 2000, and
the related increase in amortizable intangible assets.



For the year ended December 31, 2000, we recorded impairment charges of $57,626,000 for other than temporary declines in the carrying values of certain
intangible and other assets. These charges included, but were not limited to, write-offs of our goodwill and other intangible assets related to our investments in BeautyJungle, Brandango,
and OfficePlanIt, each of which have ceased all meaningful operations.

Additionally,
we recorded an impairment charge of $10,961,000, including declines in the carrying value of property owned by us, improvements made to properties that we no longer
consider recoverable and charges related to certain of our operating leases, consisting mainly of the net value of future cash payments to honor operating leases on facilities that we are no longer
utilizing.



For the year ended December 31, 2000, we incurred a non-cash expense of $28,489,000 related to the issuance, prior to our IPO, of shares of
restricted stock and grants of options to employees, directors, and consultants under our 1999 Stock Incentive Plan with exercise prices lower than the fair value of the class A common stock on
the dates of grant. Also for the year ended December 31, 2000, we recovered $7,854,000 of previously recognized compensation expense related to options of terminated employees that had not
vested.

During
September 2000, we reduced the exercise price of options granted, and restricted stock purchased, under our stock incentive plan prior to our IPO to $9.00 being the IPO
price of our class A common stock, if the exercise price of such options or the purchase price of such restricted shares was greater than the IPO price, and if the holder agreed to the change.
We also repurchased during September 2000, 3,820,735 shares of restricted class A common stock, issued upon exercise of options granted under our 1999 Stock Incentive Plan, at the
respective exercise prices, which ranged from $4.50 to $9.00. Any consideration in excess of the exercise price, as adjusted, was refunded to these holders. As a result of the downward repricing of
restricted shares and options, we recorded a one-time stock-based compensation charge of $3,209,000. Each of the holders of the repurchased restricted stock received a replacement option
grant for the same number of shares with an exercise price of $9.00 per share. All of these replacement options are exercisable and vest as to 25% of the options on the first anniversary of the
original option grant, and thereafter in equal monthly installments over the next three years. For those replacement options repriced downward, we will recognize stock-based compensation expense for
any amount by which the fair value of our class A common stock exceeds $9.00 per share during the remaining vesting period. For the year ended December 31, 2000, we repurchased an
additional 613,774 shares of restricted class A common stock from terminated employees.

Each
of the holders of the repurchased restricted stock received a replacement option grant for the same number of shares with an exercise price of $9.00 per share. All of these
replacement options are exercisable and vest as to 25% of the options on the first anniversary of the original option grant, and thereafter in equal monthly installments over the next three years. For
those replacement options repriced downward, we will recognize stock-based compensation expense in the future for any amount by which the fair value of our class A common stock exceeds $9.00
per share. After giving effect to

43

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these changes, as of December 31, 2000, 15,430,225 shares of our class A common stock had been issued under our stock incentive plan, upon exercise of outstanding options or otherwise,
at prices ranging from $1.19 to $13.50 per share, and we had outstanding options to purchase 6,559,649 shares of class A common stock under our stock incentive plan, with exercise prices
ranging from $1.19 to $13.50 per share. The total unearned stock-based compensation related to the outstanding options and restricted stock at December 31, 2000 was $36,641,000.

From
January 1, 2000 through September 21, 2000, we incurred an additional non-cash expense of $5,896,000 related to our issuance to our employees of shares of
common stock of our majority-owned associated companies that we established. Effective September 22, 2000, we repurchased these minority interests from our employees. These repurchases were
made at the initial investment cost plus 8% for our executive officers and at two times the initial investment cost for the other employees that owned those shares. The aggregate purchase price for
all of these shares was $93,000. As a result of these repurchases, we accelerated our recognition of the remaining $18,329,000 of stock-based compensation related to these shares.

For
the period ended December 31, 1999, we incurred a non-cash expense of $747,000 related to the issuance of shares of restricted stock and grants of options to
employees and directors under our 1999 Stock Incentive Plan with exercise prices lower than the fair value of the class A common stock on the dates of the grant. We did not recover any
previously recognized compensation expense in 1999.



Interest income for the year ended December 31, 2000 was $15,583,000 and was earned from the investment of our available cash balances. This is an increase
of $13,994,000 over the $1,589,000 of interest income earned during the period ended December 31, 1999. Interest expense for the year ended December 31, 2000 was $1,857,000 and was
incurred primarily from notes payable to associated companies. This is an increase of $1,652,000 over the $205,000 of interest expense incurred during the period ended December 31, 1999, which
was related primarily to borrowings under a previous line of credit.



Other expense for the year ended December 31, 2000 was $301,000. No other expenses were recorded for the period ended December 31, 1999.



We recorded no income tax provision or benefit for the year ended December 31, 2000 or the period ended December 31, 1999. Because we have no
history of taxable income through December 31, 2000, the tax benefit associated with our net losses was fully reserved.

In
assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. Based upon our
historical net operating losses and projections for future tax losses, we believe it is more likely than not that we will not realize the deferred tax assets. Thus, we have provided a full valuation
allowance against the net deferred tax assets as of December 31, 2000.



Minority interest of $18,169,000 and $51,000 represents the non-controlling stockholders' share of our consolidated associated companies' net losses
for the year ended December 31, 2000 and the period ended December 31, 1999, respectively.

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Net gain on stock transactions of associated companies of $4,375,000 for the year ended December 31, 2000 relates to the net increase in the value of our
investments in associated companies resulting from the issuance of stock by these companies to outside investors at prices higher than the value at which we have carried these investments and other
stock transactions of these associated companies. The gain was attributed mainly to issuances of stock by Launchworks, which accounted for $4,430,000 and
closerlook, which accounted for $847,000. The gain was reduced by a loss of $1,011,000 resulting from the redemption of shares by Mercantec. Because none of our associated companies had any such stock
transactions during the period ended December 31, 1999, we had no such gains or losses during that period.



Equity in losses of associated companies resulted from our minority ownership interests we account for, or accounted for, under the equity method. Equity in
losses of associated companies includes our proportionate share of equity method associated companies' losses, which totaled $53,627,000 in net losses for the year ended December 31, 2000 and
$672,000 in net losses for the period ended December 31, 1999. Equity in losses of associated companies also includes amortization of our net excess investment over the equity in the net assets
of these associated companies, which totaled $36,994,000 for the year ended December 31, 2000 and $742,000 for the period ended December 31, 1999.



For the year ended December 31, 2000, we recorded impairment charges of $113,125,000 for other than temporary declines in the carrying values of certain
equity and cost method associated companies. These charges included the write-down of our net investment in BidBuyBuild to $200,000, which was the value at which it was sold in
October 2000, and the write-down of our net investment in iSalvage to $72,000. iSalvage has ceased all meaningful business operations. The impairment charges also included
write-offs of our investments in CapacityWeb, Entrepower, PocketCard, and Whiplash, each of which has ceased all meaningful operations. In conjunction with the sale of BidBuyBuild, we also
received a warrant to acquire 5% of the shares of BidBuyBuild with an exercise price of $100,000. In addition, the carrying values of certain other equity and cost method associated companies were
written down to their estimated fair values as of December 31, 2000.

Summary of Currently Expected Fixed Charges

The following table summarizes the fixed charges as of December 31, 2001 that we currently expect to incur over the next four years for amortization of
identifiable intangible assets and unearned stock-based compensation:

|                                                                |       | Year
|--------------------------------------------------------------- | ----- | ----
|
|
|Identifiable Intangible Assets (primarily developed technology) |       | $   
|Unearned Stock-Based Compensation*                              |       |     
|                                                                |       |     
|                                                                | Total |     
|                                                                |       |     

---

45

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Liquidity and Capital Resources

As of December 31, 2001, we had cash and cash equivalents, current restricted cash, and available-for-sale securities of $140,732,000, which represented a
decrease of $126,348,000 from $267,080,000 as of December 31, 2000. The net decrease in cash and cash equivalents was due primarily to net cash used in operating activities of $237,872,000, net
cash provided in the acquisition, deconsolidation, and divestiture of ownership interests in associated companies of $86,348,000, cash used for capitalized acquisition costs of $16,830,000, cash
provided by the sale of ownership interests in associated companies of $26,247,000, cash provided from the issuance of notes payable of $17,605,000, and cash used to acquire property and equipment of
$11,781,000.

In
January 2001, we entered into a $25,000,000 line of credit with LaSalle Bank N.A. This line of credit is cash collateralized and is available for working capital financing and
general corporate purposes other than permanent financing for acquisitions of interests in associated companies. As of December 31, 2001, we had established letters of credit of $16,360,000
against this line of credit. These letters of credit include $6,135,000 for assumed debt of RoweCom, $4,868,000 for a note payable to marchFIRST GmbH, and $5,357,000 as collateral for various real
estate and equipment leases.

As
of December 31, 2001, we had current restricted cash of $32,566,000, which represented an increase of $30,423,000 from $2,143,000 as of December 31, 2000. Current
restricted cash as of December 31, 2001 included $17,461,000 that secured the $16,360,000 in letters of credit from LaSalle Bank N.A. described above, $10,000,000 that collateralized $9,000,000
of loans payable by RoweCom to publishers, and $5,105,000 for other future RoweCom obligations to publishers.

In
May 2001, we received $13,174,000 for our 2,335,000 shares of Sequoia Software Corporation as part of the acquisition of Sequoia by Citrix Systems, Inc. At
December 31, 2001, we had $3,686,000 in available-for-sale securities. This amount includes shares of Neoforma.com and CMGI.

We
examine all of the associated companies in our divine interVentures portfolio to assess their potential for financial success as part of our organization, whether on a stand-alone
basis or otherwise. This examination includes consideration of each associated company's development of its business plans and objectives and progress toward achievement of its performance goals. As
of December 31, 2001, we have completely written off our investments in the associated companies in our divine interVentures portfolio, other than amounts included in available-for-sale
securities, and we do not expect to make additional investments in these associated companies.

In
connection with purchases of our shares of class A and class C common stock by private investors concurrent with our initial public offering in July 2000:



46

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In
two separate transactions in April 2001, we acquired certain assets from marchFIRST, Inc., including, but not limited to, its former Whittman-Hart operations, its SAP
software implementation practice, and its value-added reseller business. Additionally, we acquired accounts receivable with a face value of $102.8 million. The acquired business is held by our newly
formed subsidiary, divine/Whittman-Hart, Inc. We paid to marchFIRST $12,500,000 in cash and divine/Whittman-Hart issued marchFIRST a promissory note. The note is a $57.5 million balloon note,
due on April 12, 2006 but accelerated to the extent of 50% of free cash flow from divine/Whittman-Hart's operations and which is secured by the assets of divine/Whittman-Hart. We have the option to
pay the note with cash or by issuing shares of our class A common stock. This note bears interest at the Wall Street Journal prime rate of interest. In conjunction with our acquisition of marchFIRST
assets, we also assumed $12.0 million of accrued compensation and benefit obligations for the employees transferred with the acquired businesses. marchFIRST also is eligible to receive up to an
aggregate of $55.0 million in bonus payments, payable to the extent that 50% of free cash flow from divine/Whittman-Hart's operations during the next five years exceeds divine/Whittman-Hart's
obligation under the promissory notes. We do not guarantee the promissory notes from divine/Whittman-Hart to marchFIRST, but the terms of the promissory notes restrict payments from
divine/Whittman-Hart to us.

In
September 2001, through a wholly owned subsidiary, we acquired certain assets and assumed certain liabilities of marchFIRST GmbH. For these assets we issued a note payable in
the amount of 5,369,000 euros (approximately $4,894,000 at December 31, 2001), which is included within current notes payable in our consolidated balance sheets as of December 31, 2001.
The note is due on September 1, 2002. We have the option to pay the note with cash or by issuing shares of our class A common stock.

In
connection with our acquisition of Synchrony Communications, Inc. in October 2001, we acquired debt with balances totalling of $1,761,000 as of December 31, 2001, of
which $1,167,000 is due in twelve equal monthly installments in 2002 and $594,000 is due in three equal monthly installments during the first three months of 2003.

Aleksander
Szlam, who served as one of our directors in 2000, was the Chairman and Chief Executive Officer of eshare communications, Inc. while he served on our board of
directors. In connection with our acquisition of eshare in October 2001, we entered into two separate stock repurchase arrangements with Mr. Szlam covering the shares of our common stock that
Mr. Szlam received in the acquisition. These arrangements gave Mr. Szlam the right to sell back a portion of his shares to us at an agreed upon price (put option), while also giving us
the right to buy back the same number of shares from Mr. Szlam at the same price (call option). In December 2001, the first buyback period, which covers 5,428,800 shares, was extended to be
coterminous with the second buyback period.

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The second buyback period is effective for the time period beginning six months after the merger (April 23, 2002) and ending 18 months after the merger (April 23, 2003), and covers
5,959,200 shares of our common stock. The agreed-upon purchase price for the related put and call options is $0.53 per share. This means that for one year beginning on April 23, 2002,
Mr. Szlam has the right to sell to us, and we have a separate right to buy from Mr. Szlam, up to 11,388,000 shares of our common stock at a price of $0.53 per share.

In
conjunction with our acquisition of RoweCom Inc. in November 2001, we acquired current notes payable with balances totalling of $15,931,000 as of December 31,
2001. These balances consisted of loans from publishers of $9,000,000, of which $6,775,000 was paid on January 4, 2002 with the remainder due April 15, 2002, $5,775,000 in other debt due
April 15, 2002, and the current portion of a loan of $1,156,000 due in four equal quarterly installments from March 31, 2002 to December 31, 2002. In addition, we acquired other
RoweCom long-term debt with balances of $5,046,000 as of December 31, 2001, which is due in quarterly installments from March 31, 2003 to September 30, 2006.

In
December 2001, we signed a revolving loan agreement for $20,000,000 with Fleet Capital Corporation. The loans under that agreement are collateralized by eligible accounts
receivable balances of the domestic operations of RoweCom, and the loans are repaid from the net operating receipts of the domestic operations of RoweCom. The balance outstanding under that revolving
loan agreement was $17,083,000 as of December 31, 2001 and is included within current notes payable in our consolidated balance sheets. During the quarter ended March 31, 2002, we made
payments of $17,083,000 on this loan agreement and we also borrowed $3,943,000, which represented the balance outstanding as of March 31, 2002. The payments resulted from RoweCom's domestic
collections from customers being in excess of payments to publishers in 2002. The expiration date of this revolving loan agreement is April 15, 2002.

In
connection with our acquisition of RoweCom, we assumed a factoring arrangement previously in place between RoweCom's French subsidiary (RoweCom France) and a European factoring
company. The arrangement allows the factoring company to purchase, without recourse, $55,000,000 of RoweCom France accounts receivable during the period October 1, 2001 to September 30,
2002. The factoring arrangement is structured so that we receive 90% of the face value of the accounts receivable upon sale to the factoring company, with the remaining 10% due to us upon the ultimate
collection of the accounts receivable by the factoring company. Our cost for this arrangement is 0.37% of the face value of the sold accounts receivable, which is paid when the accounts receivable are
transferred to the factoring company.

The
operations of RoweCom Inc. historically have resulted in cyclical cash flows throughout the year, with the fourth calendar quarter historically resulting in the highest
required funding level by RoweCom. The seasonal fourth quarter funding requirements are due to the required publisher payments to publishers in excess of collections from customers.

During
January, February, and March 2002, we used net cash for operating activities of approximately $19 million, $30 million, and $17 million, respectively. Of these amounts,
approximately $1 million, $4 million, and $1 million, respectively, related to cash used for non-recurring operating activities, primarily severance of non-continuing employees and termination of
contractual obligations of certain acquired companies. Cash activity during the first quarter of 2002 also included a net increase of approximately $7 million related to cash received from acquired
companies and borrowings, partially offset by cash paid for acquisitions. The cash activity for the first quarter of 2002 excludes approximately $17 million of RoweCom's domestic collections in excess
of publisher disbursements during January, February, and early March that were used for gross paydowns of the Fleet Capital Corporation revolving loan agreement as described above. Our cash flows from
operating activities can vary significantly from month to month, depending on the timing of operating cash receipts and payments and other working capital changes, especially accounts receivable,
accounts payable, accrued

48

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expenses, and other current assets and liabilities. As of March 31, 2002, we had estimated cash and cash equivalents and available for sale securities of approximately $80 million, which
included approximately $35 million of current restricted cash.

Our
operating plan depends on us achieving significant increases in revenue and cash receipts and significant decreases in expenses. We expect that our revenue and cash receipts will
increase as we continue to integrate the product and service offerings of our acquired businesses, and we intend to decrease some of our operating costs, primarily through workforce and payroll
reductions. Based on these forecasts, we believe that our existing unrestricted cash and cash equivalents, accounts receivable, and new cash generated from our operations will be sufficient to fund
our operations and capital requirements at least through December 31, 2002. There is a substantial risk, however, that our revenue and cash receipts will not grow at a sufficient rate, and that
we will not be able to reduce our expenses to keep them in line with our revenue. If we are unable to meet our revenue and expense management goals, we will need to significantly reduce our workforce,
sell certain of our assets, enter into strategic relationships or business combinations, discontinue some or all of our operations, or take other similar restructuring actions. While we expect that
these actions would result in a reduction of recurring costs, they also may result in a reduction of recurring revenues and cash receipts. It is also likely that we would incur substantial
non-recurring costs to implement one or more of these restructuring actions.

We
are also exploring a number of alternatives to generate cash, including acquiring other entities that have substantial cash balances, selling certain assets, and new debt or equity
financings. We do not currently have in place any agreements to provide us any of these sources of funds, and these sources of funds may not be available to us on favorable terms, if they are
available to us at all. In addition, any of these transactions also could result in significant equity dilution to the holders of our common stock at the time of the transaction, or later.

Our
outstanding contractual obligations, leasehold commitments, and outstanding debt balances as of December 31, 2001 are set forth in the following tables. These amounts
represent amounts due by us for the periods indicated under non-cancelable contracts, leases, and loan arrangements.

|                                               |       | Payments Due by Period (in thousands)
|---------------------------------------------- | ----- | -------------------------------------
|
|Lines of Credit                                |       | $                                    
|Notes Payable in Cash or Common Stock          |       |                                      
|Other Notes Payable                            |       |                                      
|Long-Term Debt Payable in Cash or Common Stock |       |                                      
|Other Long-Term Debt                           |       |                                      
|Capital Lease Obligations                      |       |                                      
|Operating Leases                               |       |                                      
|Other Long-Term Obligations*                   |       |                                      
|Other                                         |       |                                      
|                                               |       |                                      
|                                               | Total |                                      
|                                               |       |                                      

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Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement No. 141,Business
Combinations, and Statement No. 142,Goodwill and Other Intangible Assets.SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet in order to be recognized and reported apart from goodwill, noting that any
purchase price allocable to workforce in place may not be accounted for separately. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.We have adopted the provisions of SFAS No. 141 effective July 1, 2001. We will adopt the provisions of SFAS No. 142 beginning on
January 1, 2002.

In
December 2001, the FASB staff issued Topic No. D-103,Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred(Topic D-103), which is effective for fiscal years beginning after December 15, 2001. Topic
D-103 requires that certain out-of-pocket expenses rebilled to customers be recorded as revenue versus an offset to the related expense. Comparative financial
statements for prior periods must be conformed to this presentation. We currently record rebilled out-of-pocket expenses as an offset to the related expense and, accordingly,
effective January 1, 2002, we will change our presentation to reflect rebilled expenses as revenue.

Significant Accounting Policies

We prepare the consolidated financial statements of divine in conformity with accounting principles generally accepted in the United States of America. We are
required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we
believe are the most critical to aid in fully understanding and evaluating our financial results are as follows:



Software transactions are accounted for in accordance with SOP 97-2,Software Revenue Recognition,as amended. SOP
97-2 generally requires revenue earned on software arrangements involving multiple elements, such as software products, upgrades/enhancements, post-contract customer

50

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support, installation and training to be allocated to each element based on the relative fair values of the elements. The revenue allocated to software licenses where the separate service elements
are not essential to functionality of the other elements is generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or
determinable, and collectibility is probable. When the separate service elements are essential to the functionality of the other elements, software license revenues are recognized according to the
contract accounting provisions outlined in SOP 81-1,Accounting for Performance of Construction-Type and Certain Performance-Type Contracts,
specifically the percentage-of-completion method. The revenue allocated to post-contract customer support is recognized ratably over the term of the support, and revenue allocated to service elements
such as training, installation and customization is recognized as the services are performed.

The
majority of our software license arrangements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software products. Under
these arrangements, we recognize revenue attributable to the software products ratably over the term of the license arrangement commencing upon delivery of the currently available software products.

Revenue
from consulting services is provided under fixed price and time and materials contracts. For fixed price contracts, revenue is recorded on the basis of the estimated percentage
of completion of services rendered. Losses, if any, on fixed price contracts are recognized when the loss is determined. For time and materials contracts, revenue is recorded at contractually agreed
upon rates as the costs are incurred.

Revenue
from equipment sales is recognized upon shipment.

Revenue
generated from subscription orders for third-party publications is recognized over the subscription period.

Management
fees are recognized as revenue over the period of the management service.

Any
significant increase in product failure rates or service quality, and the resulting credit returns or non-payments by customers, could have a material adverse impact on our operating
results for the period in which such events could materialize.



We account for our acquisitions of consolidated companies under the purchase method of accounting pursuant to SFAS No. 141,Business
Combinations. Other intangible assets that are separable from goodwill and have determinable useful lives are valued separately and amortized over their useful lives. Goodwill
represents mainly the excess of cost over net assets of acquired businesses that are consolidated. Goodwill and other identifiable intangible assets that do not have determinable useful lives and are
not valued separately are not amortized pursuant to SFAS No. 142,Goodwill and Other Intangible Assets. Goodwill is reviewed for impairment on an
ongoing basis. Other identifiable intangible assets consist mainly of developed technology and are generally amortized over two to four years.

On
a continuous basis, but no less frequently than at the end of each quarterly reporting period, we evaluate the carrying value for financial statement purposes of our goodwill and
other intangible assets. We account for the impairment of goodwill and other intangible assets in relation to the operating performance and future undiscounted cash flows of the reporting units of the
underlying businesses when indications of impairment are present. Such indications of impairment include, but are not limited to, the actual performance of reporting units compared with budgeted
performance, layoffs within reporting units and associated facilities impairment charges, if applicable, and market trends.

51

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Any
significant deterioration of the actual or projected cash flows of certain of our businesses, significant changes in the strategic manner or use of our assets, or significant
negative industry trends could result in future impairment charges of these businesses.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Equity Price RiskAt December 31, 2001, we had $3,686,000 of
available-for-sale equity securities. These securities represent companies in the Internet and hi-tech sectors, both of which have experienced significant
volatility, specifically in the last twenty one months. These investments are at risk in the event of a downturn in the public markets in general or a downturn in their specific sectors. However,
these investments accounted for only 0.4% of our total assets at December 31, 2001.

Interest Rate RiskAt December 31, 2001, we had $137,046,000 in cash and cash equivalents and restricted cash. A
decrease in market rates of interest would have no material effect on the value of these assets, as they are short-term financial instruments with a fair value approximating our cost
basis. Cash equivalents consist mainly of money market accounts, short-term treasury bills, and commercial paper. The carrying values of other financial instruments, such as accounts
receivable, notes receivable, accounts payable, and notes payable approximate fair value as well because of their short-term nature. The carrying value of long-term debt approximates fair
value due to the variable rates at which the underlying notes bear interest.

At
December 31, 2001, we had $84,868,000 of notes payable and long-term debt carried at variable interest rates. A hypothetical 1% change in market rates of interest would not
have a material effect on our net loss.

Foreign Currency Exchange RiskOur financial market risk includes risks associated with our acquisition of companies with
operations outside the United States. This risk is mainly derived from our fourth quarter acquisitions of eshare, Open Market, Rowecom, and Eprise. Through December 31, 2001, we have recorded a
$940,000 foreign currency translation adjustment in other comprehensive income as a
result of fluctuations in foreign currency exchange rates. We do not currently engage in any activities for the purpose of hedging foreign currency.

Impairment RiskAt December 31, 2001, we had goodwill and other intangible assets of $211,075,000 related almost
exclusively to our acquisition of companies in the fourth quarter of 2001. We will assess the net realizable value of the assets acquired from these companies on a regular basis to determine if we
have incurred any other than temporary decline in the value of our capital investment. For the year ended December 31, 2001, we incurred $37,864,000 in impairment charges related mainly to the
intangible and other assets associated with our investment in consolidated companies, mainly in our software, services, and hosting segment. None of these impairment charges related to the
acquisitions that comprise our balance of goodwill and other intangible assets at December 31, 2001. For the year ended December 31, 2001, we also incurred $36,633,000 of impairment
charges related to our investment in equity-method and cost-method associated companies in our divine interVentures segment. We have no investments in equity- or cost-basis associated
companies reflected on our balance sheet as of December 31, 2001. Finally, for the year ended December 31, 2001, we recorded $25,000,000 of impairment expense related to the
write-off of prepaid co-location and bandwidth services and $12,022,000 of impairment expense related to our future commitments under operating leases. We may incur additional
impairment charges in future periods.

52

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                      |  | Page   
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------
|DIVINE, INC. AND SUBSIDIARIES                                                                                                         |  |        
|Independent Auditors' Report                                                                                                          |  | 54     
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                                                          |  | 55     
|Consolidated Statements of Operations for the years ended December 31, 2001 and 2000 and the period ended December 31, 1999           |  | 56     
|Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001 and 2000 and the period ended December 31, 1999 |  | 57 - 60
|Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000 and the period ended December 31, 1999           |  | 61     
|Notes to Consolidated Financial Statements                                                                                            |  | 62     

53

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INDEPENDENT AUDITORS' REPORT

The
Board of Directors
divine, inc.:

We
have audited the accompanying consolidated balance sheets of divine, inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December 31, 2001 and 2000, and for the period from May 7, 1999 (inception) through December 31, 1999. These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of divine, inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for the years ended December 31, 2001 and 2000, and for the period from May 7, 1999
(inception) through December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.

| |  | /s/KPMG LLP
| |  | -----------

Chicago, Illinois
March 29, 2002

54

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divine, inc.    CONSOLIDATED BALANCE SHEETS

|                                                                                            |                                                                                                                                                                   | December 31,                               |        
|------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|
|Assets                                                                                      |                                                                                                                                                                   |                                            |        
|Current assets:                                                                             |                                                                                                                                                                   |                                            |        
|                                                                                            | Cash and cash equivalents                                                                                                                                         |                                            | $      
|                                                                                            | Restricted cash                                                                                                                                                   |                                            |        
|                                                                                            | Accounts receivable, less allowance for doubtful accounts of $6,983 and $6,863                                                                                    |                                            |        
|                                                                                            | Available-for-sale securities                                                                                                                                     |                                            |        
|                                                                                            | Notes receivable                                                                                                                                                  |                                            |        
|                                                                                            | Prepaid expenses                                                                                                                                                  |                                            |        
|                                                                                            | Deferred publisher costs                                                                                                                                          |                                            |        
|                                                                                            | Other current assets                                                                                                                                              |                                            |        
|                                                                                            |                                                                                                                                                                   |                                            |        
|                                                                                            |                                                                                                                                                                   | Total current assets                       |        
|Property and equipment, net                                                                 |                                                                                                                                                                   |                                            | 44,335 
|Goodwill and other intangible assets, net of accumulated amortization of $4,097 and $21,170 |                                                                                                                                                                   |                                            | 211,075
|Ownership interests in associated companies                                                 |                                                                                                                                                                   |                                            |       
|Prepaid co-location and bandwidth services                                                  |                                                                                                                                                                   |                                            |       
|Restricted cash                                                                             |                                                                                                                                                                   |                                            | 1,075  
|Other noncurrent assets                                                                     |                                                                                                                                                                   |                                            | 16,661 
|                                                                                            |                                                                                                                                                                   |                                            |        
|                                                                                            |                                                                                                                                                                   | Total assets                               |        
|                                                                                            |                                                                                                                                                                   |                                            |        
|Liabilities and Stockholders' Equity                                                        |                                                                                                                                                                   |                                            |        
|Current liabilities:                                                                        |                                                                                                                                                                   |                                            |        
|                                                                                            | Accounts payable                                                                                                                                                  |                                            | $      
|                                                                                            | Publisher payables                                                                                                                                                |                                            |        
|                                                                                            | Accrued payroll expenses                                                                                                                                          |                                            |        
|                                                                                            | Accrued professional fees                                                                                                                                         |                                            |        
|                                                                                            | Current portion of facilities impairment                                                                                                                          |                                            |        
|                                                                                            | Current portion of capital leases                                                                                                                                 |                                            |        
|                                                                                            | Notes payable and current portion of long-term debt                                                                                                               |                                            |        
|                                                                                            | Deferred revenue                                                                                                                                                  |                                            |        
|                                                                                            | Other accrued expenses and current liabilities                                                                                                                    |                                            |        
|                                                                                            |                                                                                                                                                                   |                                            |        
|                                                                                            |                                                                                                                                                                   | Total current liabilities                  |        
|Long-term debt                                                                              |                                                                                                                                                                   |                                            | 63,294 
|Long-term facilities impairment                                                             |                                                                                                                                                                   |                                            | 22,155 
|Capital leases                                                                              |                                                                                                                                                                   |                                            | 1,293  
|Other noncurrent liabilities                                                                |                                                                                                                                                                   |                                            | 14,552 
|Minority interest                                                                           |                                                                                                                                                                   |                                            |       
|Stockholders' equity:                                                                       |                                                                                                                                                                   |                                            |        
|                                                                                            | Class A common stock, $.001 par value; 2,500,000,000 shares authorized; 371,408,945 and 128,382,154 shares issued; 365,997,791 and 127,390,478 shares outstanding |                                            |        
|                                                                                            | Class C common stock, $.001 par value; 100,000,000 shares authorized; 0 and 6,777,777 shares issued and outstanding                                               |                                            |        
|                                                                                            | Additional paid-in capital                                                                                                                                        |                                            |        
|                                                                                            | Notes receivable from exercise of stock options                                                                                                                   |                                            |        
|                                                                                            | Unearned stock-based compensation                                                                                                                                 |                                            |        
|                                                                                            | Accumulated other comprehensive loss                                                                                                                              |                                            |        
|                                                                                            | Treasury stock, at cost; 4,077,821 and 741,676 shares                                                                                                             |                                            |        
|                                                                                            | Accumulated deficit                                                                                                                                               |                                            |        
|                                                                                            |                                                                                                                                                                   |                                            |        
|                                                                                            |                                                                                                                                                                   | Total stockholders' equity                 |        
|                                                                                            |                                                                                                                                                                   |                                            |        
|                                                                                            |                                                                                                                                                                   | Total liabilities and stockholders' equity |        
|                                                                                            |                                                                                                                                                                   |                                            |        

See accompanying notes to consolidated financial statements.

55

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divine, inc.    CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         | Period from
May 7, 1999
(inception) through
December 31,
1999 |         
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------- | ------- | ------------------------------------------------------------- | --------
|
|
|
|Revenues:                                                                      |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               | Products                                                                                                                                                                                                                             |                                                                                          | $                                                                      | 46,224   |         | $                                                             | 5,316   
|                                                                               | Services                                                                                                                                                                                                                             |                                                                                          |                                                                        | 153,374  |         |                                                               | 38,763  
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Total revenues                                                         |          |         | 199,598                                                       |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|Operating expenses:                                                            |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               | Cost of revenues:                                                                                                                                                                                                                    |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      | Products (exclusive of $57, $123, and $0 of amortization of stock-based compensation)    |                                                                        |          | 23,890  |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      | Services (exclusive of $683, $1,151, and $5 of amortization of stock-based compensation) |                                                                        |          | 155,963 |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Total cost of revenues                                                 |          |         | 179,853                                                       |         
|                                                                               | Selling, general and administrative (exclusive of $8,613, $46,367, and $740 of amortization of stock-based compensation)                                                                                                             |                                                                                          |                                                                        | 176,649  |         |                                                               | 150,444 
|                                                                               | Research and development (exclusive of $314, $428, and $2 of amortization of stock-based compensation)                                                                                                                               |                                                                                          |                                                                        | 37,004   |         |                                                               | 12,036  
|                                                                               | Bad debt expense                                                                                                                                                                                                                     |                                                                                          |                                                                        | 23,379   |         |                                                               | 6,186   
|                                                                               | Amortization of intangible assets                                                                                                                                                                                                    |                                                                                          |                                                                        | 16,091   |         |                                                               | 21,088  
|                                                                               | Acquired technology: in-process research and development                                                                                                                                                                             |                                                                                          |                                                                        | 13,741   |         |                                                               |        
|                                                                               | Impairment of intangible and other assets                                                                                                                                                                                            |                                                                                          |                                                                        | 37,864   |         |                                                               | 57,626  
|                                                                               | Impairment of prepaid co-location and bandwidth services                                                                                                                                                                             |                                                                                          |                                                                        | 25,000   |         |                                                               |        
|                                                                               | Impairment of facilities                                                                                                                                                                                                             |                                                                                          |                                                                        | 12,022   |         |                                                               | 10,961  
|                                                                               | Amortization of stock-based compensation                                                                                                                                                                                             |                                                                                          |                                                                        | 9,667    |         |                                                               | 48,069  
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Total operating expenses                                               |          |         | 531,270                                                       |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Operating loss                                                         |          |         | (331,672                                                      | )       
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|Other income (expense):                                                        |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               | Interest income                                                                                                                                                                                                                      |                                                                                          |                                                                        | 8,932    |         |                                                               | 15,583  
|                                                                               | Interest expense                                                                                                                                                                                                                     |                                                                                          |                                                                        | (3,681   | )       |                                                               | (1,857  
|                                                                               | Other expense, net                                                                                                                                                                                                                   |                                                                                          |                                                                        | (4,135   | )       |                                                               | (301    
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Total other income                                                     |          |         | 1,116                                                         |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               | Loss before minority interest, net gain on stock transactions of associated companies, equity in losses of associated companies, impairment of investment in equity method, cost method associated companies, and extraordinary
gain |                                                                                          |                                                                        | (330,556 | )       |                                                               | (289,117
|Minority interest                                                              |                                                                                                                                                                                                                                      |                                                                                          | 4,270                                                                  |          |         | 18,169                                                        |         
|Net gain on stock transactions of associated companies                         |                                                                                                                                                                                                                                      |                                                                                          | 667                                                                    |          |         | 4,375                                                         |         
|Equity in losses of associated companies                                       |                                                                                                                                                                                                                                      |                                                                                          | (19,604                                                                | )        |         | (90,621                                                       | )       
|Impairment of investment in equity method and cost method associated companies |                                                                                                                                                                                                                                      |                                                                                          | (36,633                                                                | )        |         | (113,125                                                      | )       
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Net loss before extraordinary gain                                     |          |         | (381,856                                                      | )       
|Extraordinary gain                                                             |                                                                                                                                                                                                                                      |                                                                                          | 12,032                                                                 |          |         |                                                              |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Net loss                                                               |          |         | (369,824                                                      | )       
|Accretion of redeemable preferred stock dividends                              |                                                                                                                                                                                                                                      |                                                                                          |                                                                       |          |         | (8,037                                                        | )       
|Accretion of preferred stock dividends                                         |                                                                                                                                                                                                                                      |                                                                                          |                                                                       |          |         | (9,070                                                        | )       
|Deemed dividends                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                       |          |         | (40,756                                                       | )       
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Net loss applicable to common stockholders                             |          | $       | (369,824                                                      | )       
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Basic and diluted net loss per share before extraordinary gain         |          | $       | (2.13                                                         | )       
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Extraordinary gain                                                     |          |         | 0.07                                                          |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Basic and diluted net loss per share applicable to common stockholders |          | $       | (2.06                                                         | )       
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          |                                                                        |          |         |                                                               |         
|                                                                               |                                                                                                                                                                                                                                      |                                                                                          | Shares used in computing basic and diluted net loss per share          |          |         | 179,224,722                                                   |         

See accompanying notes to consolidated financial statements.

56

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divine, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)

|                                                             |                     |                           |                                         |   |     |  |            |   |   |    |   | Notes
receivable
from
exercise
of stock
options |         |  |   |   |  |   |         |   |   |   | 
|------------------------------------------------------------ | ------------------- | ------------------------- | --------------------------------------- | - | --- |  | ---------- | - | - | -- | - | ----------------------------------------------- | ------- |  | - | - |  | - | ------- | - | - | - | 
|
|
|
|Balance at May 7, 1999 (inception)                           |                     |                          |                                         | $ |    |  |           |   | $ |   |   | $                                               |        |  | $ |  |  | $ |        |   | $ |  | 
|                                                             | Comprehensive loss: |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     | Net loss                  |                                         |  |     |  |           |   |  |    |   |                                                |         |  |  |   |  |  |         |   |  |   | 
|                                                             |                     |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     | Total comprehensive loss  |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|Issuance of Class A common stock                             |                     |                          |                                         |   |    |  | 3,449,956  |   |   | 4  |   |                                                 | 17      |  |   |  |  |   |        |   |   |  | 
|Issuance of Class B common stock                             |                     |                          |                                         |   |    |  | 2,041,662  |   |   | 2  |   |                                                 | 10      |  |   |  |  |   |        |   |   |  | 
|Issuance of Series A-1 preferred stock                       |                     | 9,236,600                 |                                         |   | 9   |  |           |   |   |   |   |                                                 | 2,287   |  |   |  |  |   |        |   |   |  | 
|Issuance of Series A-2 preferred stock                       |                     | 37,750,000                |                                         |   | 38  |  |           |   |   |   |   |                                                 | 9,387   |  |   |  |  |   |        |   |   |  | 
|Issuance of Series B-1 preferreds stock                      |                     | 2,712,000                 |                                         |   | 3   |  |           |   |   |   |   |                                                 | 1,341   |  |   |  |  |   |        |   |   |  | 
|Issuance of Series B-2 preferred stock                       |                     | 20,100,000                |                                         |   | 20  |  |           |   |   |   |   |                                                 | 10,018  |  |   |  |  |   |        |   |   |  | 
|Issuance of Series C preferred stock                         |                     | 190,062,125               |                                         |   | 190 |  |           |   |   |   |   |                                                 | 189,031 |  |   |  |  |   |        |   |   |  | 
|Exercise of stock options  Class A common stock             |                     |                          |                                         |   |    |  | 341,658    |   |   |   |   |                                                 | 1,537   |  |   |  |  |   |        |   |   |  | 
|Unearned stock-based compensation                            |                     |                          |                                         |   |    |  |           |   |   |   |   |                                                 | 27,408  |  |   |  |  |   | (27,408 | ) |   |  | 
|Stock-based compensation                                     |                     |                          |                                         |   |    |  |           |   |   |   |   |                                                 |        |  |   |  |  |   | 747     |   |   |  | 
|                                                             |                     |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|Balance at December 31, 1999                                 |                     | 259,860,725               |                                         |   | 260 |  | 5,833,276  |   |   | 6  |   |                                                 | 241,036 |  |   |  |  |   | (26,661 | ) |   |  | 
|                                                             | Comprehensive loss: |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     | Net loss                  |                                         |  |     |  |           |   |  |    |   |                                                |         |  |  |   |  |  |         |   |  |   | 
|                                                             |                     | Other comprehensive loss: |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     |                           | Unrealized holding loss during the year |   |    |  |            |  |   |   |   |                                                 |        |  |   |  |  |   |        |   |   |  | 
|                                                             |                     |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     | Total comprehensive loss  |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|                                                             |                     |                           |                                         |   |     |  |            |   |   |    |   |                                                 |         |  |   |   |  |   |         |   |   |   | 
|Issuance of Series F preferred stock                         |                     | 11,500,000                |                                         |   | 11  |  |           |   |   |   |   |                                                 | 14,719  |  |   |  |  |   |        |   |   |  | 
|Conversion from Class B common stock to Class A common stock |                     |                          |                                         |   |    |  | (2,041,662 | ) |   | (2 | ) |                                                 |        |  |   |  |  |   |        |   |   |  | 

See accompanying notes to consolidated financial statements.

57

---

divine, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Continued)
(in thousands, except share data)

|                                                                                                                        |  |              |   |   |      |   |             |   |   |     |   | Notes
receivable
from
exercise
of stock
options |         |   |   |   |  |   |   |  |   |   | 
|----------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | - | ---- | - | ----------- | - | - | --- | - | ----------------------------------------------- | ------- | - | - | - |  | - | - |  | - | - | 
|
|
|
|Conversion of Class A common stock from Class B common stock                                                            |  |             |   | $ |     |   | 2,041,662   |   | $ | 2   |   | $                                               |        |   | $ |  |  | $ |  |  | $ |  | 
|Conversion of preferred stock to Class A common stock, net of 1/6 conversion factor                                     |  | (271,360,725 | ) |   | (271 | ) | 45,226,788  |   |   | 45  |   |                                                 | 226     |   |   |  |  |   |  |  |   |  | 
|Conversion of redeemable preferred stock to Class A common stock net of 1/6 conversion factor and capital raising costs |  |             |   |   |     |   | 35,880,721  |   |   | 36  |   |                                                 | 223,134 |   |   |  |  |   |  |  |   |  | 
|Issuance of Class C common stock, net of offering costs                                                                 |  |             |   |   |     |   | 23,288,511  |   |   | 23  |   |                                                 | 193,440 |   |   |  |  |   |  |  |   |  | 
|Conversion from Class C common stock to Class A common stock                                                            |  |             |   |   |     |   | (16,510,734 | ) |   | (17 | ) |                                                 |        |   |   |  |  |   |  |  |   |  | 
|Conversion to Class A common stock from Class C common stock                                                            |  |             |   |   |     |   | 16,510,734  |   |   | 17  |   |                                                 |        |   |   |  |  |   |  |  |   |  | 
|Issuance of Class A common stock in conjunction with initial public offering, net of offering costs                     |  |             |   |   |     |   | 14,285,000  |   |   | 14  |   |                                                 | 109,230 |   |   |  |  |   |  |  |   |  | 
|Issuance of Class A common stock exclusive of initial public offering shares, net of capital raising costs              |  |             |   |   |     |   | 8,527,046   |   |   | 9   |   |                                                 | 73,887  |   |   |  |  |   |  |  |   |  | 
|Deemed dividends related to beneficial conversion feature of Series E & F preferred stock                               |  |             |   |   |     |   |            |   |   |    |   |                                                 | 25,814  |   |   |  |  |   |  |  |   |  | 
|Deemed dividends related to discount on issuance of Class C common stock                                                |  |             |   |   |     |   |            |   |   |    |   |                                                 | 14,942  |   |   |  |  |   |  |  |   |  | 
|Accretion of redeemable preferred stock dividends                                                                       |  |             |   |   |     |   |            |   |   |    |   |                                                 | (8,037  | ) |   |  |  |   |  |  |   |  | 
|Issuance of Class A common stock through the Employee Stock Purchase Plan                                               |  |             |   |   |     |   | 425,712     |   |   | 1   |   |                                                 | 762     |   |   |  |  |   |  |  |   |  | 
|Dilution gain on equity transactions by associated companies                                                            |  |             |   |   |     |   |            |   |   |    |   |                                                 | 1,021   |   |   |  |  |   |  |  |   |  | 
|Exercise of stock optionsClass A common stock                                                                          |  |             |   |   |     |   | 5,877,670   |   |   | 6   |   |                                                 | 34,651  |   |   |  |  |   |  |  |   |  | 

See accompanying notes to consolidated financial statements.

58

---

divine, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Continued)
(in thousands, except share data)

|                                                                                                               |                     |                           |                                                                            |   |   |  |             |   |   |     |   | Notes
receivable
from
exercise
of stock
options |         |   |   |         |   |   |          |   |   |        |  
|-------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------- | -------------------------------------------------------------------------- | - | - |  | ----------- | - | - | --- | - | ----------------------------------------------- | ------- | - | - | ------- | - | - | -------- | - | - | ------ | -
|
|
|
|Issuance of notes receivable to exercise stock options                                                         |                     |                          |                                                                            | $ |  |  |            |   | $ |    |   | $                                               |        |   | $ | (31,154 | ) | $ |         |   | $ |       |  
|Repurchase and retirement of Class A common stock and reduction of related notes receivable                    |                     |                          |                                                                            |   |  |  | (4,434,509  | ) |   | (4  | ) |                                                 | (26,513 | ) |   | 25,518  |   |   |         |   |   |       |  
|Unearned stock-based compensation                                                                              |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | 106,274 |   |   |        |   |   | (106,274 | ) |   |       |  
|Stock-based compensation                                                                                       |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | 3,209   |   |   |        |   |   | 44,860   |   |   |       |  
|Recovery of unearned stock-based compensation                                                                  |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | (51,434 | ) |   |        |   |   | 51,434   |   |   |       |  
|Capital raising costs of subsidiaries                                                                          |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | (250    | ) |   |        |   |   |         |   |   |       |  
|Payout of fractional shares                                                                                    |                     |                          |                                                                            |   |  |  | (284        | ) |   |    |   |                                                 | (1      | ) |   |        |   |   |         |   |   |       |  
|Indirect ownership of shares of the Company's Class A common stock owned by equity method associated companies |                     |                          |                                                                            |   |  |  | (741,676    | ) |   | (1  | ) |                                                 |        |   |   |        |   |   |         |   |   | (5,592 | )
|                                                                                                               |                     |                           |                                                                            |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|Balance at December 31, 2000                                                                                   |                     |                          |                                                                            |   |  |  | 34,168,255  |   |   | 135 |   |                                                 | 956,110 |   |   | (5,636  | ) |   | (36,641  | ) |   | (5,592 | )
|                                                                                                               | Comprehensive loss: |                           |                                                                            |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|                                                                                                               |                     | Net loss                  |                                                                            |  |   |  |            |   |  |     |   |                                                |         |   |  |         |   |  |          |   |  |        |  
|                                                                                                               |                     | Other comprehensive loss: |                                                                            |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|                                                                                                               |                     |                           | Unrealized holding gain                                                    |   |  |  |             |  |   |    |   |                                                 |        |   |   |        |   |   |         |   |   |       |  
|                                                                                                               |                     |                           | Less: reclassification adjustments of realized losses included in net loss |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|                                                                                                               |                     |                           | Foreign currency translation                                               |   |  |  |             |  |   |    |   |                                                 |        |   |   |        |   |   |         |   |   |       |  
|                                                                                                               |                     |                           |                                                                            |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|                                                                                                               |                     | Total comprehensive loss  |                                                                            |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|                                                                                                               |                     |                           |                                                                            |   |   |  |             |   |   |     |   |                                                 |         |   |   |         |   |   |          |   |   |        |  
|Issuance of Class A common stock                                                                               |                     |                          |                                                                            |   |  |  | 233,895,941 |   |   | 233 |   |                                                 | 206,729 |   |   |        |   |   |         |   |   |       |  
|Issuance of warrants in conjuction with acquisitions                                                           |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | 3,804   |   |   |        |   |   |         |   |   |       |  
|Issuance of warrants to acquire the Company's common stock                                                     |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | 822     |   |   |        |   |   |         |   |   | (822   | )
|Issuance of stock options in conjunction with acquisitions                                                     |                     |                          |                                                                            |   |  |  |            |   |   |    |   |                                                 | 13,636  |   |   |        |   |   |         |   |   |       |  
|Issuance of Class A common stock through the Employee Stock Purchase Plan                                      |                     |                          |                                                                            |   |  |  | 1,327,715   |   |   | 1   |   |                                                 | 1,097   |   |   |        |   |   |         |   |   |       |  
|Issuance of Class A common stock through the exercise of stock options                                         |                     |                          |                                                                            |   |  |  | 41,387      |   |   |    |   |                                                 | 19      |   |   |        |   |   |         |   |   |       |  

See accompanying notes to consolidated financial statements.

59

---

divine, inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Continued)
(in thousands, except share data)

|                                                                        |  |   |   |  |   |   |  |             |   |   |     | Notes
receivable
from
exercise
of stock
options |   |           |   |   |       |  |   |         |   |   |       
|----------------------------------------------------------------------- |  | - | - |  | - | - |  | ----------- | - | - | --- | ----------------------------------------------- | - | --------- | - | - | ----- |  | - | ------- | - | - | ------
|
|
|
|Conversion from Class C common stock to Class A common stock            |  |   |  |  | $ |  |  | (6,777,777  | ) | $ | (7  | )                                               | $ |          |   | $ |      |  | $ |        |   | $ |      
|Conversion to Class A common stock from Class C common stock            |  |   |  |  |   |  |  | 6,777,777   |   |   | 7   |                                                 |   |          |   |   |      |  |   |        |   |   |      
|Dilution loss on equity transactions by associated companies            |  |   |  |  |   |  |  |            |   |   |    |                                                 |   | (38       | ) |   |      |  |   |        |   |   |      
|Repurchase and retirement of Class A common stock                       |  |   |  |  |   |  |  | (99,362     | ) |   |    |                                                 |   | (64       | ) |   |      |  |   |        |   |   |      
|Non-cash executive compensation                                         |  |   |  |  |   |  |  |            |   |   |    |                                                 |   |          |   |   | 2,306 |  |   |        |   |   |      
|Stock-based compensation                                                |  |   |  |  |   |  |  |            |   |   |    |                                                 |   | 132       |   |   |      |  |   | 9,535   |   |   |      
|Issuance of stock awards                                                |  |   |  |  |   |  |  |            |   |   |    |                                                 |   | 279       |   |   |      |  |   |        |   |   |      
|Repayment of notes receivable from exercise of stock options            |  |   |  |  |   |  |  |            |   |   |    |                                                 |   |          |   |   | 260   |  |   |        |   |   |      
|Impairment write-off of notes receivable from exercise of stock options |  |   |  |  |   |  |  |            |   |   |    |                                                 |   |          |   |   | 3,070 |  |   |        |   |   |      
|Unearned stock-based compensation                                       |  |   |  |  |   |  |  |            |   |   |    |                                                 |   |          |   |   |      |  |   | (221    | ) |   |      
|Recovery of unearned stock-based compensation                           |  |   |  |  |   |  |  |            |   |   |    |                                                 |   | (10,673   | ) |   |      |  |   | 10,673  |   |   |      
|Purchase of treasury stock, at cost, and recovery of shares from escrow |  |   |  |  |   |  |  | (3,336,145  | ) |   | (3  | )                                               |   |          |   |   |      |  |   |        |   |   | (3,225
|                                                                        |  |   |   |  |   |   |  |             |   |   |     |                                                 |   |           |   |   |       |  |   |         |   |   |       
|Balance at December 31, 2001                                            |  | $ |  |  | $ |  |  | 365,997,791 |   | $ | 366 |                                                 | $ | 1,171,853 |   | $ |      |  | $ | (16,654 | ) | $ | (9,639
|                                                                        |  |   |   |  |   |   |  |             |   |   |     |                                                 |   |           |   |   |       |  |   |         |   |   |       

See accompanying notes to consolidated financial statements.

60

---



divine, inc.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     | Period from
May 7, 1999
(inception)
through
December 31,
1999 |         
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -------- | -------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------- | --------
|
|
|
|Cash flows from operating activities:                |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     | Net loss                                                                                                               |                                                                                                          | $        | (369,824                               | )                                                   | $                                                             | (470,319
|                                                     | Adjustments to reconcile net loss to net cash used in operating activities:                                            |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     |                                                                                                                        | Depreciation and amortization                                                                            |          |                                        | 29,661                                              |                                                               |         
|                                                     |                                                                                                                        | Acquired technology: in-process research and development                                                 |          |                                        | 13,741                                              |                                                               |         
|                                                     |                                                                                                                        | Extraordinary gain                                                                                       |          |                                        | (12,032                                             | )                                                             |         
|                                                     |                                                                                                                        | Stock-based compensation                                                                                 |          |                                        | 9,667                                               |                                                               |         
|                                                     |                                                                                                                        | Noncash compensation expense from the forgiveness of notes receivable from the exercise of stock options |          |                                        | 2,310                                               |                                                               |         
|                                                     |                                                                                                                        | Other noncash compensation expense                                                                       |          |                                        | 654                                                 |                                                               |         
|                                                     |                                                                                                                        | Bad debt expense                                                                                         |          |                                        | 23,379                                              |                                                               |         
|                                                     |                                                                                                                        | Equity in losses of associated companies                                                                 |          |                                        | 19,604                                              |                                                               |         
|                                                     |                                                                                                                        | Net gain on stock transactions of associated companies                                                   |          |                                        | (667                                                | )                                                             |         
|                                                     |                                                                                                                        | Impairment charges                                                                                       |          |                                        | 111,519                                             |                                                               |         
|                                                     |                                                                                                                        | Minority interest                                                                                        |          |                                        | (4,270                                              | )                                                             |         
|                                                     |                                                                                                                        | Gain on the sale of assets                                                                               |          |                                        | (539                                                | )                                                             |         
|                                                     |                                                                                                                        | Realized loss on other than temporary impairment of available-for-sale securities, net                   |          |                                        | 12,280                                              |                                                               |         
|                                                     |                                                                                                                        | Realized gain on sale of associated companies                                                            |          |                                        | (7,397                                              | )                                                             |         
|                                                     |                                                                                                                        | Changes in assets and liabilities, excluding effects from acquisitions:                                  |          |                                        |                                                     |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          | Restricted cash                        |                                                     |                                                               | (30,923 
|                                                     |                                                                                                                        |                                                                                                          |          | Accounts receivable                    |                                                     |                                                               | (6,801  
|                                                     |                                                                                                                        |                                                                                                          |          | Deferred offering costs                |                                                     |                                                               |        
|                                                     |                                                                                                                        |                                                                                                          |          | Prepaid expenses                       |                                                     |                                                               | (2,913  
|                                                     |                                                                                                                        |                                                                                                          |          | Deferred publisher costs               |                                                     |                                                               | (190,885
|                                                     |                                                                                                                        |                                                                                                          |          | Other current assets                   |                                                     |                                                               | (3,371  
|                                                     |                                                                                                                        |                                                                                                          |          | Accounts payable                       |                                                     |                                                               | 2,729   
|                                                     |                                                                                                                        |                                                                                                          |          | Publisher payables                     |                                                     |                                                               | 35,198  
|                                                     |                                                                                                                        |                                                                                                          |          | Accrued expenses and other liabilities |                                                     |                                                               | (5,652  
|                                                     |                                                                                                                        |                                                                                                          |          | Deferred revenue                       |                                                     |                                                               | 136,660 
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        | Net cash used in operating activities               |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|Cash flows from investing activities:                |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     | Additions to property and equipment                                                                                    |                                                                                                          |          | (11,781                                | )                                                   |                                                               | (45,676 
|                                                     | Acquisitions, deconsolidation, and divestiture of ownership interests in associated companies, including cash acquired |                                                                                                          |          | 86,348                                 |                                                     |                                                               | (174,002
|                                                     | Capitalized acquisition costs                                                                                          |                                                                                                          |          | (16,830                                | )                                                   |                                                               |        
|                                                     | Sale of ownership interests in associated companies                                                                    |                                                                                                          |          | 26,247                                 |                                                     |                                                               | 1,990   
|                                                     | Purchase of available-for-sale securities                                                                              |                                                                                                          |          |                                       |                                                     |                                                               | (4,181  
|                                                     | Proceeds from the sale of property and equipment                                                                       |                                                                                                          |          | 1,357                                  |                                                     |                                                               |        
|                                                     | Purchase of real estate options                                                                                        |                                                                                                          |          | (5,750                                 | )                                                   |                                                               |        
|                                                     | Net issuance (repayment) on notes receivable                                                                           |                                                                                                          |          | (131                                   | )                                                   |                                                               | 3,936   
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        | Net cash provided by (used in) investing activities |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|Cash flows from financing activities:                |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     | Proceeds from the issuance of preferred stock, net of issuance costs                                                   |                                                                                                          |          |                                       |                                                     |                                                               | 230,720 
|                                                     | Proceeds from initial public offering, net of issuance costs                                                           |                                                                                                          |          |                                       |                                                     |                                                               | 109,244 
|                                                     | Proceeds from private placements concurrent with initial public offering                                               |                                                                                                          |          |                                       |                                                     |                                                               | 218,597 
|                                                     | Net repayments of notes payable to associated companies                                                                |                                                                                                          |          |                                       |                                                     |                                                               | (101,187
|                                                     | Proceeds from issuance of notes payable                                                                                |                                                                                                          |          | 17,605                                 |                                                     |                                                               |        
|                                                     | Change in current notes receivable                                                                                     |                                                                                                          |          | (1,571                                 | )                                                   |                                                               |        
|                                                     | Issuance of shares under Employee Stock Purchase Plan                                                                  |                                                                                                          |          | 1,098                                  |                                                     |                                                               | 763     
|                                                     | Proceeds from the issuance of common stock, net of issuance costs                                                      |                                                                                                          |          |                                       |                                                     |                                                               |        
|                                                     | Issuance of long-term debt                                                                                             |                                                                                                          |          |                                       |                                                     |                                                               | 2,643   
|                                                     | Repayment of long-term debt                                                                                            |                                                                                                          |          | (421                                   | )                                                   |                                                               | (2,140  
|                                                     | Proceeds from the exercise of stock options                                                                            |                                                                                                          |          | 19                                     |                                                     |                                                               | 4,261   
|                                                     | Repurchase and cancellation of exercised stock options                                                                 |                                                                                                          |          | (64                                    | )                                                   |                                                               | (1,233  
|                                                     | Purchase of treasury stock and cash placed in escrow for future purchase of treasury stock                             |                                                                                                          |          | (5,627                                 | )                                                   |                                                               |        
|                                                     | Capital raising costs of subsidiaries and payment of fractional shares                                                 |                                                                                                          |          |                                       |                                                     |                                                               | (251    
|                                                     | Proceeds from repayments of notes receivable from the exercise of stock options                                        |                                                                                                          |          | 260                                    |                                                     |                                                               |        
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        | Net cash provided by financing activities           |                                                               |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|Effect of exchange rates on cash                     |                                                                                                                        |                                                                                                          | (940     | )                                      |                                                     |                                                              |         
|Net (decrease) increase in cash and cash equivalents |                                                                                                                        |                                                                                                          | (148,053 | )                                      |                                                     | 89,692                                                        |         
|Cash and cash equivalents at beginning of period     |                                                                                                                        |                                                                                                          | 252,533  |                                        |                                                     | 162,841                                                       |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|Cash and cash equivalents at end of period           |                                                                                                                        | $                                                                                                        | 104,480  |                                        | $                                                   | 252,533                                                       |         
|                                                     |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|Supplemental disclosures:                            |                                                                                                                        |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     | Interest paid                                                                                                          |                                                                                                          | $        | 1,142                                  |                                                     | $                                                             | 1,467   
|                                                     | Noncash financing and investing activities:                                                                            |                                                                                                          |          |                                        |                                                     |                                                               |         
|                                                     |                                                                                                                        | Issuance of notes payable, common stock, options, and warrants in conjunction with acquisitions          |          |                                        | 284,415                                             |                                                               |         
|                                                     |                                                                                                                        | Repayment of note payable from issuance of common stock                                                  |          |                                        | 6,875                                               |                                                               |         
|                                                     |                                                                                                                        | Issuance of notes receivable from exercise of stock options                                              |          |                                        |                                                    |                                                               |         
|                                                     |                                                                                                                        | Retirement of notes receivable from exercise of stock options                                            |          |                                        |                                                    |                                                               |         
|                                                     |                                                                                                                        | Issuance of stock in exchange for service credit or stock                                                |          |                                        |                                                    |                                                               |         

See accompanying notes to consolidated financial statements.

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divine, inc.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies



divine interVentures, inc. (the Company) was incorporated in the State of Delaware on May 7, 1999 and commenced operations on June 30, 1999. The
Company began by engaging in business-to-business e-commerce through a community of associated companies in which it invested. From September 30, 1999 to December 31, 2000, the Company
acquired interests in 40 associated companies and established a total of 13 associated companies whose opportunities were consistent with the Company's business strategy.

In
February 2001, the Company announced its strategy to focus primarily on extended enterprise solutions, and changed its name to divine, inc. Since then, interests in the
Company's associated companies that provide products and/or services consistent with the Company's core business strategy are no longer reflected separately but have become integrated into the
Company's core business strategy and operating model as a fully integrated set of products and services. The Company's other associated companies, offering software and services focused on e-commerce
and vertical markets, have been included in the Company's divine interVentures segment since December 31, 2000. As of December 31, 2001, the Company has completely written off its
investments in the associated companies in the divine interVentures portfolio, other than amounts included in available-for-sale securities.

divine
is a service and software company focused on solutions for the extended enterprise. divine helps its clients maximize profits through better collaboration, interaction, and
knowledge sharing throughout the entire value chain, including suppliers, partners, employees, and customers. The Company facilitates its customers' integration of advanced enterprise Web solutions
with their business strategies and existing infrastructures by providing a combination of professional services, Web-based technology, and managed applications capabilities. The Company focuses its
offerings on Global 5000 and high-growth middle market firms and services customers located mainly in the United States and throughout North America, Europe, Asia, and Australia.



As discussed above, the Company has held ownership interests in many associated companies since its inception. Under the Company's new strategic focus, the
Company's acquisitions are almost exclusively acquisitions of 100% of the stock of certain companies that fit its operating strategy. The following discussion regarding the principles of consolidation
is meant to explain how the Company accounted for investments in associated companies focused on e-business and vertical markets, which accounted for the majority of the Company's consolidated
operations in 1999 and 2000. These companies were considered part of the Company's divine interVentures portfolio throughout 2001. The significance of the operations of these associated companies on
the consolidated operations of the Company decreased throughout 2001, and as of December 31, 2001, the Company has completely written off its investments in the associated companies in its divine
interVentures portfolio, other than amounts included in available-for-sale securities.

Consolidation.Associated companies in which the Company owns, directly or indirectly, more than 50% of the outstanding
voting power are accounted for under the consolidation method of accounting. Under this method, an associated company's results of operations are reflected within the Company's consolidated statements
of operations from the acquisition date forward. Earnings or losses

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attributable to other stockholders of a consolidated associated company are identified as "minority interest" in the Company's consolidated statements of operations. Minority interest adjusts the
Company's consolidated net results of operations to reflect only its share of the earnings or losses of an associated company. Transactions between the Company and its consolidated associated
companies are eliminated in consolidation.

Equity Method.Associated companies in which the Company owns 50% or less of the outstanding voting power, but over which the
Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an associated company
depends on an evaluation of several factors including, among other things, representation on the associated company's board of directors, ownership percentage and voting rights associated with the
Company's holdings in the associated company. If the Company owns at least 20%, but not more than 50%, of the outstanding voting power of an associated company, the Company accounts for its interests
under the equity method. Under the equity method of accounting, associated companies' results of operations are not reflected within the Company's consolidated operating results.
However, the Company's share of the earnings or losses of these associated companies, from the acquisition date forward, is identified as "equity in losses of associated companies" in the Company's
consolidated statements of operations.

The
amount by which the Company's carrying value exceeds its share of the underlying net assets of associated companies accounted for under the equity method of accounting is amortized
on a straight-line basis over three years, which the Company believes to be the minimum number of years for which the associated companies will be successfully implementing their business
plans, based on various factors such as their revenue models and technology, and the industries in which they operate. This amortization adjusts the Company's share of the "equity in losses of
associated companies" in the Company's consolidated statements of operations.

Cost Method.Associated companies not accounted for under either the consolidation or the equity method of accounting are
accounted for under the cost method of accounting. Under this method, the Company's share of the earnings and losses of these companies is not included in the Company's consolidated statements of
operations.

The
Company records its ownership interest in equity securities of its associated companies accounted for under the cost method at cost, unless the securities have readily determinable
fair values based on quoted market prices, in which case these interests would be accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities.



The Company considers all highly liquid instruments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash
equivalents at December 31, 2001 are invested principally in money market accounts, short-term treasury bills, and commercial paper.



The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents. The Company maintains its cash
accounts with various banks. The total domestic cash balances of the Company are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per depositor, per bank. In addition, a
significant portion of the cash held by

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the Company in domestic brokerage accounts at December 31, 2001 is protected with coverage provided through commercial insurers. The Company had uninsured cash and cash equivalents at
December 31, 2001 of $103,653,000.



Cash equivalents, accounts receivable, notes receivable, prepaid expenses, deferred publisher costs, accounts payable, publisher payables, accrued expenses,
deferred revenue, and notes payable are carried at cost which approximates fair value due to the short-term maturity of these instruments. Long-term debt is carried at cost which
approximates fair value due to the variable rates at which the underlying notes bear interest.



Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which
are generally forty years for buildings, twelve years for machinery and equipment, seven years for furniture and fixtures, and three years for computer equipment and software. Amortization of
leasehold improvements is computed over the shorter of the lease term or estimated useful life of the assets.



Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological
feasibility, are classified as research and development costs, and expensed as incurred. Once technological feasibility has been determined, material costs incurred in the construction phase of
software development, including coding and testing, and product quality assurance, are to be capitalized. To date, no software development costs have been capitalized as technological feasibility has
been achieved substantially concurrent with the general release of the Company's software products.



The Company expenses costs related to the development of software for internal use. Statement of Position (SOP) 98-1,Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, does not materially affect the Company.



The Company expenses costs incurred for web site development. Emerging Issues Task Force (EITF) Issue No. 00-2,Accounting for Web
Site Development Costs, does not materially affect the Company.



Software transactions are accounted for in accordance with SOP 97-2,Software Revenue Recognition, as
amended. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements, such as software products, upgrades/enhancements, post-contract
customer support, installation and training to be allocated to each element based on the relative fair values of the elements. The revenue allocated to software licenses where the separate service
elements are not essential to functionality of the other elements is generally recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or
determinable, and

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collectibility is probable. When the separate service elements are essential to the functionality of the other elements, software license revenues are recognized according to the contract accounting
provisions outlined in SOP 81-1,Accounting for Performance of Construction-Type and Certain Performance-Type
Contracts, specifically the percentage-of-completion method. The revenue allocated to post-contract customer support is recognized ratably
over the term of the support, and revenue allocated to service elements such as training, installation and customization is recognized as the services are performed.

The
majority of the Company's software license arrangements include flexible contractual provisions that, among other things, allow customers to receive unspecified future software
products. Under these arrangements, the Company recognizes revenue attributable to the software products ratably over the term of the license arrangement commencing upon delivery of the currently
available software products.

Revenue
from consulting services is provided under fixed price and time and materials contracts. For fixed price contracts, revenue is recorded on the basis of the estimated percentage
of completion of services rendered. Losses, if any, on fixed price contracts are recognized when the loss is determined. For time and materials contracts, revenue is recorded at contractually agreed
upon rates as the costs are incurred.

Revenue
from equipment sales is recognized upon shipment.

Revenue
generated from subscription orders for third-party publications is recognized over the subscription period.

Management
fees are recognized as revenue over the period of the management service.



The Company accounts for its acquisitions of consolidated companies under the purchase method of accounting pursuant to SFAS No. 141, Business
Combinations. Other intangible assets that are separable from goodwill and have determinable useful lives are valued separately and amortized
over their useful lives. Goodwill represents mainly the excess of cost over net assets of acquired businesses that are consolidated. Goodwill and other identifiable intangible assets that do not have
determinable useful lives and are not valued separately are not amortized pursuant to SFAS No. 142,Goodwill and Other Intangible Assets.
Goodwill is reviewed for impairment on an ongoing basis. Other identifiable intangible assets consist mainly of developed technology and are generally amortized over two to four years.

Prior
to its adoption of SFAS No. 141 on July 1, 2001, the Company accounted for its acquisitions and the related amortization of goodwill and other intangible assets under
Accounting Principles Board Opinion No. 16,Business Combinations(APB No. 16). Under APB No. 16, the Company amortized all of its
goodwill and other intangible assets over two or three years. The Company continued to amortize, through December 31, 2001, its remaining goodwill and other intangible assets resulting from
business combinations occurring prior to July 1, 2001.

For
the years ended December 31, 2001 and 2000, and for the period ended December 31, 1999, the Company recorded amortization expense of $12,757,000, $51,640,000, and
$1,121,000, respectively, related to goodwill and certain intangible assets, as well as net excess investment over the equity in net assets of equity-method associated companies, that are no longer
being amortized in accordance with SFAS No. 142. Had the Company not recorded these amortization expenses, net loss before extraordinary gain would have been $369,099,000 for the year ended
December 31, 2001. Net loss

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applicable to common stockholders for the years ended December 31, 2001 and 2000, and for the period ended December 31, 1999 would have been $357,067,000, $476,542,000, and $4,806,000,
respectively. Net loss per share applicable to common stockholders would have been $(1.99), $(7.07), and $(4.19), respectively.



On a continuous basis, but no less frequently than at the end of each quarterly reporting period, the Company evaluates the carrying value for financial statement
purposes of its goodwill and other intangible assets. The Company accounts for the impairment of goodwill and other intangible assets in relation to the operating performance and future undiscounted
cash flows of the reporting units of the underlying businesses when indications of impairment are present. Such indications of impairment include, but are not limited to, the actual performance of
reporting units compared with budgeted performance, layoffs within reporting units and associated facilities impairment charges, if applicable, and market trends.



Pursuant to SEC Staff Accounting Bulletin No. 84, at the time an associated company accounted for under the consolidation or equity method issues its stock
at a price different from the associated company's book value per share, the Company's share of the associated company's net equity changes. If at that time, the associated company is not a newly
formed, non-operating entity, nor a research and development start-up or development stage company, nor is there question as to the associated company's ability to continue in
existence, the Company records the change in its share of the associated company's net equity as a gain or loss in its consolidated statements of operations. Otherwise, the Company records the change
in its share of the associated company's net equity as an increase or decrease in its additional paid-in capital.



Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



SFAS No. 123,Accounting for Stock-Based Compensation, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair value. The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25),Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost
of stock options is measured as the excess, if any, of the fair value of the Company's stock at the date of grant over the option exercise price and is charged to operations over the vesting period.
Income tax benefits attributable to stock options exercised are credited to additional paid-in capital.

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Net loss per share is calculated in accordance with SFAS No. 128,Earnings per Share. Basic earnings
per share is computed based on the weighted average number of common shares outstanding during the period. The dilutive effect of common stock equivalents and convertible preferred stock is included
in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. Because the Company reported a net loss for all periods presented, potentially dilutive
securities have not been included in the shares used to compute net loss per share.

Had
the Company reported net income for the year ended December 31, 2001, the weighted average number of shares outstanding would have potentially been diluted by 29,553,095
common equivalent shares, assuming the exercise of all outstanding stock options and by 1,707,634 common equivalent shares, assuming the exercise of all outstanding warrants.

Had
the Company reported net income for the year ended December 31, 2000, the weighted average number of shares outstanding would have potentially been diluted by 41,631,000
common equivalent shares, assuming the conversion of preferred stock from the date of issuance of that preferred stock. All preferred stock of the Company was converted into common stock upon the
completion of the Company's initial public offering on July 18, 2000. Had the Company reported net income for the year ended December 31, 2000, the weighted average number of shares
outstanding would have potentially been further diluted by 3,189,000 common equivalent shares, assuming the exercise of stock options.

Had
the Company reported net income for the period ended December 31, 1999, the weighted average number of shares outstanding would have potentially been diluted by 14,992,500
common equivalent shares, assuming the conversion of preferred stock and an additional 619,000 common stock equivalent shares, assuming the exercise of stock options.



Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other events and circumstances from
non-owner sources. Excluding net income (loss), the Company's source of comprehensive income (loss) is from net unrealized appreciation (depreciation) on its
available-for-sale securities and from net gain (loss) on foreign currency translation. The Company reports comprehensive income (loss) in the consolidated statements of
stockholders' equity.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.



Certain reclassifications of prior period amounts have been made to conform to current period presentations.

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Since the Company does business in foreign countries, fluctuations in exchange rates of various foreign currencies affect the Company's financial position and
results of operations. Assets and liabilities of foreign subsidiaries are translated to U.S. dollars using the exchange rates in effect at the end of the reporting period. The revenue and expense
accounts of foreign subsidiaries are translated to U.S. dollars at the average exchange rates for the reporting period. The gains or losses that result from translation are shown in accumulated other
comprehensive income (loss) in the stockholders' equity section of the balance sheet.

(2) Accounts Receivable

Net accounts receivable consist of the following:

|                                |  | December 31, |        
|------------------------------- |  | ------------ | -------
|
|
|Accounts receivable             |  | $            | 207,816
|Allowance for doubtful accounts |  |              | (6,983 
|                                |  |              |        
|                                |  | $            | 200,833
|                                |  |              |        

The
Company sells to customers in a wide variety of industries and markets throughout the world. Receivables arising from these sales are generally not collateralized. Adequate
provisions have been recorded for uncollectible receivables. There are no significant concentrations of credit risk.

The
Company has an agreement under which one of its foreign subsidiaries sells certain of its trade accounts receivable. The factoring company has the risk of credit loss on the
receivables and
accordingly, there is no allowance for doubtful accounts related to these receivables on the Company's consolidated balance sheets.

Activity
in the allowance for doubtful accounts is summarized as follows:

|                                   |  | Years Ended December 31, |         |  
|---------------------------------- |  | ------------------------ | ------- | -
|
|
|
|Beginning balance                  |  | $                        | 6,863   |  
|Balance acquired from acquisitions |  |                          | 19,787  |  
|Bad debt expense                   |  |                          | 23,378  |  
|Write-offs                         |  |                          | (43,045 | )
|                                   |  |                          |         |  
|Ending balance                     |  | $                        | 6,983   |  
|                                   |  |                          |         |  

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(3) Property and Equipment

Property and equipment are summarized as follows:

|                                               |  | December 31, |        
|---------------------------------------------- |  | ------------ | -------
|
|
|Land and land improvements                     |  | $            | 9,873  
|Buildings                                      |  |              | 3,491  
|Machinery and equipment                        |  |              | 1,772  
|Computer equipment and software                |  |              | 22,565 
|Office equipment and furniture                 |  |              | 7,615  
|Construction in progress                       |  |              | 115    
|Leasehold improvements                         |  |              | 13,453 
|                                               |  |              |        
|                                               |  |              | 58,884 
|Less accumulated depreciation and amortization |  |              | (14,549
|                                               |  |              |        
|                                               |  | $            | 44,335 
|                                               |  |              |        

(4) Goodwill and Other Intangible Assets

Goodwill and other intangible assets are summarized as follows:

|                              |  | December 31, |        
|----------------------------- |  | ------------ | -------
|
|
|Goodwill                      |  | $            | 157,247
|Developed technology          |  |              | 57,310 
|Customer lists                |  |              |       
|Workforce in place            |  |              |       
|Other intangible assets       |  |              | 615    
|                              |  |              |        
|                              |  |              | 215,172
|Less accumulated amortization |  |              | (4,097 
|                              |  |              |        
|                              |  | $            | 211,075
|                              |  |              |        

At
December 31, 2001 the Company had $54,370,000 of amortizable intangible assets, consisting of developed technology and other intangible assets. The Company expects to amortize
these intangible assets as follows: 2002$14,539,000; 2003$14,539,000; 2004$14,292,000; and 2005$11,000,000.

(5) Business Combinations



On October 14, 1999, the Company acquired 1.9% of Neoforma.com, Inc. (Neoforma) for $6,000,000. Neoforma provides
business-to-business e-commerce services in the medical products market.

On
October 29, 1999, the Company acquired 2.1% of NTE, Inc. (formerly The National Transportation Exchange, Inc.) (NTE) for $750,000. NTE offers an electronic
marketplace that aggregates suppliers and buyers of freight transportation capacity. On January 5, 2000, the Company

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paid $5,112,665 to acquire an additional 3.2% of NTE, thereby increasing the Company's ownership percentage of NTE to 5.3%.

On
October 29, 1999, the Company acquired 0.9% of comScore, Inc., (comScore) for $200,208. ComScore is a company that provides online consumer behavior data and related
consulting services.

On
November 8, 1999, the Company paid $2,000,000 and issued a promissory note for $4,000,000 for 26.5% of Whiplash, Inc. (Whiplash), which provided a Web-based
global distribution system to improve the efficiency and profitability of sellers in the leisure travel market space. The promissory note carried interest at 6%. The first $2,000,000 installment was
paid on December 31, 1999 and the second $2,000,000 installment was paid in March 2000. In addition, during the second quarter of 2000, the Company paid $1,250,000 in cash and issued a
note for $1,250,000 to obtain an additional interest in Whiplash. Whiplash ceased all meaningful operations in the fourth quarter of 2000.

On
November 19, 1999, the Company acquired 1.1% of Commerx, Inc. (Commerx) for $2,500,000. Commerx provides vertical online marketplaces for industrial markets.

On
November 19, 1999, the Company paid $4,905,275 for 97% of mindwrap, inc. (mindwrap) and their OPTIX software, which provides document imaging, management and control to
laser disk technology. As part of this acquisition, $694,529 of debt owed by mindwrap to its parent company was forgiven.

On
November 23, 1999, the Company paid $5,000,000 and issued a promissory note for $10,000,000 for 37.4% of PocketCard Inc. (PocketCard), which provided businesses and
individuals with debit cards that allowed real-time funding over the Internet. The promissory note carried interest at 8%. The note was paid in $5,000,000 installments in February and
March 2000. PocketCard ceased all meaningful operations in the fourth quarter of 2000.

On
November 23, 1999, the Company acquired 8.3% of Sequoia Software Corporation (Sequoia) for $5,000,000. Sequoia provides Internet infrastructure software to proprietary web
sites designed as market makers. In February 2001, the Company distributed 126,497 of its shares of Sequoia Software Corporation to certain employees who participated in the Company's incentive
compensation program. This distribution decreased the Company's ownership interest in Sequoia to 7.5%. In April 2001, the Company tendered its 2,335,000 shares of Sequoia Software Corporation
as part of a previously announced acquisition of Sequoia by Citrix Systems, Inc. In May 2001, the Company received
$13,174,000 for these shares, which resulted in a realized gain of $6,611,000 included within other income in the consolidated statements of operations.

On
November 23, 1999, the Company paid $500,000 for 63.8% of i-Street, Inc., which is a business-to-business media company and news
portal focused on the Internet and technology businesses in Chicago and the Midwest. In January 2001, the Company restructured its ownership interest in i-Street, such that the
Company's voting ownership in i-Street was reduced to 25.1%. As a result, beginning in January 2001, i-Street was accounted for under the equity method of accounting,
whereas it had previously been consolidated. In July 2001, the Company exchanged all of its outstanding preferred securities in i-Street for 36,222 shares of common stock of
i-Street. The Company now holds an ownership interest of 10.0% in i-Street.

On
November 23, 1999, the Company paid $867,000 for a 43.0% interest in Entrepower, Inc. (Entrepower), which was an on-line recruiting service provider.
Entrepower ceased all meaningful operations in the fourth quarter of 2000.

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On December 8, 1999, the Company paid $7,500,000 and issued a promissory note for $7,500,000 to purchase 76.9% of LiveOnTheNet.com, Inc. (LiveOnTheNet), which offers
proprietary technology for webcasting live events online. This promissory note carried interest at the prime rate as recorded in the Wall Street Journal (8.5% at December 31, 1999) and was paid
in full in June 2000. As part of this acquisition, $4,514,000 of debt owed by LiveOnTheNet to its parent company was forgiven.

On
December 8, 1999, the Company acquired 44.1% of OpinionWare.com, Inc. (OpinionWare) for $2,000,000. OpinionWare provides technology that allows businesses to gather and
analyze the opinions of large public and private online communities. In addition, during the second quarter of 2000, the Company paid $5,000,000 in cash to obtain an additional interest in
OpinionWare. On April 30, 2000, the Company changed its method of accounting for its investment in OpinionWare from the equity method to the consolidation method due to the Company's additional
investment.

On
December 10, 1999, the Company acquired 31.8% of Outtask.com Inc. (Outtask) for $4,000,000 and a promissory note for $3,000,000. The promissory note carried an interest
rate of 8.5% and was paid in March 2000. Outtask provides business-to-business e-commerce applications and services to technology and Internet companies. In
February 2001, the Company contributed $4,000,000 to Outtask.com, Inc. As a result of this contribution, the Company's ownership in Outtask was increased to 34.2%.

2000 Business Combination Activity

On January 11, 2000, the Company acquired 51.3% of BeautyJungle.com, Inc. (BeautyJungle) for $10,000,000. Subsequently on March 13, 2000, the
Company acquired an additional interest in BeautyJungle for $8,000,000, which increased the Company's ownership percentage of BeautyJungle to 61.2%. BeautyJungle offered an electronic marketplace for
buyers and sellers of beauty products, but ceased all meaningful operations in the third quarter of 2000.

On
January 24, 2000, the Company acquired 54.3% of bid4real.com, inc., (bid4real) for $7,000,000. bid4real provided a forum on which real estate auctions are conducted
on-line. bid4real ceased all meaningful operations in June 2001.

On
January 28, 2000, the Company paid $1,000,000 and issued a promissory note for $9,000,000 for 48.8% of iFulfillment, Inc., which provided fulfillment and inventory
management services to businesses selling products over the Internet. The promissory note carried interest at 8.5% and was paid in installments through May 2000. In addition, during the third
and fourth quarters of 2000, the Company paid $9,000,000 in cash to obtain an additional interest in iFulfillment. On August 1, 2000, the Company changed its method of accounting for its
investment in iFulfillment from the equity method to the consolidation method due to the Company's additional investment. iFulfillment ceased all meaningful business operations in the fourth quarter
of 2001. As a result, the Company received a distribution in bankruptcy of $215,000 in January 2002 related to its investment in iFulfillment.

On
January 31, 2000, the Company paid $3,000,000 and issued a promissory note for $2,000,000 for 70.0% of ViaChange.com, Inc., which provides a forum on which auctions of
products in capital markets are conducted on-line. The promissory note carried interest at 8.0% and was paid in May 2000. In November 2001, the Company's ownership interest in
ViaChange was extinguished and replaced with a warrant to purchase 30.0% of the common stock of ViaChange.

On
February 1, 2000, the Company paid $11,500,000 and issued 500,000 shares of its series F preferred stock (with a fair value of $4.80 per share) for 42.7% of
closerlook, inc., a strategy, design and technology firm that delivers communication, marketing and software solutions to bring its clients

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closer to their customers. The Company placed an additional $1,500,000 and 1,500,000 shares of its series F preferred stock into escrow, which was returned to the Company because closerlook
did not meet certain predetermined revenue goals for 2000. The 1,500,000 shares of series F preferred stock, which have since been converted to 250,000 shares of the Company's class A
common stock, were cancelled in June 2001. In June 2001, the Company sold back its interest in closerlook for nominal consideration.

On
February 3, 2000, the Company acquired 36.3% of iSalvage.com, Inc., (iSalvage) for $6,500,000. iSalvage provided an electronic marketplace for recycled and rebuilt
automotive parts. In February 2001, iSalvage.com, Inc., ceased all meaningful business operations. The Company wrote down the carrying value of its investment in iSalvage to $72,000 in
2000. In March 2001, the Company received $194,000, representing its share of the first cash distribution in the liquidation of iSalvage. In July 2001, the Company received $44,000,
representing its share of the final cash distribution.

On
February 4, 2000, the Company paid $5,000,000 and issued a promissory note for $4,000,000 for 32.3% of Xippix, Inc., which provided technology that allows
high-resolution imaging for companies' web sites. The promissory note carried interest at 8.0% and was paid in May 2000. In addition, during the second quarter of 2000, the Company
paid $1,242,000 in cash to obtain an additional interest in Xippix. In April 2001, Xippix, Inc. ceased all meaningful business operations.

On
February 8, 2000, the Company acquired 25.0% of Martin Partners, L.L.C. (Martin Partners) for $1,670,883. Martin Partners is an executive search firm which focuses on
e-commerce and technology
companies. In November 2000, the Company sold its interest in Martin Partners back to the principals of Martin Partners for a price equal to the Company's purchase price plus interest. The
Company recognized a loss of $39,000 on the sale of Martin Partners.

On
February 10, 2000, the Company paid $2,500,000 and issued a promissory note for $2,500,000 for 55.6% of Oilspot.com, Inc., which provides an electronic marketplace for
purchasers and suppliers of petroleum products and services. The promissory note carried interest at 8.5%; $1,000,000 was paid in June 2000 and $1,500,000 was forgiven in October 2000 in
conjunction with Oilspot's merger with FuelQuest, Inc. As of December 31, 2001, the Company owns less than 1% of FuelQuest, Inc.

On
February 11, 2000, the Company paid $3,000,000 and issued a promissory note for $3,000,000 for 35.5% of BidBuyBuild, Inc. (BidBuyBuild), which provides an electronic
marketplace in the commercial and industrial construction supply industry. The promissory note carried interest at 8.5% and was paid in April 2000. The Company sold its interest in BidBuyBuild
for $200,000 in October 2000.

On
February 11, 2000, the Company acquired 44.5% of CapacityWeb.com, Inc. (CapacityWeb) for $4,500,000. CapacityWeb provided an electronic marketplace for industrial
manufacturing capacity, but ceased all meaningful operations in 2000.

On
February 11, 2000, the Company paid $15,000,000 and issued 10,000,000 shares of its series F preferred stock (with a fair value of $4.80 per share) for communication and
collaboration software. This software was the basis for Parlano, Inc. (Parlano), of which the Company obtained a 75.1% ownership interest. Parlano markets and licenses software that allows
information to be captured, filtered and stored in corporate databases and used in knowledge management applications. In connection with the issuance of the Company's series F preferred stock
on February 11, 2000, the Company recorded a non-cash dividend of $7,530,000. This non-cash dividend relates to the deemed beneficial conversion features associated with
this preferred stock. The series F preferred stock has since been converted to 1,666,666 shares of the Company's class A common stock.

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On
February 11, 2000, the Company paid $5,000,000 and issued a promissory note for $5,000,000 for 45.2% of United Process Group, Inc. (UPG), formerly
eFiltration.com, Inc., which offered an electronic marketplace for the filtration industry. The promissory note carried interest at 8.5% and was paid in July 2000. In May 2001,
UPG, Inc. repurchased the Company's ownership interest for nominal consideration. In a separate transaction in May 2001, the Company acquired a 24.7% interest in UPG for $500,000 plus
future consulting services valued at $320,000. One of the conditions of the new stock purchase agreement was that the Company would not be required to make an additional investment of
$11 million, as detailed in the original purchase agreement. In September 2001, the Company acquired the 75.3% of the equity interests of UPG that it did not already own in exchange for
nominal consideration and an agreement to hire certain of UPG's employees. As a condition of the
September 2001 transaction, the unfulfilled portion of the consulting services owed in conjunction with the May 2001 transaction was nullified.

On
February 11, 2000, the Company acquired 32.1% of iGive.com, inc. (iGive) for $4,000,000. iGive provides technology and services to a network of merchants,
non-profit organizations and consumers which enable retail purchasers to assist non-profit organizations.

On
February 11, 2000, the Company paid $12,000,000 and issued a promissory note for $11,500,000 for 40.4% of Mercantec, Inc., which produces software that allows merchants
to integrate e-commerce capabilities into their existing web sites. The promissory note carried interest at 6.0%; $6,500,000 was paid in April 2000 and $5,000,000 was paid in
August 2000.

On
February 11, 2000, Xqsite, Inc., of which the Company owned 80.6% on the acquisition date, acquired 66.7% of Web Design Group, Inc. (Web Design Group) for
$7,000,000. Web Design Group provides web development and electronic business services to companies seeking to develop and implement effective web solutions for their operations.

On
February 11, 2000, Xqsite, Inc., paid $500,000 and issued a promissory note for $500,000 for 65.0% of Westbound Consulting, Inc., (Westbound Consulting) which
delivers customized Internet solutions through web consulting, marketing, development and hosting services. The promissory note carried interest at the prime rate of interest as stated in the Wall
Street Journal; $250,000 was paid by the Company in April 2000 and $250,000 was paid by Web Design Group on behalf of Xqsite in May 2000.

On
February 14, 2000, the Company paid $10,000,000 and issued 1,000,000 shares of its series F preferred stock (with a fair value of $4.80 per share) for 33.4% of
Perceptual Robotics, Inc., which offers a software system that allows Internet users to control a robotic camera and immediately capture still images from remote locations. The series F
preferred stock has since been converted to 166,666 shares of the Company's class A common stock.

On
February 25, 2000, the Company acquired 39.7% of Launchworks, inc. (Launchworks) for $11,428,571. Launchworks is a provider of capital and strategic services to
business-to-business e-commerce companies. During the third quarter of 2000, the Company paid $4,050,000 in cash and issued 1,152,826 shares of its class A
common stock valued at $8,095,000 to obtain an additional interest in Launchworks. In February 2002, the Company issued 2,159,074 shares of its class A common stock to Wirecomm
Systems, Inc., a subsidiary of Launchworks, in satisfaction of an obligation of the Company under a collar agreement between the Company and Launchworks. Also, in further satisfaction of the
collar obligation, the Company returned 800,000 preferred shares of Launchworks. The Company has no further obligations under the Launchworks collar agreement.

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On
March 8, 2000, the Company paid $2,500,000 and issued a promissory note for $2,500,000 for 42.0% of TV House, Inc., which produces and syndicates Internet video
financial news updates designed for individual investors. The promissory note carried interest at 8.5% and was paid in July 2000.

On
March 10, 2000, the Company acquired 34.6% of Aluminium.com, Inc. (Aluminium) for $19,250,000. Aluminium provides a business-to-business online
exchange for buying and selling all grades of aluminum raw materials. In June 2001, Aluminium, inc. ceased all meaningful business operations.

On
March 15, 2000, the Company acquired 47.1% of eReliable Commerce, Inc. (eReliable) for $4,725,000. eReliable offers technology to provide
business-to-business e-commerce web sites with customized guaranteed transaction services.

On
March 24, 2000, Host divine, inc., of which the Company owned 80.6% on the acquisition date, acquired 76.2% of NetUnlimited, Inc. (NetUnlimited) for $5,000,000.
NetUnlimited markets various Internet technology infrastructure services.

On
March 30, 2000, the Company acquired 62.9% of Panthera Productions, LLC (Panthera) for $2,700,000. Panthera offers a web channel for entertainment and education that will
provide users a virtual experience with animals throughout Africa.

On
April 3, 2000, the Company paid $2,000,000 and issued a promissory note for $24,871,429 for 33.0% of Emicom Group, Inc. (Emicom). The promissory note carried interest at
8.5% and was paid in July 2000. Emicom is a technology holding company that provides capital and advisory services to early-stage technology companies located in the Middle East.

On
April 28, 2000, the Company paid $16,100,000 and issued a promissory note for $16,100,000 for 41.0% of Farms.com, Ltd. (Farms). The promissory note carried interest at
8.0% and was paid in July 2000. Farms provides an electronic marketplace for the livestock and grain industries. In June 2001, the Company sold back its interest in Farms for
$13,000,000, which resulted in a realized gain of $7,225,000 included within other income in the consolidated statement of operations for the year ended December 31, 2001.

On
July 26, 2000, the Company paid $17,500,000 for 37.4% of Dolphin Interventures (formerly Latin American Econetworks N.V.), which provides capital and strategic services to
Internet and related companies throughout Latin America.

2001 Business Combination Activity

In February 2001, the Company, through its wholly owned subsidiary divine Global Services, Inc. (dGS), acquired the minority interest of Web Design
Group in exchange for 222,841 shares of the Company's class A common stock. Because Web Design Group did not meet certain predetermined revenue targets in 2001, the Company was not obligated to
issue any of the 222,841 additional common shares detailed in the purchase agreement.

In
February 2001, Buzz msp inc., a wholly owned subsidiary of the Company, was merged into dGS.

In
February 2001, the operations of salespring, inc.!!, an associated company since October 1999, were collapsed into the operations of the Company and salespring
ceased operating as an independent business.

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In
March 2001, the Company, through dGS, acquired the minority interest of Westbound Consulting in partial satisfaction of a note payable by Westbound Consulting to the Company.
Westbound Consulting was merged into dGS. Westbound Consulting Services Pvt. Ltd., which was a subsidiary of Westbound Consulting, became a subsidiary of dGS and continues to have a 16.2%
minority ownership.

On
March 29, 2001, the Company acquired 100% of the capital stock of SageMaker, Inc. (SageMaker) in exchange for a total of 10,533,333 shares of its class A common
stock. Of those shares, 1,333,333 shares are held in an escrow account pending the determination of SageMaker's performance against certain cash collection thresholds in 2001. The Company also has
granted stock options to purchase 2,200,000 shares of the Company's class A common stock, and has agreed to grant stock options to purchase up to a maximum of $2,000,000 of the Company's
class A common stock to the continuing employees of SageMaker to the extent SageMaker is determined to have exceeded certain cash collection thresholds in 2001. SageMaker offers software that
integrates content for enterprise information portals.

In
two separate transactions in April 2001, the Company acquired certain assets from marchFIRST, Inc. ("marchFIRST"), including, but not limited to, its former
Whittman-Hart operations, its SAP implementation practice, and its value-added reseller business. Additionally, the Company acquired accounts receivable with a face value of
$102.8 million. The acquired business is held by the Company's newly formed subsidiary, divine/Whittman-Hart, Inc. ("divine/Whittman-Hart"). The Company paid to
marchFIRST $12,500,000 in cash and divine/Whittman-Hart issued marchFIRST a promissory note. The note is a $57.5 million balloon note, payable in five years but accelerated to the
extent of 50% of free cash flow from divine/Whittman-Hart's operations and which is secured by the assets of divine/Whittman-Hart. This note bears interest at the Wall Street Journal prime
rate of interest. In conjunction with the Company's acquisition of marchFIRST assets, divine/Whittman-Hart also assumed
$12.0 million of accrued compensation and benefit obligations for the employees transferred with the acquired businesses. marchFIRST also is eligible to receive up to an aggregate of
$55.0 million in bonus payments, payable to the extent that 50% of free cash flow from divine/Whittman-Hart's operations during the next five years exceeds divine/Whittman-Hart's obligation
under the promissory notes. The Company does not guarantee the promissory notes from divine/Whittman-Hart to marchFIRST, but the terms of the promissory notes restrict payments from
divine/Whittman-Hart to the Company.

In
April 2001, the Company acquired the minority interest of OpinionWare in exchange for 1,637,948 shares of the Company's class A common stock. In addition, the Company
issued, to OpinionWare's employees, 1,764,266 options to purchase the Company's class A common stock.

In
April 2001, the Company acquired the minority interest of LiveOnTheNet.com, Inc. in exchange for 817,217 shares of the Company's class A common stock, and changed
the name of LiveOnTheNet.com, Inc. to LOTN, Inc. ("LOTN"). In May 2001, the Company sold certain assets, subject to certain liabilities, of LOTN, including the name
"LiveOnTheNet.com," to a newly created entity (new LiveOnTheNet) in exchange for a promissory note in the amount of $1,750,000. The Company owns a 25.0% interest in new LiveOnTheNet.

In
May 2001, the Company acquired the minority interest of mindwrap, inc., an associated company since November 1999, in exchange for 50,000 shares of the Company's
class A common stock.

In
May 2001, the Company acquired 100% of the stock of DataBites, Inc. through a merger of the Company's wholly owned subsidiary, CoolBites, Inc., with DataBites in
exchange for 1,074,423 shares of the Company's class A common stock. Additionally, the Company has granted to DataBites' continuing

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employees options to purchase 107,500 shares of the Company's class A common stock. DataBites provides technology that allows users to conveniently capture content from the Internet for
display on any Internet-enabled device.

In
July 2001, the Company acquired the 67.0% of Emicom Group, Inc. that it did not already own in exchange for 13,800,000 shares of the Company's class A common
stock. Additionally, the Company has granted to Emicom's continuing employees options to purchase 2,123,067 shares of the Company's class A common stock.

In
August 2001, the Company acquired certain assets, subject to certain liabilities, of Fracta Networks, Inc., a provider of personal content management solutions. For
these assets, the Company issued warrants to purchase 1,000,000 shares of the Company's class A common stock. Additionally, the Company has granted to Fracta Networks' continuing employees
options to purchase 468,080 shares of the Company's class A common stock.

In
September 2001, through its wholly owned subsidiary, divine Germany, the Company acquired certain assets and assumed certain liabilities of marchFIRST GmbH, a professional
services organization in Germany. For these assets, the Company issued a note payable in the amount of 5,369,000 Euros (approximately $4,894,000 at December 31, 2001). The note is due and
payable on or before September 1, 2002. The Company has the option to pay the note with cash, or by issuing shares of the Company's class A common stock to the former marchFIRST GmbH
stockholders.

In
September 2001, the Company acquired an additional 26.6% equity interest in Parlano Inc. in exchange for 3,851,944 shares of the Company's class A common stock.
Additionally, the Company has granted to Parlano's continuing employees options to purchase 958,970 shares of the Company's class A common stock.

In
October 2001, the Company acquired 100% of the stock of eshare communications, Inc., a leading provider of customer interaction management (CIM) solutions, in exchange
for 68,435,596 shares of the Company's class A common stock. In addition, the Company issued options to purchase 3,676,299 shares of the Company's class A common stock to eshare
employees upon conversion of existing options to purchase common shares of eshare.

In
October 2001, the Company acquired 100% of the stock of Open Market, Inc, a provider of enterprise content management and delivery application software, in exchange for
44,454,515 shares of the Company's class A common stock. In addition, the Company issued options to purchase 8,356,507 shares of the Company's class A common stock, to Open Market
employees, and warrants to purchase 1,460,559 shares of the Company's class A common stock, in each case upon conversion of existing options and warrants to purchase Open Market common stock.

In
October 2001, the Company acquired certain assets of Intira Corporation, a high-end provider of outsourced information technology and network infrastructure
services. For these assets, the Company paid Intira $1,000,000 in cash and provided a $6,800,000 debtor-in-possession credit facility. The Company also assumed certain
operating liabilities of Intira. The assets acquired include certain fixed assets, accounts receivable, infrastructure and technology, certain of Intira's data centers including locations in
Pleasanton, Calif., and St. Louis, the right to the assignment of customer contracts and the right to offer employees positions with the Company.

In
October 2001, the Company acquired 100% of the stock of Synchrony Communications, Inc., a leading customer interaction management suite provider, in exchange for
promissory notes to the former stockholders of Synchrony in the aggregate principal amount of $6,875,000. The notes were paid in December 2001 upon the issuance by the Company of 5,500,000
shares of its class A common stock.

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Additionally, the Company issued warrants to purchase 44,756 shares of its class A common stock and agreed to grant options to purchase 2,000,000 shares of the Company's class A common
stock to the continuing employees of Synchrony.

In
October 2001, the Company acquired, through divine/Whitman-Hart, inc., one of its wholly owned subsidiaries, the assets of marchFIRST, Inc.'s HostOne
application hosting unit. The Company purchased these assets in exchange for providing operating funds to HostOne from April 2001 to October 2001. In addition, the Company issued to Microsoft
Corporation a total of 8,196,722 shares of its class A common stock in exchange for the cancellation of debt owed by marchFIRST to Microsoft.

In
November 2001, the Company acquired RoweCom Inc., a leading global provider of sophisticated tools and client services for purchasing and managing the acquisition of
magazines, newspapers, journals and e-journals, books and other knowledge resources, in exchange for 10,158,420 shares of the Company's class A common stock. The Company also issued
warrants to purchase 3,752,602 shares of the Company's class A common stock upon conversion of existing options and warrants to purchase RoweCom common stock. In addition, the Company has
agreed to grant options to purchase the Company's class A common stock to RoweCom employees.

In
November 2001, the Company acquired the 62.6% of Latin American Econetworks N.V. (also known as Dolphin Interventures) that it did not already own in exchange for 8,000,000
shares of the Company's class A common stock. Prior to the closing of the acquisition, $7,400,000 was distributed to the former owners of Dolphin Interventures.

In
December 2001, the Company acquired 100% of the stock of Eprise Corporation, a leading provider of content management solutions, for 54,017,705 shares of the Company's
class A common stock. In addition, the Company issued options to purchase 4,562,903 shares of the Company's class A common stock to Eprise's employees and warrants to purchase 310,723
shares of the Company's class A common stock, in each case upon conversion of existing options and warrants to purchase Eprise common stock.

In
December 2001, the Company acquired 100% of the stock of Softmetric, Inc., a leader in providing business activity monitoring and performance analysis solutions for the
call center industry, for 4,801,368 shares of the Company's class A common stock. In addition, the Company issued options to purchase 350,000 shares of the Company's class A common
stock.

Pro Forma Impact of Acquisitions

During the year ended December 31, 2001, the Company acquired 100% of eshare communications, Inc., Eprise Corporation, RoweCom Inc., and Open
Market, Inc. ("the pro forma acquisitions"). The following unaudited pro forma financial information for the years ended December 31, 2001 and 2000 presents the consolidated operations
of the Company as if the pro forma acquisitions had been made
on January 1, 2000, after giving effect to certain adjustments including increased amortization of certain intangible assets related to the acquisitions. Under the provisions of SFAS
No. 142, goodwill acquired in transactions completed after June 30, 2001 will not be amortized. As the pro forma acquisitions occurred subsequent to that date, these pro forma results do
not reflect any goodwill amortization expense related to these acquisitions. The Company's acquisition of certain assets from marchFIRST has been excluded from the unaudited pro forma financial
information because the operational results related to these assets for periods prior to the acquisition are indeterminable. Other acquisitions made during the year ended December 31, 2001 have
also been excluded because their effects would be immaterial. The unaudited pro forma financial information is provided for informational purposes only and should not be construed to be indicative of
the

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Company's consolidated results of operations had the 2001 acquisitions been consummated on these earlier dates, and do not project the Company's results of operations for any future period:

|                                                                       |  | Year Ended
December 31,
2001 |          | Year Ended
December 31,
2000 |  
|---------------------------------------------------------------------- |  | ---------------------------- | -------- | ---------------------------- | -
|
|Revenues                                                               |  | $                            | 694,705  |                              | $
|Net loss applicable to common stockholders                             |  |                              | (469,595 | )                            |  
|Basic and diluted net loss per share applicable to common stockholders |  | $                            | (1.42    | )                            | $

(6) Ownership Interests in Equity Method and Cost Method Associated Companies

The following summarizes the Company's ownership interests in associated companies accounted for under the equity method and cost method of accounting. The
ownership interests are classified according to applicable accounting methods at December 31, 2001 and 2000. Cost basis represents the Company's original acquisition cost. Associated companies
that have ceased operations or were sold in 2000 are not included at December 31, 2000. Associated companies that have ceased operations or were sold in 2001 are not included at
December 31, 2001.

|              |  | December 31, 2001 |   | December 31, 2000
|------------- |  | ----------------- | - | -----------------
|
|
|Equity method |  | $                 |  |                  
|Cost method   |  |                   |  |                  
|              |  |                   |   |                  
|              |  | $                 |  |                  
|              |  |                   |   |                  

The
Company recorded $5,771,000 in excess investment over its share of the underlying equity in the net assets of companies accounted for under the equity method of accounting during the
year ended December 31, 2001. Amortization expense of $6,287,000 is included in "equity in losses of associated companies" in the accompanying consolidated statement of operations for the year
ended December 31, 2001. The Company also recorded $36,633,000 for other than temporary declines in the carrying value of certain equity and cost method associated companies for the year ended
December 31, 2001. The Company recorded $120,102,000 in excess investment over its share of the underlying equity in the net assets of companies acquired during the year ended
December 31, 2000, accounted for under the equity method of accounting. The Company also recorded $113,125,000 for other than temporary declines in the carrying value of certain equity and cost
method associated companies for the year ended December 31, 2000. Amortization expense of $36,995,000 is included in "equity in losses of associated companies" in the accompanying consolidated
statement of operations for the year ended December 31, 2000.

The
following summarized financial information for associated companies accounted for under the equity method of accounting at December 31, 2001 and 2000, and for the years ended
December 31, 2001 and 2000 has been compiled from the financial statements of the respective associated companies. The results of operations for associated companies that the Company has fully
impaired are included
up to the month that the Company's carrying value in those associated companies was reduced to $0. The balance sheets for those associated companies written down to $0 as of December 31, 2001
or 2000 are not included in the summarized balance sheets as of those dates.

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Balance Sheets

|                           |                                                                         | December 31, |  
|-------------------------- | ----------------------------------------------------------------------- | ------------ | -
|
|
|Current assets             |                                                                         | $            | 
|Noncurrent assets          |                                                                         |              | 
|                           |                                                                         |              |  
|                           | Total assets                                                            |              | $
|                           |                                                                         |              |  
|Current liabilities        |                                                                         | $            | 
|Non-current liabilities    |                                                                         |              | 
|Redeemable preferred stock |                                                                         |              | 
|Stockholders' deficit      |                                                                         |              | 
|                           |                                                                         |              |  
|                           | Total liabilities, redeemable preferred stock and stockholders' deficit |              | $
|                           |                                                                         |              |  

Results of Operations

|             |  | Year Ended
December 31, 2001 |         | Year Ended
December 31, 2000 |   | Period Ended
December 31, 1999 |  
|------------ |  | ---------------------------- | ------- | ---------------------------- | - | ------------------------------ | -
|
|Revenues     |  | $                            | 49,428  |                              | $ | 46,734                         |  
|Gross profit |  |                              | 13,920  |                              |   | 28,884                         |  
|Net loss     |  | $                            | (37,019 | )                            | $ | (140,641                       | )

In
April 2001, the Company acquired certain assets from marchFIRST, including, but not limited to, its former Whittman-Hart operations, its SAP software implementation
practice, and its value-added reseller business. The Company paid $12,500,000 in cash and the Company's wholly owned subsidiary, divine/Whittman-Hart, issued $57,500,000 in promissory
notes in exchange for these assets.

In
October 2001, the Company acquired 100% of eshare communications, a leading provider of customer interaction management (CIM) solutions. The purchase price, for the purpose of
recording the purchase accounting for this transaction, consisted of $3,426,000 of cash payments related to acquisition costs, and 68,435,596 non-contingent shares of the Company's
class A common stock, with a fair value of $36,271,000. The purchase price was reduced by $1,225,000 for the write-off of the Company's payables to eshare. Additionally, the Company
has granted stock options to purchase
3,676,299 shares of the Company's class A common stock which are included as part of the purchase price paid by the Company. The Black-Scholes fair value of these options was $1,671,000.

In
October 2001, the Company acquired 100% of Open Market, a provider of enterprise content management and delivery application software. The purchase price, for the purpose of
recording the purchase accounting for this transaction, consisted of $7,381,000 of cash payments related to acquisition costs and interim financing, and 44,454,515 non-contingent shares of
the Company's class A common stock, with a fair value of $56,013,000. Additionally, the Company has granted stock options and warrants to purchase 9,817,066 shares of the Company's
class A common stock which are included as part of the purchase price paid by the Company. The Black-Scholes fair value of these options and warrants was $6,991,000.

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In
November 2001, the Company acquired 100% of RoweCom, a leading global provider of sophisticated tools and client services for purchasing and managing the acquisition of
magazines, newspapers, journals and e-journals, books, and other knowledge resources. The purchase price, for the purpose of recording the purchase accounting for this transaction,
consisted of $1,402,000 of cash payments related to acquisition costs, and 10,158,420 non-contingent shares of the Company's class A common stock, with a fair value of $14,628,000.
Additionally, the Company has granted warrants to purchase 3,752,602 shares of the Company's class A common stock which are included as part of the purchase price paid by the Company. The
Black-Scholes fair value of these warrants was $1,414,000.

In
December 2001, the Company acquired 100% of Eprise, a leading provider of content management solutions. The purchase price, for the purpose of purchase accounting for this
transaction, consisted of $1,193,000 of cash payments related to acquisition costs, and 54,017,705 non-contingent shares of the Company's class A common stock, with a fair value of
$38,299,000. Additionally, the Company has granted stock options and warrants to purchase 4,873,626 shares of the Company's class A common stock which are included as part of the purchase price
paid for the Company. The Black-Scholes fair value of these options and warrants was $2,859,000.

During
the year ended December 31, 2001, the Company acquired 100% of SageMaker, DataBites, Softmetric, and Synchrony, certain assets and liabilities of marchFIRST GmbH, Fracta,
marchFIRST's HostOne application hosting unit, and Intira, the minority interests of Web Design Group, Westbound Consulting, OpinionWare, LiveOnTheNet, mindwrap, Parlano, and the equity interests of
Emicom and Latin American Econetworks N.V. that it did not previously own. The purchase price, for the purpose of recording the purchase accounting for these transactions, consisted of $19,517,000 of
cash payments (including acquisition costs), 51,485,595 non-contingent shares of the Company's class A common stock, with a fair value of $54,772,000, notes payable to former
Synchrony and marchFIRST GmbH shareholders totaling $11,633,000, and the forgiveness of a note payable by Westbound Consulting to the Company in the amount of $525,000. Additionally, in conjunction
with the SageMaker, OpinionWare, DataBites, Fracta, Emicom, Parlano, Synchrony, and Softmetric transactions, the Company has granted or agreed to grant stock options and warrants to purchase 4,483,306
shares of the Company's class A common stock which are included as part of the purchase price paid by the
Company for those companies. The Black-Scholes fair value of these options and warrants was $4,505,000.

These
companies are included in the Company's consolidated financial statements from the dates of acquisition, or from the dates of the subsequent investments by the Company that caused
the Company's ownership interest to exceed 50%.

The
value of stock issued as consideration in these acquisitions was determined based on the average closing market price of divine's common shares on the measurement date and the three
trading days before and after the measurement date. The measurement date is generally the date on which the terms of the acquisition are agreed to and announced, unless the number of shares or the
amount of other consideration is subsequently changed as a result of further negotiations or a revised acquisition agreement, or if the number of shares or the amount of other consideration to be
issued could change pursuant to a formula in the initial acquisition agreement. In these cases, the measurement date is the first date on which the number of acquirer shares and the amount of other
consideration become fixed.

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The
following table presents information (in thousands) concerning the purchase price allocations for the acquisitions accounted for under the purchase method during 2001.

|            |  |   |         | Fair
Value
of Tangible
Net Assets
Acquired |   | Fair Value on Acquisition Date |   |   |       | 
|----------- |  | - | ------- | ------------------------------------------ | - | ------------------------------ | - | - | ----- | 
|
|marchFIRST  |  | $ | 70,000  |                                            | $ | 55,367                         |   | $ |      | 
|Open Market |  |   | 70,385  |                                            |   | (2,385                         | ) |   |      | 
|eshare      |  |   | 40,143  |                                            |   | 3,908                          |   |   |      | 
|RoweCom     |  |   | 17,444  |                                            |   | (62,987                        | ) |   |      | 
|Eprise      |  |   | 42,350  |                                            |   | 37,517                         |   |   |      | 
|Others      |  |   | 87,970  |                                            |   | 32,894                         |   |   | 2,139 | 
|            |  |   |         |                                            |   |                                |   |   |       | 
|            |  | $ | 328,292 |                                            | $ | 64,314                         |   | $ | 2,139 | 
|            |  |   |         |                                            |   |                                |   |   |       | 

The portion of the purchase price that was allocated to in-process research and development assets were written off at the date of
acquisition in accordance with FASB Interpretation No. 4,Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
Method.Those write-offs are included in acquired technology: in-process research and development. Developed technology is amortized over the useful life of the
technology, which ranges from two to four years. The extraordinary gain represents the excess of the fair value of the net current assets acquired over the fair value of the Company's purchase price
related to the Company's acquisitions of Emicom ($11,195,000 extraordinary gain) and Latin Capital ($837,000 extraordinary gain).

The
following table summarizes the estimated fair value (in thousands) of the assets acquired and the liabilities assumed at the date of acquisition for the 2001 acquisitions.

|                         |                           | marchFIRST |        | Open Market |   | eshare |        | RoweCom |        | Eprise |   | Others 
|------------------------ | ------------------------- | ---------- | ------ | ----------- | - | ------ | ------ | ------- | ------ | ------ | - | -------
|Current assets           |                           | $          | 60,901 |             | $ | 14,383 |        | $       | 29,602 |        | $ | 172,885
|Fixed assets             |                           |            | 9,464  |             |   | 3,343  |        |         | 1,473  |        |   | 5,916  
|Other non-current assets |                           |            | 136    |             |   | 1,343  |        |         | 596    |        |   | 430    
|Intangible assets        |                           |            | 14,633 |             |   | 72,770 |        |         | 36,235 |        |   | 80,431 
|                         |                           |            |        |             |   |        |        |         |        |        |   |        
|                         | Total assets acquired     |            |        | 85,134      |   |        | 91,839 |         |        | 67,906 |   |        
|                         |                           |            |        |             |   |        |        |         |        |        |   |        
|Current liabilities      |                           |            | 15,134 |             |   | 21,742 |        |         | 20,036 |        |   | 228,690
|Non-current liabilities  |                           |            |       |             |   | (288   | )      |         | 7,727  |        |   | 13,528 
|                         |                           |            |        |             |   |        |        |         |        |        |   |        
|                         | Total liabilities assumed |            |        | 15,134      |   |        | 21,454 |         |        | 27,763 |   |        
|                         |                           |            |        |             |   |        |        |         |        |        |   |        
|                         | Net assets acquired       |            | $      | 70,000      |   | $      | 70,385 |         | $      | 40,143 |   | $      
|                         |                           |            |        |             |   |        |        |         |        |        |   |        

In
April 2000, the Company acquired an additional interest in OpinionWare which resulted in the Company owning over 50% of OpinionWare. OpinionWare is included in the Company's
consolidated financial statements since April 30, 2000. In August 2000, the Company acquired an additional interest in iFulfillment which resulted in the Company owning over 50% of
iFulfillment. iFulfillment is included in the Company's consolidated financial statements since August 1, 2000. In addition to the above two companies, nine of the companies in which the
Company acquired an interest during the year ended December 31, 2000 and three of the companies in which the Company acquired an interest during the period ended December 31, 1999 have
been accounted for using the consolidation method. The purchase prices have been allocated to the identifiable net assets based upon their book values, which approximate fair values, at the dates of
acquisition. The portions of the purchase prices allocated to

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identifiable intangible assets and goodwill are being amortized on a straight-line basis over one to three years. These companies are included in the Company's consolidated financial
statements from the dates of acquisition, or from the dates of the subsequent investments by the Company that caused the Company's ownership interest to exceed 50%. The purchase prices for the year
ended December 31, 2000 and for the period ended December 31, 1999 for these acquisitions were allocated as follows:

|                        |  | Year Ended
December 31, 2000 |         | Period Ended
December 31, 1999
|----------------------- |  | ---------------------------- | ------- | ------------------------------
|
|Identifiable net assets |  | $                            | 58,371  |                               
|Developed technology    |  |                              | 16,371  |                               
|Customer lists          |  |                              | 5,433   |                               
|Workforce in place      |  |                              | 1,537   |                               
|Goodwill                |  |                              | 24,213  |                               
|                        |  |                              |         |                               
|Purchase price          |  | $                            | 105,925 |                               
|                        |  |                              |         |                               

(8) Deferred Publisher Costs and Deferred Revenue

Mainly through its acquisition of RoweCom, Inc., the Company enters into service arrangements with customers whereby the Company sells magazines,
newspapers, and other knowledge resources of third-party publishers. Upon the Company's placing a customer order with a third-party publisher, deferred revenue and deferred cost is recorded. This
deferred revenue and deferred cost is recognized over the underlying subscription period, which is generally one year. At December 31, 2001, the Company had $269,316,000 of deferred revenues
related to its service arrangements with customers, partially offset by $238,522,000 of deferred publisher costs.

(9) Notes Payable and Current Portion of Long-Term Debt

Notes payable and current portion of long-term debt consists of the following at December 31:

|                                  |                                                           | 2001 |        | 2000  
|--------------------------------- | --------------------------------------------------------- | ---- | ------ | ------
|
|RoweCom line of credit            |                                                           | $    | 17,083 |       
|RoweCom notes payable             |                                                           |      | 14,775 |       
|marchFIRST Germany                |                                                           |      | 4,894  |       
|Current portion of long-term debt |                                                           |      | 2,322  |       
|Other                             |                                                           |      | 664    |       
|                                  |                                                           |      |        |       
|                                  | Total notes payable and current portion of long-term debt |      | $      | 39,738
|                                  |                                                           |      |        |       

The
weighted average interest rate of the Company's interest bearing notes payable and current portion of long-term debt at December 31, 2001 was 5.94%.



In December 2001, the Company signed a revolving loan agreement for $20,000,000 with Fleet Capital Corporation. The loans under that agreement are secured
by the accounts receivable balances of the domestic operations of RoweCom, and the loans are repaid from the net operating receipts of the domestic operations of RoweCom. The expiration date of this
revolving loan agreement is April 15,

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2002. The line of credit carries an interest rate equal to the prime rate, which was 4.75% at December 31, 2001.



Through the acquisition of RoweCom Inc., the Company acquired several notes payable with interest rates ranging from 6.0% to 7.7%. These notes are secured
by $10,000,000 of restricted cash of the Company, and a letter of credit from LaSalle Bank N.A., as discussed below. In January 2002, the Company paid $6,775,000 of this debt. The remainder is due in
April 2002.



In conjunction with the September 2001 acquisition of certain assets of marchFIRST GmbH, the Company issued a non-interest bearing note payable of
5,369,000 Euros (approximately $4,894,000 at December 31, 2001). This note is secured by a letter of credit from LaSalle Bank N.A., as discussed below. The note is payable in September
2002, and may by settled with cash or shares of the Company's class A common stock.



In January 2001, the Company entered into a $25,000,000 line of credit with LaSalle Bank N.A. This line of credit, which carries a variable interest rate equal to
the current LIBOR rate plus 25 basis points, is available for working capital and general corporate business needs other than permanent financing for the Company's acquisition of interests in
associated companies. The line of credit is collateralized by cash and cash equivalents of the Company to the extent of any borrowings or letters of credit issued under the credit agreement. The
Company is currently negotiating to extend this line of credit to January 2003.

(10) Long-Term Debt

Long-term debt consists of the following at December 31:

|                         |                      | 2001 |        | 2000  
|------------------------ | -------------------- | ---- | ------ | ------
|
|marchFIRST loan          |                      | $    | 57,500 |       
|RoweCom medium-term loan |                      |      | 6,202  |       
|Synchrony loans          |                      |      | 1,761  |       
|Other long-term debt     |                      |      | 153    |       
|                         |                      |      |        |       
|                         |                      |      | 65,616 |       
|Less current maturities  |                      |      | 2,322  |       
|                         |                      |      |        |       
|                         | Total long-term debt |      | $      | 63,294
|                         |                      |      |        |       

Maturities
of long-term debt for the next five years are as follows:    2002$2,322,000; 2003$1,982,000; 2004$1,311,000;
2005$1,397,000; 2006$58,604,000.

marchFIRST Loan

In April 2001, through its wholly owned subsidiary, divine/Whittman-Hart, the Company acquired certain assets from marchFIRST, Inc. As
part of the consideration, divine/Whittman-Hart issued a promissory note to marchFIRST. The $57.5 million balloon note is payable on April 12, 2006, but

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accelerated to the extent of 50% of free cash flow from divine/Whittman-Hart operations. The note is secured by the assets of divine/Whittman-Hart. This note bears interest at
the prime rate as reported byThe Wall Street Journal.At December 31, 2001, the interest rate was 4.75%, and the weighted average interest rate
was 6.31% for 2001. The Company does not guarantee the promissory note from divine/Whittman-Hart to marchFIRST, but the terms of the promissory note restrict payments from
divine/Whittman-Hart to the Company.

RoweCom Medium-Term Loan

Through the Company's acquisition of RoweCom Inc., the Company assumed a five-year loan. The loan bears interest at the three-month Euribor
rate plus 1.6%, and is payable in twenty quarterly payments, which began on September 30, 2001. At December 31, 2001 the interest rate on this loan was 4.89%. The final installment is
due in September 2006.

Synchrony Loans

Through the Company's acquisition of Synchrony Communications, Inc., the Company assumed two equipment loans. The balances of these loans at the
acquisition date were $1,500,000 and $295,000, respectively. The loans require combined monthly installments of $97,000, with final payments due in March 2003. These notes bear interest at the
three-year U.S. Treasury note rate as reported inThe Wall Street Journal,plus a margin of 7.59% and 3.13%, respectively. The interest
rates on these two loans at December 31, 2001 were 11.17% and 6.71%, respectively.

(11) Capital Stock

Holders of class A common stock are entitled to one vote per share. Holders of class C common stock are not entitled to vote.

The
class A common stock has no conversion rights. A holder of class C common stock is able to convert its class C common stock into class A common stock, in
whole or in part, at any time and from time to time on a share-for-share basis.

In
the case of any dividend paid in stock, holders of class A common stock will be entitled to receive the same percentage dividend payable in shares of class A common
stock that the holders of class C common stock receive payable in shares of class C common stock.

Except
as described above, the relative powers, preferences and participating, optional or other special rights, and the qualifications, limitations or restrictions of the class A
common stock and class C common stock are identical in all respects.

Several
of the Company's equity method associated companies owned a total of 1,319,592 and 1,986,259 shares of the Company's class A common stock at December 31, 2001 and
2000, respectively. The Company indirectly owned 521,676 and 741,676, respectively, of these shares, which are reflected as
treasury stock in the consolidated balance sheets and statements of stockholders' equity at December 31, 2001 and 2000.

As
of December 31, 2001, there were outstanding warrants to purchase 7,668,640 shares of the Company's class A common stock. Of these warrants, 6,568,640 were issued as
consideration in acquisitions, and 1,100,000 were issued in conjunction with the Company's stock repurchase agreement with Level 3. All outstanding warrants were issued in the third and fourth
quarters of 2001. Exercise prices range from $0.44 to $17.07, with remaining lives ranging from one to ten years.

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In February 2001, the Company's board of directors adopted a Stockholder Rights Plan and declared a dividend of one Right on each outstanding share of class A common stock. The
dividend was payable to shareholders of record on February 23, 2001.

Initially,
no separate certificates were issued for the Rights; rather, the Rights are evidenced by the certificates for class A common stock and trade automatically with the class A
common stock. The Rights are not exercisable unless a person or group has acquired, or announces the intent to acquire, 15% or more of the Company's outstanding common stock (or 20% or more if such a
person or group owned 10% or more of the Company's outstanding common stock at the time of adoption of the Rights Plan). Thereafter, separate Rights certificates will be distributed and each Right
will entitle its holder to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock at $15.00 per Right. The Rights are redeemable by the Company's board of
directors, for $0.001 per Right, at any time prior to the exercisability of the Rights.

In
the event a person or group acquires 15% (20% in certain circumstances) or more of the Company's class A common stock, each shareholder, other than the acquiror, is entitled to
purchase, for the exercise price of the Rights, the number of shares of the Company's common stock having a market value of two times the exercise price of the Rights. In addition, the Company's board
of directors may then exchange the Rights for class A common stock at a ratio of one share of class A common stock per Right. Also, if the Rights have become exercisable and the Company is acquired in
a merger or other business combination, or 50% or more of its assets, cash flow, or earning power are sold, each Right will entitle the holder to purchase, at the exercise price of the Right, that
number of shares of common stock of the acquiring company that, at the time of the transaction, will have a market value of two times the exercise price of the Right.

The
Rights will expire on January 31, 2011 unless extended by the Company's board of directors.

(12) Reverse Stock Split

On June 1, 2000, the Company's Board of Directors and stockholders authorized a 1-for-6 reverse stock split for its common shares.
The par value of the common stock was maintained at the pre-split amount of $.001 per share. All references to common shares and per share amounts in these consolidated financial
statements and notes to consolidated financial statements have been restated to reflect this reverse stock split on a retroactive basis, exclusive of fractional shares. All fractional common shares
resulting from the Company's reverse stock split were redeemed by the Company at a price per share of $9.00, being the Company's initial public offering price for its class A common stock.

(13) Initial Public Offering and Private Equity Placements

The Company completed its initial public offering ("IPO") on July 18, 2000, selling 14,285,000 shares of its class A common stock at $9.00 per
share, raising $109.2 million in net cash proceeds to the Company, net of underwriters fees of $9.0 million and other offering expenses of $10.3 million.

Concurrent
with its IPO the Company sold an aggregate of 7,257,455 shares of its class A common stock and 23,288,511 shares of its class C non-voting
convertible common stock (which converts to class A common stock on a 1-for-1 basis) to 360networks, inc., Aon Corporation, BancBoston Capital, Inc.,
CMGI, Inc., Compaq Computer Corporation, Hewlett Packard Company, Level 3 Communications (Level 3), marchFIRST, Inc. and Microsoft Corporation. In conjunction with these concurrent
private placements, the Company raised an additional $258,914,000, including $218,597,000

85

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in cash, a $25,000,000 credit toward the purchase of co-location and bandwidth services from Level 3, and shares of common stock of CMGI valued at $15,317,000 at that time.

(14) Revenues from Major Customers

The Company applies SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, as
it pertains to significant customers. No customer accounted for more than 10% of the Company's total revenues in 2001 or 2000. PVP I and PVP II, for which the Company acts as general partner, and
Whiplash, Inc. accounted for $275,082 (27%) and $282,493 (27%), respectively, of the Company's total revenues in 1999. No other customers accounted for more than 10% of the Company's total
revenues in 1999.

(15) Revenues From Equity Method Investees

Consolidated revenues for the years ended December 31, 2001 and 2000, and the period ended December 31, 1999 include $629,000, $8,605,000 and
$293,000, respectively, of revenues generated from transactions with the Company's equity-method associated companies.

(16) Impairment Charges

For the year ended December 31, 2001, the Company recorded impairment charges of $37,864,000 for other than temporary declines in the carrying value of
intangible and other assets associated mainly with its investment in acquired companies accounted for under the consolidation method of accounting. These charges included, but were not limited to, the
write-off of the Company's intangible assets of $14,532,000, $1,911,000, and $16,118,000, respectively, related to its acquisitions of SageMaker and DataBites, and its acquisition of
certain assets of marchFIRST, respectively. In calculating the fair value of these assets, the Company considered the undiscounted cash flows of the underlying businesses as well as other factors,
such as the actual operating performance of the underlying businesses compared to budgeted performance, and layoffs and facilities impairment charges associated with the underlying businesses. The
impairment charges related to intangible and other assets also included the write-off of $3,070,000 of notes receivable from employees for the exercise of stock options and $3,000,000 of costs
associated with an agreement to shut down the operations of Emicom, as well as net impairment recoveries of $767,000. The Company also recorded impairment charges of $36,633,000 for other than tempory
declines in the carrying value of certain equity and cost method associated companies. As of December 31, 2001, the Company has written off all of its investments in associated companies
accounted for under the equity and cost methods of accounting.

The
Company recognized an impairment charge on prepaid co-location and bandwidth services of $25,000,000 for the year ended December 31, 2001. This prepaid asset was
originally recorded when the Company entered into an agreement concerning the purchase of a minimum of $100,000,000 of co-location and bandwidth services from Level 3 Communications over a
four-year period. Of this amount, $25,000,000 would have been credited as payment by Level 3 for its purchase of the Company's class C common shares, which have since been converted
to the Company's class A common shares, concurrent with the Company's IPO in July 2000. In August 2001, the Company agreed to repurchase the 5,555,555 Company shares owned by
Level 3 for $5,555,555 and warrants to purchase 2,200,000 shares of the Company's class A common stock at an exercise price of $1.19 per share. Per the agreement, the Company paid $2,800,000
and issued 1,100,000 warrants in September 2001. The remaining $2,800,000 was paid in December 2001 and the remaining 1,100,000 warrants were issued in January 2002. A condition of the
repurchase agreement was that the

86

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Company's commitment to purchase $100,000,000 of co-location and bandwidth services was nullified and the Company's prepaid credit of $25,000,000 was eliminated.

Additionally,
the Company recorded impairment charges of $12,022,000 during 2001 related mainly to certain operating leases of divine/Whittman-Hart. These charges consist of
the value of future cash payments to honor operating leases on facilities that the Company is no longer utilizing.

For
the year ended December 31, 2000, the Company recorded impairment charges of $57,626,000 for other than temporary declines in carrying value of certain consolidated associated
companies. These charges included, but were not limited to, write-offs of the Company's investments in BeautyJungle, Brandango, FiNetrics, and OfficePlanIt, each of which have ceased all
meaningful operations. Of the total impairment charges, $39,162,000 was related to goodwill and other intangible assets recognized by
the Company upon the acquisition of consolidated associated companies, $15,413,000 was related to fixed assets of consolidated associated companies, and $3,051,000 was related to other assets of
consolidated companies.

The
Company also recorded impairment charges of $113,125,000 during 2000 for other than temporary declines in the carrying value of certain equity and cost method associated companies.
These charges included the write-down of the Company's net investment in BidBuyBuild to $200,000, which was the value at which it was sold in October 2000, and the
write-down of the Company's net investment in iSalvage to $72,000. iSalvage has since ceased all meaningful operations and the Company received $238,000 in 2001 from the liquidation of its
assets. These impairment charges also included write-offs of the Company's investments in CapacityWeb, Entrepower, PocketCard and Whiplash, each of which have ceased all meaningful
operations. In addition, certain other associated companies' carrying values were written down to their estimated fair values.

Additionally,
the Company recorded a facilities impairment charge during 2000 of $10,961,000, including declines in the carrying value of property owned by the Company, improvements made
to properties that the Company no longer considered recoverable and charges related to certain of the Company's operating leases. Of this amount, $5,263,000 represented a liability equal to the net
value of future cash payments to honor operating leases on facilities that the Company was no longer utilizing.

(17) Other Expense, net

Other expense, net of $4,135,000 for the year ended December 31, 2001 consisted primarily of other than temporary declines of $14,711,000 and $4,181,000 in
the Company's available-for-sale investments in CMGI and 360networks, respectively, offset by the sale of the Company's investments in Farms.com, Ltd. and Sequoia Software Corporation, which resulted
in realized gains of $7,225,000 and $6,611,000, respectively. Additionally, the Company recorded a gain on disposal of assets of $367,000 and other net gains of $554,000.

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(18) Net Gain on Stock Transactions of Associated Companies

The Company has recorded gains (losses) from stock transactions of associated companies in the consolidated statement of operations as follows:

|                                                       |  | Years Ended
December 31, |    
|------------------------------------------------------ |  | ------------------------ | ---
|
|
|
|Launchworks                                            |  | $                        |   
|Mercantec                                              |  |                          |   
|Closerlook                                             |  |                          |   
|Outtask                                                |  |                          | 199
|Other associated companies                             |  |                          | 468
|                                                       |  |                          |    
|Net gain on stock transactions of associated companies |  | $                        | 667
|                                                       |  |                          |    

The
net gain (loss) represents the net increase (decrease) in the book value of the Company's net equity in the associated company as a result of the associated company's stock
transactions. The Outtask gain resulted from the sale, to outside investors, of 731,971 shares of its preferred stock for $1,055,000. The Launchworks gain resulted from the sale, to outside investors,
of 3,169,846 shares of Launchworks stock for $15.2 million. The closerlook gain resulted from the issuance, in conjunction with a business combination, of 451,124 shares of closerlook stock
valued at $2.3 million on the date of the business combination. The Mercantec loss resulted from Mercantec redeeming 1,432,434 shares of stock for $2.9 million.

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(19) Income Taxes

The reconciliation of income tax expense (benefit) computed using the Federal statutory rate of 34% to the Company's income tax expense (benefit) is as follows:

|                                                         |  | Years Ended
December 31, |          |   |  
|-------------------------------------------------------- |  | ------------------------ | -------- | - | -
|
|
|
|Federal income tax benefit at the statutory rate         |  | $                        | (125,740 | ) | $
|State income tax benefit, net                            |  |                          | (7,891   | ) |  
|Foreign loss for which no benefit was realized           |  |                          | 32,169   |   |  
|Equity in losses of associated companies                 |  |                          | 6,657    |   |  
|Minority interest                                        |  |                          | (1,452   | ) |  
|Amortization of stock-based compensation                 |  |                          | 3,287    |   |  
|Nondeductible intangible asset amortization              |  |                          | 8,273    |   |  
|Purchase accounting                                      |  |                          | (12,178  | ) |  
|Loss of net operating losses pursuant to IRC Section 382 |  |                          | 57,142   |   |  
|Impairment of investment in subsidiaries                 |  |                          | 12,894   |   |  
|Impairment of intangibles                                |  |                          | 9,571    |   |  
|Nondeductible meals and entertainment                    |  |                          | 272      |   |  
|Other                                                    |  |                          | 413      |   |  
|Adjustment to beginning balances                         |  |                          | 14,633   |   |  
|Effect of change in valuation allowance                  |  |                          | 1,950    |   |  
|                                                         |  |                          |          |   |  
|                                                         |  | $                        |         |   | $
|                                                         |  |                          |          |   |  

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The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

|                          |                                                    | December 31, |                                   
|------------------------- | -------------------------------------------------- | ------------ | ----------------------------------
|
|
|Deferred tax assets:      |                                                    |              |                                   
|                          | Depreciation                                       |              | $                                 
|                          | Allowance for doubtful accounts                    |              |                                   
|                          | State taxes                                        |              |                                   
|                          | Accrued expenses                                   |              |                                   
|                          | Capitalized research and development costs         |              |                                   
|                          | Capitalized start-up costs                         |              |                                   
|                          | Amortizable intangible assets                      |              |                                   
|                          | Charitable contributions                           |              |                                   
|                          | Impairment on fixed assets and facilities          |              |                                   
|                          | Net operating loss carryforward                    |              |                                   
|                          |                                                    |              |                                   
|                          |                                                    |              | Total gross deferred tax assets   
|                          | Less valuation allowance                           |              |                                   
|                          |                                                    |              |                                   
|                          |                                                    |              | Net deferred tax asset            
|                          |                                                    |              |                                   
|Deferred tax liabilities: |                                                    |              |                                   
|                          | Stock aquisitions                                  |              |                                   
|                          | Gain on stock transactions of associated companies |              |                                   
|                          |                                                    |              |                                   
|                          |                                                    |              | Total deferred tax liabilities    
|                          |                                                    |              |                                   
|                          |                                                    |              | Net deferred tax asset (liability)
|                          |                                                    |              |                                   

No
provision for Federal or state income taxes has been recorded as the Company incurred a net operating loss during the periods presented. The Company has recorded a full valuation
allowance against its net deferred tax assets since management believes that it is more likely than not that these assets will not be realized. No income tax benefit has been recorded for the periods
presented because of the valuation allowance. Because the 2000 financial results of certain majority-owned subsidiaries that were acquired in 2001 were not reflected in the Company's results of
operations for the period ended December 31, 2000, these majority-owned subsidiaries' net operating loss carryforwards were not included in the Company's deferred tax assets as of
December 31, 2000. Accordingly, the deferred tax asset as of December 31, 2001 has been adjusted to include these net operating loss carryforwards.

At
December 31, 2001 the Company had total net operating loss carryforwards of $116,546,000, of which $27,608,000 may be utilized by the Company to reduce future consolidated
taxable income, if any. Of the total net operating loss carryforwards, $43,235,000 are attributable to majority-owned subsidiaries not includible in the Company's consolidated tax group. Although each
majority-owned subsidiary excluded from the Company's consolidated tax group may utilize its net operating loss carryforwards to reduce separate future income taxes, if any, such carryforwards may not
offset the Company's consolidated taxable income, if any. Of the total net operating loss carryforwards, $45,703,000 relate to pre-acquisition net operating losses attributable to acquired
companies. Our ability to utilize such pre-acquisition losses is substantially limited by current tax laws. In addition, the utilization of the net operating loss carryforwards may be
limited pursuant to Internal Revenue Code

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Section 382 as a result of prior ownership changes. The net operating loss carryforwards will expire from 2019 through 2021.

(20) Ownership Interest in Platinum Venture Partners I, L.P. and Platinum Venture Partners II, L.P.

On August 4, 1999, the Company became the general partner of Platinum Venture Partners I, L.P. (PVP I) and Platinum Venture Partners II, L.P. (PVP
II) pursuant to a vote by the limited partners of PVP I and PVP II, after Platinum Venture Partners, Inc. withdrew as general partner. The Company provides strategic and operations
support to the portfolio companies of PVP I and PVP II. These services are generally provided by divine, inc., the Company's employees, members of its board of directors, and outside
consultants. The costs related to employees are paid by the Company and are reflected by the Company in cost of revenues on the consolidated statements of operations.

The
Company has made no contribution to, and has no interest in the profits and losses of, PVP I and PVP II. As the general partner of PVP I, the Company's only source of income is an
annual management fee, payable in advance in quarterly installments commencing on October 1, 1999, of 21/2% of the fair market value of the partnership, adjusted annually, by the
percentage increase in the Consumer Price Index for All Urban Consumers, U.S. City Average during the preceding calendar year. As the general partner of PVP II, the Company's only source of income is
an annual management fee, payable in advance in quarterly installments commencing on October 1, 1999, of 21/2% of the aggregate partner commitments, adjusted annually, by the
percentage increase in the Consumer Price Index for All Urban Consumers, U.S. City Average during the preceding calendar year. Beginning on January 1, 2001, the Company's annual management fee
as general partner of PVP II began to be payable in advance in quarterly installments of 21/2% of the fair market value of the partnership, adjusted annually, by the percentage increase
in the Consumer Price Index for All Urban Consumers, U.S. City Average during the preceding calendar year.

Under
the terms of the PVP I and PVP II Agreements of Limited Partnership (the Agreements), the Company may be removed as the general partner of PVP I and PVP II upon the written request
of those limited partners which have at least two-thirds of the total limited partner interests as defined in the Agreements. The Company accounts for its general partnership interests in
PVP I and PVP II under the equity method of accounting because it has influence over the operating and financial policies of the partnerships. For the years ended December 31, 2001 and 2000 and
the period ended December 31, 1999, the Company received $588,000, $815,000, and $275,000, respectively, in management fees from PVP I and PVP II.

(21) Employee Benefit Plans

Stock Options and Employee Stock Purchase Plan

The Company, under the 1999 Stock Incentive Plan (Plan), which was adopted on October 1, 1999 and amended on January 29, 2000 and October 18,
2000, reserved 10,833,333 shares of common stock for issuance. The maximum number of shares available for delivery under the Plan automatically increases on January 1 of each year, beginning on
January 1, 2001, by a number of shares of class A common stock equal to the lesser of (1) 10% of the total number of shares of class A common stock then outstanding,
assuming for that purpose the conversion into class A common stock of all then outstanding convertible securities, or (2) 50,000,000 shares. The Company, under the 2001 Stock Incentive
Plan which was approved by the Company's shareholders in May 2001, reserved 29,000,000 shares of class A common stock for issuance.

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The
stock is reserved for employees, directors, and consultants. The Company applies APB 25 for employees and directors and SFAS No. 123 for all consultants in accounting for the
Plan.

For
the year ended December 31, 2001, the Company granted stock options to purchase shares of class A common stock to employees, directors and consultants at a weighted
average exercise price of $1.97. The Company recorded unearned stock-based compensation of $221,000 in connection with the options granted for the Eprise merger. This amount is amortized over the
vesting period of the applicable options. For the year ended December 31, 2001, the Company amortized $9,535,000, net of recoveries of $665,000 of unearned stock-based compensation related to
stock options. In addition the Company also incurred a one time charge of $132,000 related to the issuance of options to members of its advisory committee. As a result of employee terminations, the
Company recovered $10,673,000 of unearned stock-based compensation for the year ended December 31, 2001.

For
the year ended December 31, 2000, the Company granted stock options to purchase shares of class A common stock to employees, directors and consultants at a weighted
average exercise price of $7.55. In January 2000, the Company also sold 116,665 restricted shares of class A common stock to its employees at a price of $4.50 per share. These restricted
shares reduce the otherwise available shares reserved for issuance under the Plan. For the year ended December 31, 2000, the Company recorded unearned stock-based compensation of $82,048,000 in
connection with these options. This amount is amortized over the vesting period of the applicable options, generally four years in the case of options granted to employees and consultants and one year
in the case of options granted to non-employee directors. The Company amortized $20,635,000, net of recoveries of $7,854,000, of unearned stock-based compensation related to stock options
during the year ended December 31, 2000. As a result of employee terminations, the Company recovered $51,434,000 of unearned stock-based compensation for the year ended December 31,
2000.

During
September 2000, the Company reduced the exercise price of options granted, and restricted stock purchased, under the Plan prior to its IPO to $9.00, being the IPO price of
the Company's class A
common stock, if the exercise price of such options or restricted shares was greater than the IPO price and if the holder agreed to the change. Also during September 2000, the Company
repurchased 3,820,735 shares of restricted class A common stock, issued upon exercise of options granted under the Plan, at prices ranging from $4.50 to $9.00, which represented the lower of
the respective exercise price or fair market value on the date of repurchase. Any consideration in excess of the exercise price, as adjusted, was refunded to these holders. As a result of these
repurchases, the Company recorded a one-time stock-based compensation charge of $3,209,000. For the year ended December 31, 2000, the Company repurchased an additional 613,774
shares of restricted class A common stock from terminated employees.

During
1999, the Company granted stock options to purchase shares of class A common stock to employees and directors at a weighted average exercise price of $4.50, which were
granted at less than the fair value of the common stock at the date of grant. For the period from May 7, 1999 (inception) through December 31, 1999, the Company recorded unearned
stock-based compensation of $27,408,000 in connection with these options. This amount is amortized over the vesting period of the applicable options, generally four years in the case of options
granted to employees and one year in the case of options granted to non-employee directors. The Company amortized $747,000 of unearned stock-based compensation for the period ended
December 31, 1999.

Had
compensation costs for the Plan been determined consistent with SFAS No. 123, the Company's net loss applicable to common stockholders and net loss per share applicable to
common

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stockholders would have been the pro forma amounts indicated below for the years ended December 31, 2001 and 2000 and the period ended December 31, 1999:

|                                                      |             | Years Ended December 31, |   |         |  
|----------------------------------------------------- | ----------- | ------------------------ | - | ------- | -
|
|
|
|Net loss applicable to common stockholders:           |             |                          |   |         |  
|                                                      | As reported |                          | $ | 369,824 |  
|                                                      | Pro forma   |                          |   | 391,600 |  
|Net loss per share applicable to common stockholders: |             |                          |   |         |  
|                                                      | As reported |                          |   | (2.06   | )
|                                                      | Pro forma   |                          | $ | (2.19   | )

Generally,
options issued under the Plan have an exercise price equal to the closing market price of the Company's stock on the date of grant, have a legal life of ten years, and
typically vest in equal annual installments over a four-year period beginning one year from the date of grant. The characteristics of options granted in conjunction with acquisitions are
driven by the underlying merger agreements. Prior to June 27, 2000, options under the Plan were exercisable immediately, subject to repurchase rights held by the Company, which lapse over the
vesting period.

The
fair value of the stock option grants is estimated using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for stock option grants in 2001,
2000, and 1999, respectively: expected dividend yield of 0%; expected volatility of 167%, 123%, and 0%; risk-free interest rate of 4.62%, 5.14%, and 6.42%; and an expected life of four
years.

A
summary of the status of the Company's stock option plan and the changes during the periods ended on those dates, is presented below:

|                                                                 |  | Year Ended December 31, 2001 |   | Year Ended December 31, 2000 |      | Period Ended
December 31, 1999
|---------------------------------------------------------------- |  | ---------------------------- | - | ---------------------------- | ---- | ------------------------------
|
|Outstanding at beginning of period                               |  | 6,559,649                    |   | $                            | 7.04 |                               
|Granted                                                          |  | 73,143,903                   |   |                              | 1.97 |                               
|Exercised                                                        |  | (41,418                      | ) |                              | 0.75 |                               
|Forfeited                                                        |  | (4,814,371                   | ) |                              | 4.01 |                               
|                                                                 |  |                              |   |                              |      |                               
|Outstanding at end of period                                     |  | 74,847,763                   |   |                              | 2.28 |                               
|                                                                 |  |                              |   |                              |      |                               
|Options exercisable at end of period                             |  | 16,465,590                   |   |                              |      |                               
|                                                                 |  |                              |   |                              |      |                               
|Weighted-average fair value of options granted during the period |  |                              |   | $                            | 0.86 |                               

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The following table summarizes information about stock options outstanding at December 31, 2001:

|                   |  | Options outstanding |  | Options exercisable
|------------------ |  | ------------------- |  | -------------------
|
|$  0.07  - $  0.45 |  | 8,874,798           |  | 9.79               
|$  0.46  - $  0.51 |  | 9,559,402           |  | 9.81               
|$  0.52  - $  1.00 |  | 9,218,740           |  | 9.78               
|$  1.06  - $  1.25 |  | 7,532,767           |  | 9.39               
|$  1.26  - $  1.36 |  | 27,159,334          |  | 9.59               
|$  1.43  - $13.81  |  | 10,874,391          |  | 9.22               
|$14.19  - $66.06   |  | 1,628,331           |  | 9.80               
|                   |  |                     |  |                    
|                   |  | 74,847,763          |  | 9.59               
|                   |  |                     |  |                    

In
January 2000, the Company adopted its 2000 Employee Stock Purchase Plan (Purchase Plan), under which a total of 4,166,666 shares of class A common stock were available
for sale to its employees and employees of its majority-owned associated companies. Through the Purchase Plan, eligible employees can purchase class A common stock through payroll deductions
and other cash contributions. The purchase price of each share of class A common stock under the Purchase Plan is equal to 85% of the lesser of (1) the fair market value of the Company's
class A common stock on the first day of the plan period or (2) the fair market value on the date of purchase. Under the Purchase Plan, the Company sold 1,327,715 and 425,712 shares to
employees in 2001 and 2000, respectively.

During
January 2000, the Company's employees acquired an average of 22.0% ownership interest in 13 associated companies, that the Company established in October and
November 1999, for total consideration of $57,000. The Company recorded unearned stock-based compensation of $24,225,000, representing the excess of the fair value of the ownership interests
over the consideration given by the Company's employees. The Company amortized $5,896,000 in connection with this acquisition of ownership through September 21, 2000. Effective
September 22, 2000, the Company repurchased these minority interests. These repurchases were made at the initial investment cost plus 8% for the Company's executive officers and at two times
the initial investment cost for the other employees that owned these shares. The aggregate purchase price for all of these interests was $93,000. As a result of these repurchases, the Company
accelerated its recognition of the remaining $18,329,000 of stock-based compensation related to these shares.

At
December 31, 2001, the Company had $16,654,000 of unearned stock-based compensation. The Company expects to amortize this unearned stock-based compensation as follows:
2002$8,270,000; 2003$8,002,000; and 2004$382,000.

Incentive Program

The Company maintains an incentive program (the Pool), whereby certain of the Company's employees are given bonuses in the event there is an appreciation in value
of the Company's interest in any of its associated companies, when and if these associated companies experience a liquidity event. The portion of the divine, inc. appreciation that is credited
to the Pool is adjusted as deemed necessary by the Company's management. For the year ended December 31, 2000, the Company allocated to the Pool 126,497 of the Company's 2,462,267 shares of
Sequoia Software Corporation (Sequoia). Sequoia,

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which has been an associated company of the Company since November 1999, had an initial public offering in 2000. The Sequoia shares in the Pool were distributed to the Company's participating
employees in February 2001.

Deferred Savings Plan

On January 1, 2000, the Company established a deferred savings plan under Section 401(k) of the Internal Revenue Code. The plan enables employees to
reduce their taxable income by contributing up to 20% of their salary to the plan. The Company made a 3% discretionary contribution to the plan on behalf of each employee regardless of their
contribution rate through December 31, 2001. The Company's contributions are 100% vested immediately upon contribution. The Company made discretionary contributions of $2,472,000 and $1,518,000
for the years ended December 31, 2001 and 2000, respectively. Effective January 1, 2002, the Company no longer makes contributions to the plan on behalf of its employees. The Company may
or may not make similar contributions in the future.

(22) Related-party Transactions

Robert Bernard, who served as one of the Company's directors in 2000, was the Chairman and Chief Executive Officer of marchFIRST, Inc. while he served on
the Company's board of directors. The Company paid marchFIRST $1,383,000 for consulting services in 2000. Additionally, marchFIRST purchased 1,666,666 shares of the Company's class C
convertible common stock for $15,000,000 in a private placement concurrent with the Company's initial public offering in July 2000.

Tommy
Bennett, one of the Company's directors is a Senior Vice President of Computer Associates. In connection with the Company's acquisition of eshare, the Company paid Computer
Associates $1,000,000 to settle a pending dispute between eshare and Computer Associates. The Company also entered into a software licensing agreement with iCan SP, Inc., a wholly-owned subsidiary of
Computer Associates, pursuant to which the Company has agreed to pay an aggregate of $1,500,000 over the term of the 5-year license agreement. In 2001, the Company paid $100,000, representing the
first installment due under the license agreement.

Peter
Bynoe, who served as one of the Company's directors in 2001 and 2000, was a partner in the law firm of Piper Marbury Rudnick & Wolfe (Piper Marbury) while he served on the
Company's board of directors. The Company paid Piper Marbury $370,000 and $1,005,000 for legal services in 2001 and 2000, respectively. Additionally partners of Piper Marbury purchased 700,000 shares
of the Company's series C preferred stock for $700,000 in December 1999. These shares were converted to 116,666 shares of the Company's class A common stock upon completion of the
Company's initial public offering in July 2000.

Thomas
Danis and Teresa Pahl served on the Company's board of directors in 2001 and 2000. Thomas Danis was a Managing Director of Aon Risk Services Mergers and Acquisitions group, and
Teresa Pahl was an Executive Vice President of Aon Corporation while they served on the Company's board of directors. The Company paid Aon Corporation $3,325,000 and $241,000 as broker with respect to
the Company's directors and officers liability insurance in 2001 and 2000, respectively. Additionally, Aon Corporation purchased 2,777,777 shares of the Company's class C convertible common
stock for $25,000,000 in a private placement concurrent with the Company's initial public offering in July 2000.

Arthur
Hahn, one of the Company's directors, is a partner in the law firm of Katten Muchin Zavis (KMZ). The Company paid KMZ $2,189,000, $2,373,000, and $2,400,000 in 2001, 2000 and
1999, respectively, for legal services. In addition, the Company issued 400,000 shares of its series C preferred stock to KMZ in December 1999 as payment for $400,000 of additional legal
services. These shares

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converted into 66,666 shares of the Company's class A common stock upon completion of the Company's initial public offering.

Michael
Leitner, who served as one of the Company's directors in 2000, was the Vice President, Corporate Development of 360networks, inc. while he served on the Company's board of
directors. 360networks purchased 4,000,000 shares of the Company's class C convertible common stock for a total purchase price of $20,000,000, for cash in a private placement concurrent with
the Company's initial public offering in July 2000. In April 2000, the Company purchased 374,181 shares of 360networks' subordinate voting shares for a total purchase price of
$4,181,000.

John
Cooper, one of the Company's directors, served as a Managing Director of Corporate Development of Microsoft Corporation from October 1999 through November 2001. Additionally,
Michael Leitner served as a Senior Director of Corporate Development of Microsoft while he served on the Company's board of directors. The Company paid Microsoft $248,000 and $2,092,000 in 2001 and
2000, respectively for computer software and various consulting services. In addition, Microsoft purchased 25,000,000 shares of the Company's series D preferred stock in January 2000 for
$25,000,000. These shares were converted into 4,166,666 shares of the Company's class A common stock upon completion of the Company's initial public offering in July 2000. Additionally,
in conjunction with the acquisition of HostOne in October 2001, the Company issued to Microsoft Corporation a total of 8,196,722 shares of its common stock in exchange for the
cancellation of debt owed by marchFIRST to Microsoft.

Thomas J.
Meredith, one of the Company's directors, served as Senior Vice President, Dell Ventures of Dell Computer Corporation (Dell) and Dell USA L.P. (Dell USA). Alex C.
Smith, who served as one of the Company's directors in 2000, was Vice President of Dell and Dell USA. Mr. Meredith and Mr. Smith retired from Dell and Dell USA in August 2001.
J. Kevin Nater, one of the Company's directors, currently serves as Vice President, Dell Ventures and Treasurer of Dell and Dell USA. Dell USA is a subsidiary of Dell. The Company paid Dell
Computer Corporation $1,225,000, $6,359,000, and $1,200,000 in 2001, 2000, and 1999, respectively, for computers and servers. Additionally, Dell USA
purchased 100,000,000 shares of the Company's series D preferred stock in January 2000 for $100,000,000. These shares were converted into 16,666,666 shares of the Company's
class A common stock upon completion of the Company's initial public offering in July 2000.

Aleksander
Szlam, who served as one of the Company's directors in 2000, was the Chairman and Chief Executive Officer of eshare communications, Inc. (eshare) while he served on the
Company's board of directors. Brandango, one of the Company's associated companies, entered into a license agreement with eshare to use eshare's software programs and receive related support and
maintenance services. Brandango acquired approximately $1,800,000 of software related to this agreement in 2000, which was subsequently written off as Brandango ceased operations in 2000. The Company
acquired eshare in October 2001. In conjunction with the acquisition of eshare, the Company entered into two separate stock repurchase arrangements with Mr. Szlam, related to the shares
of the Company that Mr. Szlam received in the acquisition. These arrangements gave Mr. Szlam the right to sell back a portion of his shares to the Company at an agreed upon price (put
option), while also giving the Company the right to buy back the same number of shares from Mr. Szlam at the same price (call option). In December 2001, the first buyback period, which covers
5,428,800 shares, was extended to be coterminous with the second buyback period.

The
second buyback period is effective for the time period beginning six months after the merger (April 23, 2002) and ending 18 months after the merger (April 23, 2003),
and relates to 5,959,200 shares of divine stock. The agreed-upon purchase price for the related put and call options is $0.53 per

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share. As such, for one year beginning on April 23, 2002, Mr. Szlam has the right to sell to the Company, and the Company has a separate right to buy from Mr. Szlam, up to
11,388,000 divine shares at $0.53 per share.

Additionally,
Mr. Szlam is affiliated with Szlam Partners, L.P. and Melita House, Inc., who own the properties on which eshare's U.S. and United Kingdom headquarters,
respectively, are located. In conjunction with the Company's acquisition of eshare, the Company purchased real estate options from both Szlam Partners and Melita House. Upon the closing of the eshare
merger, the Company paid Szlam Partners $3,702,978 for a ten-year option to purchase eshare's property in the U.S. for $14,560,000 and paid Melita House $2,047,022 for a ten-year option to purchase
eshare's property in the U.K. for £5,714,668 ($8,295,000 at December 31, 2001). Under these real estate option agreements, Szlam Partners and Melita House agreed not to raise the
rental amounts due under, or otherwise adversely modify, the leases for these properties so long as the Company is not in default under the leases.

FleetBoston
Robertson Stephens Inc. (Robertson Stephens) was an underwriter of the Company's initial public offering. BancBoston Capital, Inc., an affiliate of Robertson
Stephens, purchased 955,181 shares of the Company's class C convertible common stock for $8,597,000 in a private placement concurrent with the Company's initial public offering in
July 2000.

The
Company's Chief Executive Officer owns 33.3% of Blackhawk, LLC (Blackhawk). In July 2000, the Company purchased from Blackhawk the real property on which to construct a
planned office facility in Chicago, Illinois. During the year ended December 31, 2000, the Company paid Blackhawk $11,111,000, which included the purchase price and reimbursed costs for that
real property and which also included $350,000 in payments for an option to lease or purchase that property. During the period from July 1, 1999 through December 31, 1999, the Company
paid Blackhawk $300,000 for an option to lease or purchase that property.

The
Company's Chief Executive officer owns 33.3% of Habitat-Kahney, LLC (Habitat). In January 2000, the Company entered into a ten-year facility lease with Habitat.
The Company's rent under this lease is $730,080 per year, with an annual 2% increase.

During
January 2000, a subsidiary of the Company paid $1,815,000 to Platinum Entertainment, Inc. and paid $200,000 into an escrow account for certain licensing rights of
Platinum Entertainment, Inc. The Company's Chief Executive Officer, its President and its Chief Financial Officer served as directors of Platinum Entertainment, Inc. during 2000.

(23) Segment Information

The Company has two operating segments: the software, services and hosting segment and the divine interVentures segment. The software, services and hosting
segment encompasses the operations surrounding the Company's core strategy of delivering extended enterprise solutions. The divine interVentures segment encompasses the operations of the Company's
remaining portfolio of associated companies, focusing primarily on e-commerce and vertical markets. The Company evaluates segment performance based on income from operations. The Company does not
allocate total assets to its segments; however, all of the Company's goodwill and other intangible assets are held within the software, services and hosting segment at December 31, 2001.

Segment
information is presented in accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.
This standard is based on a management approach, which

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requires segmentation based upon the Company's internal organization and disclosure of revenue and operating loss based upon internal accounting methods. Segment results are as follows:

|                                           |                | Year ended December 31, 2001 |         
|------------------------------------------ | -------------- | ---------------------------- | --------
|
|
|External revenue                           |                | $                            | 196,511 
|Intersegment revenue                       |                |                              | 877     
|                                           |                |                              |         
|                                           |                | $                            | 197,388 
|                                           |                |                              |         
|                                           | Eliminations   |                              |         
|                                           |                |                              |         
|                                           | Total revenues |                              |         
|                                           |                |                              |         
|Net loss applicable to common stockholders |                | $                            | (338,715
|                                           |                |                              |         

Because
the Company operated under only one segment during the year ended December 31, 2000 and the period ended December 31, 1999, segment information is not included for
these periods.

(24) Lease Commitments

The future minimum lease payments related to the Company's non-cancelable operating and capital lease commitments as of December 31, 2001 are as follows:

|                                               |                                             | Operating
Leases |        | Capital
Leases |  
|---------------------------------------------- | ------------------------------------------- | ---------------- | ------ | -------------- | -
|
|2002                                           |                                             | $                | 29,473 |                | $
|2003                                           |                                             |                  | 26,378 |                |  
|2004                                           |                                             |                  | 24,159 |                |  
|2005                                           |                                             |                  | 20,899 |                |  
|2006                                           |                                             |                  | 16,858 |                |  
|Thereafter                                     |                                             |                  | 54,161 |                |  
|                                               |                                             |                  |        |                |  
|                                               | Total minimum lease payments                |                  | $      | 171,928        |  
|                                               |                                             |                  |        |                |  
|Less interest portion of payments              |                                             |                  |        |                |  
|                                               |                                             |                  |        |                |  
|Present value of minimum lease payments        |                                             |                  |        |                |  
|Less current portion of minimum lease payments |                                             |                  |        |                |  
|                                               |                                             |                  |        |                |  
|                                               | Long-term portion of minimum lease payments |                  |        |                |  
|                                               |                                             |                  |        |                |  

The
future minimum lease payments for operating leases include payments for facilities that the Company is planning to sublease. The Company has established a liability of $29,878,000 at
December 31, 2001 related to impairment of a portion of these future lease payments. Rental expense under operating leases was $18,065,000, $9,830,000 and $200,000 for the years ended
December 31, 2001 and 2000 and the period ended December 31, 1999, respectively.

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(25) Commitments and Contingencies

Commitments Related to Private Investors

In connection with purchases of our shares of class A and class C common stock by private investors concurrent with our initial public offering in
July 2000:

(1)  we
agreed under our Alliance Agreement with Microsoft to purchase $9,600,000 of software products, $4,700,000 of consulting services and $1,000,000 of product support
services from Microsoft through January 2004, to expend $4,000,000 over four years to promote Microsoft solutions, to open an accelerator facility in Seattle, the cost for which will be
determined as the size and scope of the accelerator is finalized, and to dedicate up to $50,000,000 in capital to projects and acquisitions in the Seattle area. As of December 31, 2001, we had
purchased a total of $4,084,000 of software products, $738,000 of consulting services, and $366,000 of product support services from Microsoft toward our obligations. In connection with our
acquisition of HostOne in October 2001, we agreed with Microsoft that we would use our best efforts to amend the Alliance Agreement to provide, among other things: that we will commit to be a
Microsoft .NET partner and develop products and services that are coordinated with Microsoft's products and its .NET strategy; that we will identify other opportunities to promote Microsoft products;
and that Microsoft will promote our products and services.

(2)  we
entered into an agreement concerning the purchase of a minimum of $100,000,000 of co-location and bandwidth services from Level 3 over a four-year period,
$25,000,000 of which would have been credited to us as consideration for Level 3's purchase of shares from us. In August 2001, we agreed to repurchase the 5,555,555 shares of our common
stock owned by Level 3 for $5,555,555 and warrants to purchase 2,200,000 shares of our common stock. We paid the cash in two equal installments in August and December 2001, and issued
the warrants in two equal installments in August 2001 and January 2002. Additionally, we agreed with Level 3 to cancel our commitment to purchase $100,000,000 of co-location and
bandwidth services and to eliminate our prepaid credit of $25,000,000.

(3)  we
have agreed to purchase a minimum of $5,000,000 of computer equipment and software, storage solutions, and professional services from Compaq over four years. As of
December 31, 2001, we have purchased $1,890,000 of products and services from Compaq toward our obligation.

SageMaker Earnout

The Company acquired SageMaker, Inc. on March 29, 2001 in exchange for 10,533,333 shares of its class A common stock. Of those shares, 1,333,333
shares are being held in escrow pending the determination of SageMaker's performance against certain cash collection thresholds in 2001. In addition, the Company agreed to grant stock options to
purchase up to a maximum of $2,000,000 of the Company's class A common stock to the continuing employees of SageMaker to the extent that SageMaker is determined to have exceeded certain
additional cash collection thresholds in 2001.

Northern Light Technology Earnout

In connection with the Northern Light Technology acquisition as described in note 26, the Company agreed to issue additional shares of the Company's
class A common stock to Northern Light shareholders if revenues related to the assets acquired in the acquisition exceed $10.8 million for the period beginning on the closing date and
ending on December 31, 2002. The additional shares would have a value equal to thirty-three percent (33%) of the excess revenues over the $10.8 million threshold.

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RWT Corporation Earnout

In conjunction with the Company's acquisition of RWT Corporation as described in note 26, the Company agreed to grant additional shares of the Company's
class A common stock to management members and note and warrant holders up to a maximum value of $3,500,000 if certain revenue targets are met by September 2003.

(26) Subsequent Events

In January 2002, the Company acquired 100% of the stock of Data Return, Inc., a provider of high-availability managed hosting services,
in exchange for 74,437,043 shares of the Company's class A common stock. In addition, the Company issued options to purchase 14,382,923 shares of the Company's class A common stock to
Data Return employees.

In
January 2002, the Company acquired certain assets of Northern Light Technology, LLC, a leading provider of search and content integration solutions for enterprises, in exchange
for 14,002,643 shares of the Company's class A common stock. All of the Company's exchanged shares, as well as the stock of Northern Light, are being held in an escrow account for a period of
ninety-one days subsequent to the closing date. If, on the ninety-first day, the seller has not obtained all consents to assignment as identified in the merger agreement, the Company, in its sole
discretion, may exercise a put option on the Northern Light stock, wherein the Company's class A common stock would be returned to the Company, and the agreement would terminate.

In
February 2002, the Company sold 51% of its interest in mindwrap, Inc. to mindwrap LLC for nominal consideration. Additionally the Company entered into a General Release
and Operating Agreement wherein mindwrap paid the Company $766,000, which constitutes payment in full for all amounts due and owing to the Company from or arising out of the Company's ownership and
control of mindwrap prior to the closing date. In exchange, the Company releases mindwrap from any current or future liability arising from any situation prior to the closing date. The Company also
entered into a Joint Ownership Conveyance Agreement with mindwrap LLC wherein the Company will receive perpetual, royalty-free, transferable joint ownership interest in certain mindwrap
software and other intellectual property.

In
February 2002, the Company acquired the 66.7% of Perceptual Robotics, Inc. that it did not already own in exchange for 4,427,697 shares of the Company's class A
common stock and $55,000 in cash.

In
February 2002, the Company acquired the minority interest of Net Unlimited, Inc. in exchange for 365,020 shares of the Company's class A common stock.

In
February 2002, the Company acquired 100% of RWT Corporation (d/b/a RealWorld Technologies, Inc.), a leading provider of production management and tracking software, in exchange
for 769,231 shares of the Company's class A common stock.

In
March 2002, the Company signed a definitive agreement to acquire Delano Technology Corporation, a Toronto-based marketing solutions company offering
state-of-the-art interaction-based e-business and CRM solutions. The Company expects to issue approximately 51,550,000 shares of the Company's
class A common stock in connection with the acquisition. The transaction, which will be structured as a plan of arrangement under Canadian law, will be subject to customary regulatory and court
approvals, as well as the approval of Delano's shareholders.

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(27) Selected Quarterly Financial Information (unaudited)

The following table sets forth selected quarterly financial information for the years ended December 31, 2001 and 2000. The operating results for any given
quarter are not necessarily indicative of results for any future period.

|                                                                       |      | 2001 Quarters Ended |         
|---------------------------------------------------------------------- | ---- | ------------------- | --------
|
|
|Revenues                                                               |      | $                   | 80,481  
|Cost of revenues*                                                      |      |                     | 62,429  
|Selling, general and administrative expenses*                          |      |                     | 66,847  
|Research and development expenses                                      |      |                     | 23,484  
|Bad debt expense                                                       |      |                     | 18,799  
|Amortization of intangible assets                                      |      |                     | 3,362   
|Acquired technology: in-process research and
development               |      |                     | 12,545  
|Impairment of intangible and other assets                              |      |                     | 34,608  
|Impairment of prepaid co-location and bandwidth services               |      |                     |        
|Impairment of facilities                                               |      |                     | 12,254  
|Amortization of stock-based compensation                               |      |                     | 1,995   
|                                                                       |      |                     |         
|Operating loss                                                         |      |                     | (155,842
|Interest income (expense), net                                         |      |                     | (197    
|Other income (expense), net                                            |      |                     | (14,253 
|Minority interest                                                      |      |                     | 1       
|Equity in losses of associated companies                               |      |                     | (4,161  
|Impairment in equity/cost method associated companies                  |      |                     | (6,251  
|                                                                       |      |                     |         
|Net loss before extraordinary gain                                     |      |                     | (180,703
|Extraordinary gain                                                     |      |                     | 818     
|                                                                       |      |                     |         
|Net loss applicable to common stockholders                             |      | $                   | (179,885
|                                                                       |      |                     |         
|Basic and diluted net loss per share before extraordinary gain         |      | $                   | (0.65   
|Extraordinary gain                                                     |      |                     |        
|Basic and diluted net loss per share applicable to common Stockholders |      | $                   | (0.65   
|Sales price of class A common stock                                    |      |                     |         
|                                                                       | High |                     |         
|                                                                       | Low  |                     | $       

---

101

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|                                                                                                                |      | 2000 Quarters Ended |         
|--------------------------------------------------------------------------------------------------------------- | ---- | ------------------- | --------
|
|
|Revenues                                                                                                        |      | $                   | 13,079  
|Cost of revenues                                                                                                |      |                     | 13,139  
|Selling, general and administrative expenses (including bad debt expense and amortization of intangible assets) |      |                     | 39,345  
|Research and development expenses                                                                               |      |                     | 3,392   
|Impairment of intangible and other assets                                                                       |      |                     | 50,487  
|Impairment of facilities                                                                                        |      |                     | 10,961  
|Amortization of stock-based compensation                                                                        |      |                     | 5,020   
|                                                                                                                |      |                     |         
|Operating loss                                                                                                  |      |                     | (109,265
|Interest income (expense), net                                                                                  |      |                     | 4,624   
|Other income (expense), net                                                                                     |      |                     | (777    
|Minority interest                                                                                               |      |                     | 3,437   
|Equity in losses of associated companies                                                                        |      |                     | (30,240 
|Impairment in equity/cost method associated companies                                                           |      |                     | (106,997
|                                                                                                                |      |                     |         
|Net loss                                                                                                        |      |                     | (239,218
|Accretion of preferred stock dividends                                                                          |      |                     |        
|Deemed dividends                                                                                                |      |                     |        
|                                                                                                                |      |                     |         
|Net loss applicable to common stockholders                                                                      |      | $                   | (239,218
|                                                                                                                |      |                     |         
|Basic and diluted net loss per share applicable to common stockholders                                          |      | $                   | (1.79   
|Proforma basic and diluted net loss per share applicable to common stockholders                                 |      |                     |         
|Sales price of class A common stock                                                                             |      |                     |         
|                                                                                                                | High |                     |         
|                                                                                                                | Low  |                     | $       

102

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

103

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The information appearing under the caption "Election of our Board of Directors" in our Proxy Statement for the Annual Meeting of Stockholders to be held
May 21, 2002 (the "Proxy Statement") is incorporated herein by reference.

Executive Officers

Our executive officers, their ages at December 31, 2001, and their positions with us are set forth below. Our executive officers are elected by and serve
at the discretion of our Board of Directors.

Name

Age

PositionAndrew J. Filipowski

51

Chairman of the Board and Chief Executive OfficerPaul L. Humenansky

45

President, Chief Operating Officer, and DirectorMichael P. Cullinane

52

Executive Vice President, Chief Financial Officer, Treasurer, and DirectorJude M. Sullivan

37

General Counsel, Senior Vice President, and SecretaryEd Szofer

42

President of Professional Services DivisionKen Mueller

49

Senior Vice President and Controller


Mr. Filipowski,
one of our founders, has been Chairman of our Board of Directors and our Chief Executive Officer since our inception and was our President from our inception until
October 1999. He is also Chairman and Chief Executive Officer of Platinum Venture Partners, Inc., the previous general partner of the Platinum Venture Partners limited partnerships.
Mr. Filipowski was a founder of PLATINUMtechnologyInternationalinc.and served as the Chairman
of its Board of Directors, Chief Executive Officer, and President from its inception in 1987 until it was acquired by Computer Associates in June 1999. Mr. Filipowski is currently a
director of Neoforma.com, Inc. and Blue Rhino Corporation.

Mr. Humenansky,
one of our founders, was one of our Executive Vice Presidents from August 1999 until October 2000, and has been our President and Chief Operating
Officer since October 2000. He is also a principal officer of Platinum Venture Partners, Inc. Mr. Humenansky was a founder of PLATINUM and served as its Executive Vice
PresidentProduct Development from its inception in 1987 until its acquisition in June 1999. Mr. Humenansky also served as Chief Operations Officer of PLATINUM from
January 1993 until its acquisition.

Mr. Cullinane,
one of our founders, has been our Chief Financial Officer and Treasurer since our inception and our Executive Vice President since August 1999. He is also a
principal officer of Platinum Venture Partners, Inc. Mr. Cullinane served as Executive Vice President and Chief Financial Officer of
PLATINUM from its inception in 1987 until it was acquired in June 1999. Mr. Cullinane is currently a director of Made2Manage Systems, Inc.

Mr. Sullivan
has been our General Counsel, Senior Vice President, and Secretary since October 2000, and before that was our Vice President and Senior Acquisitions Counsel
since he joined us in December 1999. Prior to joining divine, Mr. Sullivan was a partner in the Corporate Department of Katten Muchin Zavis, a law firm based in Chicago, Illinois from
June 1997 to December 1999. Prior thereto, Mr. Sullivan was a partner and an associate at the law firm of Hopkins and Sutter, based in Chicago, Illinois. Mr. Sullivan
earned a law degree in 1990 from the University of Illinois.

Mr.
Szofer has been the president of divine Professional Services Division of divine since April 2001. Prior to joining divine, Mr. Szofer served as chief development officer and
director of

104

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marchFIRST, Inc. where he directed and managed the firm's corporate development activities since March 2000. Mr. Szofer joined Whittman-Hart in 1985 and served in a variety
of positions before becoming president in 1997. Prior to joining Whittman-Hart, he held various consulting and application development positions for Arthur Andersen and Co.

Mr.
Mueller has been our Senior Vice President of Finance and Controller since October 1999. Mr. Mueller was also Chief Executive Officer of FiNetrics, Inc., a
start-up on-line accounting software and services company, formerly an associated company of divine. Prior to joining divine, Mr. Mueller served as the Senior Vice
President and Controller for PLATINUM from April 1996 until its acquisition. Before joining PLATINUM, Mr. Mueller held numerous financial, accounting, and planning positions at several global
companies, including Galileo International, Apple Computer Corporation, Digital Equipment Corporation, and Mobil Corporation.

ITEM 11.    EXECUTIVE COMPENSATION

Information appearing under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information appearing under the captions "Principal Stockholders" and "Equity Compensation Plan Information" in the Proxy Statement is incorporated herein by
reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information appearing under the caption "Certain Transactions" in the Proxy Statement is incorporated herein by reference.

105

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PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)    Financial Statements

Reference is made to the information set forth in Part II, Item 8 of this Report, which information is incorporated herein by reference.

(a)(2)    Financial Statement Schedules

All
financial statement schedules have been omitted because they are not required under the related instructions, are not applicable, or the information has been provided in the
consolidated financial statements or the notes thereto.

(a)(3)    Exhibits

The exhibits to this report are listed in the Exhibit Index included elsewhere herein. Included in the exhibits listed therein are the following exhibits which
constitute management contracts or compensatory plans or arrangements:

| | Exhibit
Number |  | Description of Exhibit                                                                                        
| | -------------- |  | --------------------------------------------------------------------------------------------------------------
| | 10.1           |  | divine, inc. 2001 Stock Incentive Plan.                                                                       
| | 10.2           |  | Form of Option Agreement under the divine, inc. 2001 Stock Incentive Plan.                                    
| | 10.3           |  | divine, inc. 1999 Stock Incentive Plan, as amended as of May 22, 2001.                                        
| | 10.4           |  | Form of Option Agreement under the divine, inc. 1999 Stock Incentive Plan, as amended as of May 22, 2001.     
| | 10.7           |  | Form of Indemnification Agreement for Directors and Executive Officers.                                       
| | 10.31          |  | Executive Employment Agreement, effective as of April 16, 2001, between divine, inc. and Andrew J. Filipowski.
| | 10.32          |  | Executive Employment Agreement, effective as of April 16, 2001, between divine, inc. and Michael Cullinane.   
| | 10.33          |  | Executive Employment Agreement, effective as of April 16, 2001, between divine, inc. and Paul Humenansky.     

(b)  Reports on Form 8-K

We filed a Report on Form 8-K, dated October 22, 2001, announcing the approval by the stockholders of divine of the acquisitions by
divine of Open Market, Inc. and eshare communications, Inc. and the approval of those respective acquisitions by the stockholders of Open Market and eshare.

We
filed a Report on Form 8-K, dated October 29, 2001, announcing that we completed our acquisitions of Open Market and eshare.

We
filed a Report on Form 8-K, dated November 6, 2001, announcing that divine entered into an agreement and plan of merger with Data Return Corporation pursuant
to which Data Return would become one of our wholly owned subsidiaries.

We
filed a Report on Form 8-K, dated November 21, 2001, announcing that we completed our acquisition of RoweCom Inc.

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We
filed a Report on Form 8-K, dated December 11, 2001, announcing that we completed our acquisition of Eprise Corporation.

(c)  Exhibits

| | Number |     | Description of Exhibit                                                                                                                                                                                                                                                                                        
| | ------ | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1    |     | Asset Purchase Agreement, dated and consummated as of April 2, 2001, by and among marchFIRST, Inc., marchFIRST Consulting, Inc., and WH Acquisition Corp., and related documents (incorporated herein by reference to
Exhibit 2.1 of divine's Report on Form 8-K filed April 16, 2001 (the "marchFIRST 8-K")).
| | 2.2    |     | Asset Purchase Agreement, dated as of April 2, 2001, and consummated as of April 12, 2001, by and among marchFIRST, Inc., marchFIRST Consulting, Inc., and WH Acquisition Corp., and related documents (incorporated herein by reference to
Exhibit 2.2 of the marchFIRST 8-K).                               
| | 2.3    |     | Agreement and Plan of Merger, dated as of July 8, 2001, among divine, inc., DES Acquisition Company and eshare communications, Inc., excluding exhibits and schedules thereto (incorporated herein by reference to Exhibit 2.1 of divine's Report on
Form 8-K filed July 12, 2001 (the "eshare 8-K")).        
| | 2.4    |     | Agreement and Plan of Merger and Reorganization, dated as of July 6, 2001, among divine, inc., Knowledge Resources Acquisition Corp. and RoweCom Inc., excluding exhibits and schedules thereto (incorporated herein by reference to Exhibit 2.2 of
the eshare 8-K).                                          
| | 2.5    | (a) | Agreement and Plan of Merger, dated as of August 15, 2001, among divine, inc., DI1 Acquisition Company, and Open Market, Inc. (incorporated herein by reference to Exhibit 2.1 of the divine's Report on Form 8-K, filed August 17,
2001).                                                                    
| | 2.5    | (b) | Amendment, dated as of September 10, 2001, to Agreement and Plan of Merger, dated August 15, 2001, among divine, inc., DI1 Acquisition Company, and Open Market, Inc. (incorporated herein by reference to Exhibit 2.2(b) of divine's Registration
Statement on Form S-4, Registration No. 333-66488).        
| | 2.6    |     | Agreement and Plan of Merger, dated as of September 17, 2001, among divine, inc., DI2 Acquisition Company, and Eprise Corporation (incorporated herein by reference to Exhibit 2.1 of divine's Report on Form 8-K, filed September 20,
2001).                                                                 
| | 2.7    |     | Agreement and Plan of Merger, dated as of November 1, 2001, among divine, inc., TD Acquisition Corp. and Data Return Corporation, excluding exhibits and schedules thereto (incorporated herein by reference to Exhibit 2.1 of divine's Registration
Statement on Form S-4, Registration No. 333-73826).      
| | 3.1    |     | Third Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 2.2 of divine's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001).                                                                                   
| | 3.2    |     | Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of divine's Registration Statement on Form S-1, Registration No. 333-92851 (the "IPO Registration Statement")).                                                                                                                 
| | 4.1    |     | Specimen stock certificate representing class A common stock (incorporated herein by reference to Exhibit 4.1 of the IPO Registration Statement).                                                                                                                                                             
| |        |     |                                                                                                                                                                                                                                                                                                               

107

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| | 4.2   |  | Rights Agreement, dated as of February 12, 2001, between divine interVentures, inc. and Computershare Investor Services, LLC, as Rights Agent, including the form of Certificate of Designation, Preferences, and Rights of Series A Junior Participating
Preferred Stock setting forth the terms of the Series A Junior participating Preferred Stock, par value $.001 per share, as Exhibit A, the form of Rights Certificate as Exhibit B, and the Summary of Rights to Purchase Preferred Stock as
Exhibit C (incorporated herein by reference to Exhibit 1 of divine's Registration Statement on Form 8-A, filed February 13, 2001).
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.3   |  | Amendment No. 1 to Rights Agreement, dated as of July 8, 2001, between divine and Computershare Investor Services, LLC, as Rights Agent (incorporated herein by reference to Exhibit 2 of divine's Registration Statement on Form 8-A/A, filed
July 23, 2001).                                                                                                                                                                                                                                                                                                                                                                           
| | 4.4   |  | Amendment No. 2 to Rights Agreement, dated as of August 15, 2001, between divine and Computershare Investor Services, LLC, as Rights Agent (incorporated herein by reference to Exhibit 3 of divine's Registration Statement on Form 8-A/A,
filed August 20, 2001).                                                                                                                                                                                                                                                                                                                                                                      
| | 10.1  |  | divine, inc. 2001 Stock Incentive Plan (incorporated herein by reference to Exhibit 4.4 of divine's Registration Statement on Form S-8, Registration No. 333-62882 (the "divine S-8 Registration Statement")).                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 10.2  |  | Form of Option Agreement under the divine, inc. 2001 Stock Incentive Plan (incorporated herein by reference to Exhibit 4.5 of the divine S-8 Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 10.3  |  | divine, inc. 1999 Stock Incentive Plan, as amended as of May 22, 2001 (incorporated herein by reference to Exhibit 4.6 of the divine S-8 Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 10.4  |  | Form of Option Agreement under the divine, inc. 1999 Stock Incentive Plan, as amended as of May 22, 2001 (incorporated herein by reference to Exhibit 4.7 of the divine S-8 Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10.5  |  | eshare communications, Inc. (formerly Melita International Corporation) ("eshare") 1992 Discounted Stock Option Plan, effective June 4, 1992, as amended March 1, 1997 (incorporated herein by reference to Exhibit 10.2 to eshare's
Registration Statement on Form S-1, Registration No. 333-22855 (the "eshare S-1")).                                                                                                                                                                                                                                                                                                                 
| | 10.6  |  | eshare 1997 Stock Option Plan effective February 6, 1997, as amended October 21, 1997 (incorporated by reference to Exhibit 10.3 to eshare's 1997 Annual Report on Form 10-K, File No. 0-22317).                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.7  |  | Form of Indemnification Agreement for Directors and Executive Officers (incorporated herein by reference to Exhibit 10.3 of the IPO Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 10.8  |  | Agreement of Sublease between Budget Rent-A-Car Corporation and divine interVentures, inc., dated as of August 25, 1999 (incorporated herein by reference to Exhibit 10.4 of the IPO Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 10.9  |  | Letter Agreement, dated as of July 1, 1999, among divine interVentures, inc., Blackhawk LLC, and Andrew J. Filipowski, as amended on February 28, 2000 (incorporated herein by reference to Exhibit 10.5 of the IPO Registration
Statement).                                                                                                                                                                                                                                                                                                                                                                                             
| | 10.10 |  | Series D Registration Rights Agreement, dated as of December 7, 1999, among divine interVentures, inc. and the Purchasers (as defined therein) (incorporated herein by reference to Exhibit 10.12 of the IPO Registration
Statement).                                                                                                                                                                                                                                                                                                                                                                                                    
| | 10.11 |  | Consulting and Non-Compete Agreement, dated as of March 29, 1999, between PLATINUM technology International, inc. and Andrew J. Filipowski (incorporated herein by reference to Exhibit 10.13 of the IPO Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                        
| |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

108

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| | 10.12 |     | Consulting and Non-Compete Agreement, dated as of March 29, 1999, between PLATINUM technology International, inc. and Michael P. Cullinane (incorporated herein by reference to Exhibit 10.14 of the IPO Registration Statement).                                                                                                                                                                                                           
| | ----- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.13 |     | Consulting and Non-Compete Agreement, dated as of March 29, 1999, between PLATINUM technology International, inc. and Paul L. Humenansky (incorporated herein by reference to Exhibit 10.15 of the IPO Registration Statement).                                                                                                                                                                                                             
| | 10.14 |     | Business Opportunities Agreement, dated as of December 7, 1999, by and among divine interVentures, inc. and Dell USA L.P., Microsoft Corporation, CBW/SK divine Investments, Frontenac VII Limited Partnership, Frontenac Masters VII Limited Partnership,
First Chicago Investment Corporation, Cross Creek X, LLC, and Mesirow Capital Partners VII (incorporated herein by reference to Exhibit 10.17 of the IPO Registration Statement).
| | 10.15 | (a) | Alliance Agreement, dated as of January 28, 2000, between divine interVentures, inc. and Microsoft Corporation (incorporated herein by reference to Exhibit 10.21 of the IPO Registration Statement).                                                                                                                                                                                                                                       
| | 10.15 | (b) | Amendment No. 1 to Alliance Agreement, dated as of March 29, 2000, by and between Microsoft Corporation and divine interVentures, inc. (incorporated herein by reference to Exhibit 10.25 of the IPO Registration Statement).                                                                                                                                                                                                               
| | 10.15 | (c) | Settlement and Purchase Agreement, dated as of September 7, 2001, by and among Microsoft Corporation, MS Channel Initiatives Corp., divine, inc., and divine/Whittman-Hart, inc., including exhibits thereto.                                                                                                                                                                                                                               
| | 10.15 | (d) | Amendment No. 1 to Settlement and Purchase Agreement, entered into as of October 2, 2001, by and among Microsoft Corporation, MS Channel Initiatives Corp., divine, inc., and divine/Whittman-Hart, inc.                                                                                                                                                                                                                                    
| | 10.15 | (e) | Letter Agreement, dated as of November 13, 2001, by and among Microsoft Corporation, MS Channel Initiatives Corp., divine, inc., and divine/Whittman-Hart, inc.                                                                                                                                                                                                                                                                             
| | 10.16 |     | Lease, dated as of January 7, 2000, by and between Habitat-Kahny, LLC and dotspot, inc. (incorporated herein by reference to Exhibit 10.22 of the IPO Registration Statement).                                                                                                                                                                                                                                                              
| | 10.17 |     | Lease, dated as of February 22, 2000, between NDNE 9/90 200 Crossing Boulevard, LLC and Eprise Corporation (incorporated herein by reference to Exhibit 10.1 of Eprise Corporation's Registration Statement on Form S-1, Registration No.
333-94777).                                                                                                                                                                                       
| | 10.18 |     | Lease Agreement, dated August 1994, between eshare and 5051 Peachtree Corners Circle, L.L.C. (incorporated herein by reference to Exhibit 10.1 to the eshare S-1).                                                                                                                                                                                                                                                                          
| | 10.19 |     | Lease Agreement, dated August 15, 1999, between eshare Technologies Limited (formerly Melita Europe Limited) and Melita House, Inc. (incorporated herein by reference to Exhibit 10.2 of eshare's 1999 Annual Report on Form 10-K, File No.
0-22317).                                                                                                                                                                                       
| | 10.20 |     | Lease, dated as of March 11, 1997, between Open Market, Inc. and Wayside Realty Trust. (incorporated herein by reference to Exhibit 10.23 of Open Market's 1996 Annual Report on Form 10-K, File No. 0-28439).                                                                                                                                                                                                                              
| | 10.21 |     | Office Lease, dated as of November 15, 1999, by and between 114 MILLENNIUM, LTD. and Data Return Corporation (incorporated herein by reference to Exhibit 10.22 of Data Return Corporation's Registration Statement on Form S-1, Registration
No. 333-84011 (the "Data Return S-1 Registration Statement")).                                                                                                                                
| |       |     |                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| | 10.22 |  | First Amendment to Office Lease, dated as of February 15, 2000, by and between 114 MILLENNIUM, LTD. and Data Return Corporation (incorporated herein by reference to Exhibit 10.23 of the Data Return S-1 Registration Statement).                                                                                                             
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.23 |  | Second Amendment to Office Lease, dated as of May, 2000, by and between 114 MILLENNIUM, LTD. and Data Return Corporation (incorporated herein by reference to Exhibit 10.24 of the Data Return S-1 Registration Statement).                                                                                                                    
| | 10.24 |  | Consulting Agreement, dated as of March 9, 2000, by and between divine interVentures, inc. and Michael J. Jordan (incorporated herein by reference to Exhibit 10.23 of the IPO Registration Statement).                                                                                                                                        
| | 10.25 |  | Agreement of Limited Partnership for Platinum Venture Partners I L.P., dated as of September 24, 1994, by and among Platinum Venture Partners, Inc. and the Limited Partners (as defined therein), and amendment thereto effective as of August 4, 1999
(incorporated herein by reference to Exhibit 10.28 of the IPO Registration Statement). 
| | 10.26 |  | Agreement of Limited Partnership for Platinum Venture Partners II L.P., dated as of September 24, 1994, by and among Platinum Venture Partners, Inc. and the Limited Partners (as defined therein), and amendment thereto effective as of August 4, 1999
(incorporated herein by reference to Exhibit 10.29 of the IPO Registration Statement).
| | 10.27 |  | Letter Agreement, dated as of May 26, 2000, among divine interVentures, inc., Blackhawk LLC, and Andrew J. Filipowski (incorporated herein by reference to Exhibit 10.30 of the IPO Registration Statement).                                                                                                                                   
| | 10.28 |  | Office Lease Agreement between Dugan/Office, L.L.C. and dotspot, inc., dated as of April 17, 2000 (incorporated herein by reference to Exhibit 10.26 of divine's Annual Report on Form 10-K for the fiscal year ended December 31, 2000
(the "2000 Annual 10-K")).                                                                             
| | 10.29 |  | Lease Agreement between 1 North Dearborn Trust and dotspot, inc., dated as of September 29, 2000 (incorporated herein by reference to Exhibit 10.28 of the 2000 Annual 10-K).                                                                                                                                                                  
| | 10.30 |  | Stockholder Agreement, dated as of July 8, 2001, among divine, inc., Szlam Partners, L.P. and Aleksander Szlam., including exhibits thereto (incorporated herein by reference to Exhibit 99.3 of the eshare 8-K).                                                                                                                              
| | 10.31 |  | Executive Employment Agreement, effective as of April 16, 2001, between divine, inc. and Andrew J. Filipowski (incorporated herein by reference to Exhibit 10.2 of the Third Quarter).                                                                                                                                                         
| | 10.32 |  | Executive Employment Agreement, effective as of April 16, 2001, between divine, inc. and Michael Cullinane (incorporated herein by reference to Exhibit 10.3 of the 2001 Third Quarter 10-Q.)                                                                                                                                                  
| | 10.33 |  | Executive Employment Agreement, effective as of April 16, 2001, between divine, inc. and Paul Humenansky (incorporated herein by reference to Exhibit 10.4 of the 2001 Third Quarter 10-Q).                                                                                                                                                    
| | 21.1  |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                 
| | 23.1  |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                                            

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 1, 2002.

| |  | divine, inc.
| |  | ------------
| |  | By:         

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities indicated on April 1, 2002.

|Signature                                   |  | Title                                                                     
|------------------------------------------- |  | --------------------------------------------------------------------------
|Principal Executive Officer:                |  |                                                                           
|/s/ANDREW J. FILIPOWSKIAndrew J. Filipowski |  | Chairman of the Board and Chief Executive Officer                         
|Principal Financial and Accounting Officer: |  |                                                                           
|/s/MICHAEL P. CULLINANEMichael P. Cullinane |  | Executive Vice President, Chief Financial Officer, Treasurer, and Director
|A Majority of the Directors:                |  |                                                                           
|/s/PAUL L. HUMENANSKYPaul L. Humenansky     |  | President, Chief Operating Officer, and Director                          
|/s/TOMMY BENNETTTommy Bennett               |  | Director                                                                  
|/s/JOHN COOPERJohn Cooper                   |  | Director                                                                  
|/s/JAMES E. COWIEJames E. Cowie             |  | Director                                                                  
|/s/MICHAEL H. FORSTERMichael H. Forster     |  | Director                                                                  
|/s/ARTHUR W. HAHNArthur W. Hahn             |  | Director                                                                  
|/s/J. KEVIN NATERJ. Kevin Nater             |  | Director                                                                  
|/s/THOMAS J. MEREDITHThomas J. Meredith     |  | Director                                                                  
|/s/JOHN RAUJohn Rau                         |  | Director                                                                  

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