10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2002

Commission File Number 0-20842

PLATO LEARNING, INC.
(Exact name of Registrant as specified in its charter)

Delaware	36-3660532
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification Number)
10801 Nesbitt Avenue South, Bloomington, MN	55437
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code:	(952)832-1000

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

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    X                         No            

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $.01 par value	16,452,499 shares
Class	Outstanding as of March 1, 2002

(This document contains 20 pages)

1

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	CONSOLIDATED STATEMENTS OF EARNINGS
	CONSOLIDATED BALANCE SHEETS
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS                      AND FINANCIAL CONDITION
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Form of Employment Agreement
Form of Employment Agreement
Form of Employment Security Agreement

PLATO Learning, Inc. and Subsidiaries

INDEX

		Page
		Number
PART I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited):
	Consolidated Statements of Earnings for the Three Months Ended January 31, 2002 and 2001	3
	Consolidated Balance Sheets as of January 31, 2002 and October 31, 2001	4
	Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2002 and 2001	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 2.	Changes in Securities	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits and Reports on Form 8-K	19
SIGNATURES		20

2

PART I. FINANCIAL INFORMATION

PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands, except per share amounts)

					Three Months Ended
					January 31,
					2002			2001
Revenues:
	License fees				$	10,620		$	7,228
	Services					2,315			1,590
	Other					1,112			936
		Total revenues				14,047			9,754
Cost of revenues:
	License fees					733			252
	Services					271			238
	Other					1,051			989
		Total cost of revenues				2,055			1,479
			Gross profit			11,992			8,275
Operating expenses:
	Selling, general and administrative					11,516			8,737
	Product development and customer support					2,781			1,787
	Amortization of intangibles					194			208
	Special charges					—			1,260
		Total operating expenses				14,491			11,992
				Operating loss		(2,499	)		(3,717	)
Interest income						368			7
Interest expense						(42	)		(84	)
Other expense, net						(84	)		(60	)
				Loss before income taxes		(2,257	)		(3,854	)
Income tax benefit						(900	)		(1,503	)
				Net loss	$	(1,357	)	$	(2,351	)
Loss per share:
	Basic and diluted				$	(0.08	)	$	(0.21	)
Weighted average common shares outstanding:
	Basic and diluted					16,406			11,027

See Notes to Consolidated Financial Statements

3

PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

					January 31,			October 31,
					2002			2001
					(Unaudited)			(See Note)
				ASSETS
Current assets:
	Cash and cash equivalents				$	59,740		$	61,568
	Accounts receivable, less allowances of $2,559 and $2,545, respectively					24,411			28,739
	Prepaid expenses and other current assets					1,487			1,317
	Deferred income taxes					2,468			2,468
		Total current assets				88,106			94,092
	Equipment and leasehold improvements, less accumulated depreciation of $4,077 and $3,829, respectively					3,818			2,803
	Product development costs, less accumulated amortization of $13,031 and $12,094, respectively					10,347			9,949
	Deferred income taxes					8,038			6,832
	Goodwill, less accumulated amortization of $1,831					16,152			16,152
	Other assets					5,982			6,083
		Total assets			$	132,443		$	135,911
			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt				$	245		$	242
	Accounts payable					1,436			2,216
	Accrued employee salaries and benefits					3,545			4,539
	Accrued liabilities					2,937			3,883
	Deferred revenue					9,309			9,163
		Total current liabilities				17,472			20,043
Long-term debt						651			720
Deferred revenue						920			1,170
Other liabilities						54			79
		Total liabilities				19,097			22,012
Stockholders’ equity:
	Common stock, $.01 par value, 25,000 shares authorized; 16,720 shares issued and 16,437 shares outstanding at January 31, 2002; 16,689 shares issued and 16,411 shares outstanding at October 31, 2001					164			164
	Paid-in capital					114,749			113,767
	Treasury stock at cost, 283 and 278 shares, respectively					(4,986	)		(4,914	)
	Retained earnings					4,429			5,786
	Accumulated other comprehensive loss					(1,010	)		(904	)
		Total stockholders’ equity				113,346			113,899
		Total liabilities and stockholders’ equity			$	132,443		$	135,911

Note: The balance sheet at October 31, 2001 has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements.

4

PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

					Three Months Ended
					January 31,
					2002			2001
	Operating activities:
		Net loss			$	(1,357	)	$	(2,351	)
			Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
				Depreciation and amortization		1,516			946
				Deferred income taxes		(900	)		(1,503	)
				Provision for doubtful accounts		601			250
				Stock-based compensation		20			516
				Loss on disposal of fixed assets		77			17
				Changes in assets and liabilities:
				Accounts receivable		3,727			2,066
				Prepaid expenses and other current and noncurrent assets		(388	)		(477	)
				Accounts payable		(780	)		(180	)
				Accrued liabilities, accrued employee salaries and benefits and other liabilities		(1,965	)		(1,863	)
				Deferred revenue		(104	)		43
				Total adjustments		1,804			(185	)
				Net cash provided by (used in) operating activities		447			(2,536	)
Investing activities:
		Capital expenditures				(1,369	)		(306	)
		Capitalization of product development costs				(1,345	)		(885	)
				Net cash used in investing activities		(2,714	)		(1,191	)
Financing activities:
		Net proceeds from issuance of common stock				706			372
		Repayments of capital lease obligations				(66	)		(52	)
		Repurchase of common stock				(72	)		—
				Net cash provided by financing activities		568			320
Effect of foreign currency on cash						(129	)		(49	)
Net decrease in cash and cash equivalents						(1,828	)		(3,456	)
Cash and cash equivalents at beginning of period						61,568			6,415
Cash and cash equivalents at end of period					$	59,740		$	2,959
Cash paid for interest					$	112		$	81
Cash paid for income taxes					$	50		$	191
Non-cash financing activities:
		Capital lease obligations incurred			$	—		$	722
		Debt converted to common stock			$	—		$	600

See Notes to Consolidated Financial Statements

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

PLATO Learning, Inc. and its subsidiaries provide computer-based and e-learning instruction and related services, offering basic to advanced level courseware in reading, writing, math, science, social studies and life and job skills. Our PLATO® Learning System and PLATO® Web Learning Network provide more than 3,500 hours of objective-based, problem solving courseware and include assessment, alignment and management tools to create standards-based curricula and facilitate the learning process. PLATO courseware is delivered via networks, CD-ROM, private intranets and the Internet. In addition, single topic PLATO courseware is available through our e-commerce Web site and distributors. We market our courseware products and services to K-12 schools, colleges, job training programs, correctional institutions, military education programs, corporations and individuals.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. We have included all normal recurring adjustments considered necessary to give a fair presentation of our operating results for the interim periods shown. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2001.

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation and had no impact on net loss, cash flows or stockholders’ equity.

Revenue Recognition

We recognize revenue in accordance with the provisions of Statement of Position No. 97-2, “Software Revenue Recognition”, as amended and modified, and Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”.

Revenue from the sale of courseware licenses and computer hardware is recognized upon meeting the following criteria: (i) a written customer order is executed, (ii) courseware and hardware are delivered, (iii) the license fee is fixed or determinable and (iv) collectibility of the proceeds is probable. For software arrangements that include more than one element, we allocate the total arrangement fee among each deliverable based on vendor-specific objective

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Revenue Recognition, Continued

evidence of the relative fair value of each deliverable. Vendor-specific objective evidence of fair value is determined using the price charged when that element is sold separately. Upon delivery, future service costs, if any, are accrued. Future service costs represent our problem resolution and support “hotline” services for a one-year period. Service revenue includes software support, which is deferred and recognized ratably over the support period, and revenue from installation and training services, which is recognized as services are performed. Installation and training services are customarily billed at a fixed daily rate. Deferred revenue represents the portion of billings made or payments received in advance of services being performed or products being delivered.

Product Development, Enhancement and Maintenance Costs

Costs incurred in the development, enhancement and routine maintenance of our current generation courseware products are expensed as incurred. Costs incurred in establishing the technological feasibility of new courseware products are expensed as incurred. Once technological feasibility has been established, costs incurred in the development of new generation courseware products are capitalized. Technological feasibility is established when we have completed all planning, designing, coding and testing activities.

Capitalized costs are amortized to product development and customer support expense over the estimated useful life of the new courseware products, which is generally three years. Amortization begins when the product is available for general release to our customers. Unamortized costs determined to be in excess of the net realizable value of the product, if any, are expensed at the date of such determination.

Amortization expense related to capitalized product development costs was $939 and $492 for the three months ended January 31, 2002 and 2001, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of common and, where dilutive, potential common shares outstanding during the period. Potential common shares include options and warrants.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

2. ACCOUNTS RECEIVABLE

Accounts receivable include installment receivables of $14,937 and $16,087 at January 31, 2002 and October 31, 2001, respectively. Installment receivables to be billed beyond one year from the balance sheet date were $2,182 and $2,021 at January 31, 2002 and October 31, 2001, respectively, and are included in other assets on the consolidated balance sheets.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective November 1, 2001, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).

Goodwill

Under SFAS 142, goodwill is no longer amortized to expense and must be periodically reviewed for impairment with any related losses recognized when incurred. We are required to complete a transitional impairment test of goodwill, as of November 1, 2001, no later than April 30, 2002. While this testing has not yet been completed, we believe goodwill is not impaired. The effect of any future impairment on our consolidated financial statements is unknown. The carrying value of our goodwill was $16,152 at November 1, 2001.

For the three months ended January 31, 2002, $626 of goodwill amortization expense was not recognized that would have been recognized had SFAS 142 not been adopted. For the full fiscal year 2002, we expect that $2,578 of goodwill amortization expense will not be recognized that would have been recognized had SFAS 142 not been adopted.

For the three months ended January 31, 2001, $131 of goodwill amortization expense was recorded. The following table presents the impact of SFAS 142 as if it had been in effect for the three months ended January 31, 2001:

				Per Share
				(Basic and Diluted)
Reported net loss	$	(2,351	)	$	(0.21	)
Add back goodwill amortization (net of tax)		80			—
Adjusted net loss	$	(2,271	)	$	(0.21	)

Other Intangible Assets

Acquired intangible assets subject to amortization at January 31, 2002 were as follows:

	Gross					Net
	Carrying		Accumulated			Carrying
	Value		Amortization			Value
Acquired technology	$	1,452	$	(292	)	$	1,160
Trademark		1,380		(296	)		1,084
Customer list		900		(170	)		730
Employment agreement		413		(44	)		369
Noncompete agreements		90		(67	)		23
	$	4,235	$	(869	)	$	3,366

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

3. GOODWILL AND OTHER INTANGIBLE ASSETS, Continued

Other Intangible Assets, Continued

Amortization expense for intangible assets was $269 for the three months ended January 31, 2002, of which $75 was included in product development and customer support expense. Amortization expense for the three months ended January 31, 2001 was $77.

The estimated annual amortization expense for intangible assets is as follows:

	2002	$	990
	2003		931
	2004		756
	2005		497
	2006		312
Thereafter			149
		$	3,635

4. DEBT

Revolving Loan

We closed a new revolving loan agreement on December 20, 2001 that provides for a maximum $12,500 line of credit through July 1, 2003. Substantially all of our assets are pledged as collateral under the agreement.

Borrowings are limited by the available borrowing base, as defined, consisting of certain accounts receivable and bear interest at the prime rate plus 0.25% or the London Interbank Offered Rate (LIBOR) plus 1.75 to 2.75%, depending on cash flow leverage, as defined, at our option pursuant to the agreement. A commitment fee is payable quarterly based on the unused portion of the line of credit. The agreement contains restrictive financial covenants (including Minimum Tangible Net Worth, Minimum Debt Service Coverage, Maximum Leverage, Maximum Cash Flow Leverage, Minimum Current Ratio and Maximum Annual Capital Expenditures) and restrictions on additional borrowings, asset sales and dividends, as defined.

A commitment fee of approximately $63 was paid upon commencement of the new facility.

At January 31, 2002, there were no borrowings outstanding under the revolving loan agreement. The unused borrowing capacity was approximately $10,460.

Capital Lease Obligations

At January 31, 2002, our only debt consisted of various capital lease obligations for equipment. Amounts due in the next twelve months under these leases are classified as a current liability in the consolidated balance sheets.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

5. STOCKHOLDERS’ EQUITY

We issued approximately 81,000 shares of common stock for the exercise of outstanding stock options during the three months ended January 31, 2002.

In December 2001, our Board of Directors approved a stock repurchase plan that authorizes us to repurchase up to $15,000 of our common stock in the open market and in privately negotiated transactions. The plan has no set termination date and the timing of any repurchases will be dependent on prevailing market conditions and alternative uses of capital. For the three months ended January 31, 2002, we repurchased 5,000 shares of our common stock for $72 and the repurchase had no significant impact on our reported loss per share.

6. EARNINGS (LOSS) PER SHARE

Basic and diluted loss per share is the same for the three months ended January 31, 2002 and for the three months ended January 31, 2001. We incurred a net loss for all periods presented and potential common shares are antidilutive and excluded from the calculation of diluted loss per share. The number of potential common shares excluded from the diluted loss per share calculations was approximately 621,000 and 579,000 for the three months ended January 31, 2002 and 2001, respectively.

7. COMPREHENSIVE LOSS

Total comprehensive loss was as follows:

		Three Months Ended
		January 31,
		2002			2001
Net loss		$	(1,357	)	$	(2,351	)
Foreign currency translation adjustments			(106	)		(46	)
	Total comprehensive loss	$	(1,463	)	$	(2,397	)

10

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

OVERVIEW

We enhance the learning process by providing computer-based and e-learning instruction and related services, offering basic to advanced level courseware in reading, writing, math, science, social studies and life and job skills. Our PLATO^® Learning System and PLATO^® Web Learning Network provide more than 3,500 hours of objective-based, problem solving courseware and include assessment, alignment and management tools to create standards-based curricula and facilitate the learning process. PLATO courseware is delivered via networks, CD-ROM, private intranets and the Internet. In addition, single topic PLATO courseware is available through our e-commerce web site and distributors. We market our courseware products and services to K-12 schools, colleges, job training programs, correctional institutions, military education programs, corporations and individuals.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of results of operations and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We continually evaluate our critical accounting policies and have identified revenue recognition, the valuation of accounts receivable and the capitalization of product development costs as the critical accounting policies that are significant to the financial statement presentation and require difficult, subjective and complex judgments.

Revenue Recognition

Revenue recognition rules for software companies are very complex. We follow specific and detailed guidelines in determining the proper amount of revenue to be recorded; however, certain judgments affect the application of our revenue recognition policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter.

The most significant judgments for revenue recognition typically involve whether there are any significant uncertainties regarding customer acceptance and whether collectibility can be considered reasonably assured. In addition, the Company’s transactions often consist of multiple element arrangements which must be analyzed to determine the relative fair value of each element, the amount of revenue to be recognized upon shipment, if any, and the period and conditions under which deferred revenue should be recognized.

For additional description of our revenue recognition policy, see Note 1 to Consolidated Financial Statements.

11

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

CRITICAL ACCOUNTING POLICIES, Continued

Allowance for Doubtful Accounts

We determine an allowance for doubtful accounts based upon an analysis of the collectibility of specific accounts, historical experience and the aging of the accounts receivable. Bad debt expense is recorded as an operating expense in our consolidated statement of earnings. The assumptions and estimates used to determine the allowance are subject to constant revision. The primary factors that impact these assumptions include the efficiency and effectiveness of our billing and collection functions and our credit assessment process. Actual collection results could differ materially from those estimated and have a significant impact on our results of operations and financial condition.

Capitalization of Product Development Costs

Our product development expense includes costs related to the development, enhancement and maintenance of our courseware products, and the effect of product development cost capitalization and amortization. We capitalize our product development costs when the projects under development reach technological feasibility, as defined by the accounting standards, and amortize these costs over the estimated useful lives of the courseware products.

The most significant judgments regarding capitalization of product development costs typically involve the determination of when development efforts reach technological feasibility and the recoverability of capitalized costs. We continually evaluate our capitalized costs to determine if the unamortized balance related to any given product exceeds the estimated net realizable value of that product. Estimating net realizable value requires us to estimate future cash flows to be generated by the product and to use judgment in quantifying the amount, if any, to be written off. Actual cash flows and amounts realized from the courseware products could differ materially from those estimated. In addition, any future changes to our courseware product offerings could result in write-offs of previously capitalized costs and have a significant impact on our results of operations and financial condition.

For additional description of our policy regarding product development, enhancement and maintenance costs, see Note 1 to Consolidated Financial Statements.

Deferred Tax Asset

We account for deferred income taxes based upon differences between the financial reporting and income tax bases of our assets and liabilities. The measurement of the deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize the extent to which the future tax benefits will be recognized.

12

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

CRITICAL ACCOUNTING POLICIES, Continued

At January 31, 2002 we have recorded a net deferred tax asset of approximately $10,500. This deferred tax asset is net of a valuation allowance related to a foreign net operating loss carryforward. A substantial portion of the deferred tax asset relates to our net operating loss carryforward in the United States. We have recorded the net deferred tax asset as we believe that it is more likely than not that we will be able to realize the asset through generation of future taxable income in the United States. We base this belief upon the levels of taxable income generated historically as well as projections of future taxable income. If future levels of taxable income in the United States are not consistent with our expectations, we may be required to record a valuation allowance, which could reduce our net income by a material amount.

RESULTS OF OPERATIONS

Operating Results as a Percentage of Revenue

			Three Months Ended
			January 31,
			2002			2001
Revenues:
	License fees			75.6	%		74.1	%
	Services			16.5			16.3
	Other			7.9			9.6
		Total revenues		100.0			100.0
Cost of revenues				14.6			15.2
	Gross profit			85.4			84.8
Operating expenses:
	Selling, general and administrative expense			82.0			89.6
	Product development and customer support expense			19.8			18.3
	Amortization of intangibles			1.4			2.1
	Special charges			—			12.9
		Total operating expenses		103.2			122.9
Operating loss				(17.8	)		(38.1	)
	Interest income and interest and other expense, net			1.7			(1.4	)
Loss before income taxes				(16.1	)		(39.5	)
	Income tax benefit			(6.4	)		(15.4	)
Net loss				(9.7	)%		(24.1	)%

Revenues

Total Revenues. Total revenues increased 44.0% to $14,047 for the three months ended January 31, 2002 from $9,754 for the same period in 2001. The increase was primarily due to the $3,392 increase in license fees revenues and the $725 increase in services revenues.

License Fees. Revenues from license fees increased 46.9% to $10,620 for the three months ended January 31, 2002 from $7,228 for the same period in 2001. As a percentage of total

13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

RESULTS OF OPERATIONS, Continued

Revenues, Continued

revenues, license fees revenues were 75.6% for the three months ended January 31, 2002, up from 74.1% for the same period in 2001. This revenue growth was achieved primarily through increased sales volume to both new and existing customers driven by increased acceptance of our courseware products. New products from the acquisitions of Wasatch Interactive Learning Corporation in April 2001 and TeachMaster Technologies, Inc. in September 2001 contributed approximately $800 of revenue for the three months ended January 31, 2002.

Services. Revenues from services increased 45.6% to $2,315 for the three months ended January 31, 2002 from $1,590 for the same period in 2001. As a percentage of total revenues, services revenues were 16.5% for the three months ended January 31, 2002 and 16.3% for the same period in 2001. This revenue increase resulted primarily from the continued growth in license fees revenues and customer acceptance of our training and technical support services.

Other. Other revenues, including hardware and third-party courseware products, increased 18.8% to $1,112 for the three months ended January 31, 2002 from $936 for the same period in 2001. As a percentage of total revenues, other revenues were 7.9% for the three months ended January 31, 2002, down from 9.6% for the same period in 2001.

Cost of Revenues

Total cost of revenues increased 38.9% to $2,055 for the three months ended January 31, 2002 from $1,479 for the same period in 2001. The increase was primarily due to the increase in license fees revenues. Gross profit margin was 85.4% for the three months ended January 31, 2002, up from 84.8% for the same period in 2001. This increase in gross profit margin resulted primarily from the product mix, as revenue from license fees and services, both of which have high margins, increased at a greater rate than our low margin revenues, including hardware and third party courseware products. Our future gross profit margin will be dependent primarily on the product mix of our revenues.

Operating Expenses

Selling, General and Administrative. Selling, general and administrative expenses increased 31.8% to $11,516 for the three months ended January 31, 2002 from $8,737 for the same period in 2001. The increased expenses resulted from a number of factors including increased headcount from the acquisitions of Wasatch Interactive Learning Corporation in April 2001 and TeachMaster Technologies, Inc. in September 2001, increased commissions due to the growth in revenue, increased marketing costs necessary to generate revenue growth, and additions to our management team and infrastructure necessary to grow the business. As a percentage of total

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

RESULTS OF OPERATIONS, Continued

Operating Expenses, Continued

revenues, selling, general and administrative expenses were 82.0% for the three months ended January 31, 2002, down from 89.6% for the same period in 2001. Our ability to continue to leverage our cost structure and improve profitability is primarily dependent on our ability to increase revenues and achieve our sales targets.

Product Development and Customer Support. Product development and customer support expenses increased 55.6% to $2,781 for the three months ended January 31, 2002 from $1,787 for the same period in 2001. As a percentage of total revenues, product development and customer support expenses were 19.8% for the three months ended January 31, 2002, up from 18.3% for the same period in 2001. These increases reflect our increased spending to enhance and replace certain existing courseware products and to develop a new standards-based reference network.

As part of our growth strategy, we intend to introduce a number of new products and product improvements. The extent of our future product development spending and the amount of our future capitalized product development costs and related amortization are dependent on our ability to introduce new products and product improvements on a cost-effective and timely basis. Capitalized development costs were $1,345 for the three months ended January 31, 2002, compared to $885 for the same period in 2001. Amortization of previously capitalized development costs was $939 for the three months ended January 31, 2002, up from $492 for the same period in 2001, as projects completed during prior periods are now being amortized to expense.

Amortization of Intangibles. Expense for the three months ended January 31, 2002 represented amortization of intangible assets, other than goodwill, from our previous acquisitions. Effective November 1, 2001, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Under SFAS 142, goodwill is no longer amortized to expense and must be periodically reviewed for impairment with any related losses recognized when incurred. The effect of any future impairment on our consolidated financial statements is unknown. Expense for the same period in 2001 included $131 of goodwill amortization and $77 of intangible amortization.

Special Charge. The special charge in 2001 represented costs associated with the retirement of our founder and former chief executive officer and included non-cash amounts of $463 for the accelerated vesting of stock options.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

RESULTS OF OPERATIONS, Continued

Interest Income

Interest income was $368 for the three months ended January 31, 2002 compared to $7 for the same period in 2001. The increased interest income is the result of higher invested balances in 2001. We completed a public stock offering in June 2001, which significantly increased our cash and cash equivalent balances.

Income Taxes

Our effective income tax rate for the three months ended January 31, 2002 was 40%, comparable to the 39% effective rate for the same period in 2001. We estimate the fiscal year 2002 effective tax rate to be approximately 40% to 42%, down from the 50% effective rate for fiscal year 2001 due primarily to the effect of no longer amortizing non-deductible goodwill.

FINANCIAL CONDITION

Liquidity and Capital Resources

At January 31, 2002, our principal sources of liquidity included cash and cash equivalents of $59,740 net accounts receivable of $24,411, and our unused line of credit. We had total installment receivables of $17,119 at January 31, 2002, of which $14,937 is to be billed within one year from the balance sheet date and is included in net accounts receivable. Working capital was $70,634 at January 31, 2002, a decrease of $3,415 from October 31, 2001, due primarily to decreased cash and cash equivalents, accounts receivable, accounts payable and accrued expenses.

Cash flows from operations were used principally to fund our working capital requirements. Net cash provided by operating activities was $447 for the three months ended January 31, 2002 compared to net cash used of $2,536 for the same period in 2001. The increase in operating cash flows is due primarily to the improvement in operating results and the decrease in accounts receivable slightly offset by the decrease in accounts payable and accrued expenses.

Net cash used in our investing activities was $2,714 for the three months ended January 31, 2002 compared to $1,191 for the same period in 2001. The increase in net cash used was due to our increased capital expenditures in 2002, primarily related to the installation of a new enterprise resource planning system that is expected to be completed in 2002, and our increased investment in capitalized product development costs as we continue to develop new courseware products.

Net cash provided by our financing activities was $568 for the three months ended January 31, 2002 compared to $320 for the same period in 2001. Cash received from the exercise of stock options was partially offset by repayments of capital lease obligations and, in 2002, the

16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

FINANCIAL CONDITION, Continued

Liquidity and Capital Resources, Continued

repurchase of common stock. We have resources available under our revolving loan agreement to provide borrowings up to $12,500, as determined by the available borrowing base. At January 31, 2002, there were no borrowings outstanding and the unused borrowing capacity was approximately $10,460.

We maintain adequate cash balances and credit facilities to meet our anticipated working capital, capital expenditure and business investment requirements.

Disclosures about Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments consist primarily of future payments due under capital lease obligations and operating leases. For the full fiscal year 2002, payments of approximately $242 are due under capital lease obligations and payments of approximately $1,437 are due under operating leases.

Factors Affecting Quarterly Operating Results

Our quarterly operating results fluctuate as a result of a number of factors including the business and sales cycle, the amount and timing of new product introductions, client spending patterns, budget cycles and fiscal year ends and promotional programs. We historically have experienced our lowest revenues in the first quarter and increasingly higher levels of revenues in each of the next three quarters. Because of these factors, the results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year.

Interest Rate Risk

Our borrowing capacity primarily consists of a revolving loan with interest rates that fluctuate based upon market indexes. At January 31, 2002, we did not have any outstanding borrowings under this revolving loan. In addition, our only debt consisted of capital lease obligations at fixed interest rates. As a result, risk relating to interest fluctuation is considered minimal.

Foreign Currency Exchange Rate Risk

We market our products and services worldwide and have operations in Canada and the United Kingdom. As a result, financial results and cash flows could be affected by changes in foreign currency exchange rates or weak economic conditions in foreign markets. Working funds necessary to facilitate the short-term operations of our foreign subsidiaries are kept in local currencies in which they do business. Approximately 6% of our total revenues were denominated in currencies other than the U.S. dollar for the three months ended January 31, 2002.

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

CAUTIONARY STATEMENTS

Except for historical information contained herein, the disclosures in this Quarterly Report on Form 10-Q are forward-looking statements made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties include: the availability and unpredictability of government funding on which our customers are dependent, the capital and operating spending patterns of our customers, the ability to attract and retain customers, the size, timing and product mix of customer orders, the introduction and acceptance of competitive products, our ability to adapt to technological changes and meet evolving industry standards, and our ability to economically introduce new products on a timely basis. These risks and other relevant risks are described in more detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2001.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the information set forth under the captions “Interest Rate Risk” and “Foreign Currency Exchange Rate Risk” in Management's Discussion and Analysis of Results of Operations and Financial Condition.

18

PART II. OTHER INFORMATION

Item 1.         Legal Proceedings

         We are not a party to any litigation that is expected to have a material adverse effect on our business.

Item 2.         Changes in Securities

         Not Applicable.

Item 3.         Defaults Upon Senior Securities

         Not Applicable.

Item 4.         Submission of Matters to a Vote of Security Holders

         Not Applicable.

Item 5.         Other Information

         Not Applicable.

Item 6.         Exhibits and Reports on Form 8-K

         (a) Exhibits

         Exhibit Number and Description

10.11	Form of Indemnification Agreement is incorporated by reference to the corresponding exhibit on our Registration Statement on Form S-1 (File Number 333-54296).
10.37	Form of Employment Agreement with five executive officers. *
10.38	Form of Employment Agreement with five executive officers. *
10.39	Form of Employment Security Agreement with thirteen executive officers. *

* Management contract or compensatory plan, contract or arrangement.

         (b) Reports on Form 8-K:

         No reports on Form 8-K were filed for the quarter ended January 31, 2002.

19

SIGNATURES

Pursuant to the requirements 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 March 15, 2002.

PLATO LEARNING, INC.

By /s/John Murray

President and
Chief Executive Officer
(principal executive officer)

/s/Gregory J. Melsen

Vice President Finance and
Chief Financial Officer
(principal financial officer)

/s/Mary Jo Murphy

Vice President, Corporate
Controller and
Chief Accounting Officer
(principal accounting officer)

20 EX-10.37 3 c68141ex10-37.txt FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.37 EMPLOYMENT AGREEMENT This AGREEMENT ("Agreement") is made effective as of January 1, 2002 (the "Effective Date") by and between PLATO Learning, Inc., a Delaware corporation headquartered in Minneapolis (the "Company"), and ((Name)) ("Executive"). WITNESSETH THAT: WHEREAS, the Company currently employs Executive as its ((Position)), and the Company desires to continue to employ Executive as its ((Position)); and WHEREAS, Executive desires to continue to be employed by the Company in that capacity. NOW, THEREFORE, for and in consideration of the promises and of the mutual covenants hereinafter set forth, it is hereby agreed by and between the parties as follows: 1. Employment. The Company hereby agrees to employ Executive to perform the duties set forth in Section 3 hereof ("Executive Services"), and subject to the restrictions of Section 7. Executive hereby accepts continued employment to perform Executive Services for the Company under the terms and conditions of this Agreement. 2. Term. The Term of this Agreement shall be twelve (12) months, subject to termination pursuant to Section 6. On each annual anniversary of the Effective Date, unless earlier terminated pursuant to Section 6, this Agreement will automatically renew for an additional twelve (12) months, subject to termination pursuant to Section 6. 3. Duties. Executive will serve as the Company's ((Position)), and perform all the responsibilities and duties set forth in the Executive's job description, or any successor thereto which does not materially reduce such responsibilities and duties, and any other consistent responsibilities and duties assigned or delegated to Executive by the Company's Chief Executive Officer. Executive represents that Executive's employment by the Company and performance of the position will not violate or interfere with any employment-related agreement Executive may have entered into with any previous employer (a "Prior Employment Agreement"). 4. Time Commitment. Executive will devote Executive's time, attention and energies to the performance of Executive Services. Executive may not be associated with, consult, advise, work for, be employed by, contract with, or otherwise devote any of Executive's time to the pursuit of any other work or business activities that may interfere with the performance of Executive Services hereunder. The foregoing shall not preclude Executive from devoting reasonable time to the supervision of Executive's personal investments, civic, charitable, educational, religious and similar types of activities, speaking engagements and membership on other boards of directors, provided such activities do not interfere in any way with the business of the Company; and provided further that, the Executive cannot serve on the board of directors of more than one publicly-traded company without the Chief Executive Officer's written consent. The time involved in such activities shall not be treated as vacation time. The Executive shall be entitled to keep any amounts paid to Executive in connection with such activities (e.g., director fees and honoraria). 5. Compensation and Benefits. The Company will pay the following compensation to Executive in full consideration for performance of Executive Services hereunder in accordance with the Company's then-current payroll policies and procedures. (a) Salary. Executive will receive an annual salary of ((BaseSalary)), payable in accordance with the Company's then-current payroll policies and procedures. The Chief Executive Officer will review Executive's salary at least annually. Executive's salary will not be reduced, and after any increase the term "salary" for purposes of this Agreement shall refer to base salary annualized, as most recently increased. (b) Expenses. The Company will reimburse Executive for all reasonable and necessary expenses incurred by Executive in connection with the performance of Executive Services upon submission by Executive of expense reports with substantiating vouchers, in accordance with the Company's then-current expense reimbursement policy. (c) Stock Options. Executive shall be entitled to be granted options to purchase shares of Company common stock in accordance with the Company Stock Option Plan (the "Stock Options"), pursuant to the following schedule: (i) Executive shall receive options to purchase ((Options)) shares of Company stock in each year during which this Agreement is in effect, to be granted at the Board's September meetings in that year, at fair market value as of the date of the grant. (ii) Executive is also eligible to participate in the annual performance-based stock option award plan in each year during which this Agreement is in effect. Such options will be granted at the Board's December meetings, at fair market value as of the date of the grant and will be subject to the Company achieving its annual goals. (iii) Executive's stock option grants pursuant to subsections (i) and (ii) shall be subject to the vesting schedule contained in the stock option agreement under which they are granted. The award of the Stock Options under subsections (i) and (ii) is subject to execution by Executive of the then-current Stock Option Agreement, provided such agreement contains no terms that are inconsistent with this Employment Agreement or Executive's Employment Security Agreement or Indemnification Agreement. (d) Benefits. Executive shall be entitled to participate in such group life insurance, major medical, and other employee benefit plans and programs (collectively "Benefit Plans") as established by the Company in accordance with the applicable -2- terms and conditions of such Benefit Plans, which Benefit Plans may be modified or discontinued by the Company at any time; provided, however that Executive shall meet the requirements of the Benefit Plans for participation and in no event, including breach or wrongful termination of this Agreement, shall Executive be entitled to any amount of compensation in lieu of participation, unless otherwise provided by the terms of the Benefit Plan. The benefits under the Benefit Plans available to Executive shall be no less favorable than those available to other senior executives, excluding the Chief Executive Officer, and commensurate with Executive's position and salary; provided that, Executive may not permit or cause an increase or improvement in benefits under the Benefit Plans without the Company's approval. In the event of termination pursuant to Section 6, Executive may elect to continue to participate in Company benefits programs through COBRA. In the event of termination of Executive without Good Cause or termination by the employee for Good Cause as defined in Section 6, the Company will pay the difference between the then-current employee portion of the cost of said benefits and the COBRA costs. (e) Bonus Compensation. Executive shall be eligible to receive cash bonus compensation for the Company's Fiscal Year 2002, based on the performance criteria previously agreed upon by the Chief Executive Officer and the Board for that year, and shall remain eligible for such cash bonus compensation in subsequent fiscal years of this Agreement based on bonus amounts and performance criteria to be mutually agreed between the Chief Executive Officer and the Board for any given fiscal year of the Company. Unless otherwise specifically agreed, earned cash bonus compensation will be paid only while Executive is actively employed by the Company; accordingly, if Executive ceases to be actively employed by the Company, Executive will only receive a prorated portion of the earned cash bonus compensation for the portion of the Company's fiscal year that Executive was actively employed by the Company. 6. Termination. (a) Either party may terminate this Agreement, without Good Cause and without any liability on the part of either party, other than as provided herein, upon forty-five (45) days prior written notice. In such event, Executive, if requested by the Company, will continue to render Executive Services and be paid Executive's salary during such notice period and up to the date of termination, as well as any earned cash bonus compensation relative to such period of Executive Services, in accordance with the Company's then-current payroll policies and procedures. Irrespective of whether Executive performs such Executive Services, Executive shall receive, in case of such termination without Good Cause by the Company of Executive's employment severance payments equivalent to Executive's then-current salary for a period of ((Term)). Executive's Eligibility to receive benefits under this Section 6(a) is subject to Executive's abiding by the provisions of Section 7 of this Agreement, and Executive's execution of a general release of all claims or potential claims against -3- the Company, in a form prepared by the Company and mutually agreed upon between Executive and the Company. (b) The Company may terminate this Agreement at any time upon fourteen (14) days written notice for Good Cause. Good Cause, for the purposes of this Agreement, shall mean Executive's: (i) conviction of or plea of nolo contendere to any felony or gross misdemeanor involving dishonesty, fraud, or breach of trust under any law of the United States or any State thereof; (ii) willful engagement in any conduct that materially injures the Company or any of its subsidiaries; or (iii) willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after the Company has given written notice of such nonperformance and of its intention to terminate Executive's employment because of such nonperformance. For purposes of this section, no act on Executive's part shall be considered "willful" unless it is done by Executive in bad faith or without reasonable belief that such action was in the Company's best interests. (c) Executive may terminate this Agreement and resign Executive's employment at any time upon fourteen (14) days' written notice to the Chief Executive Officer for Good Reason. Good Reason, for the purpose of this Agreement shall exist if the Company, without Executive's written consent: (i) materially reduces the nature, scope, level or extent of Executive's responsibilities, or fails to provide Executive with adequate office facilities and support services, similar to those in place at the effective date of this Agreement, to perform such responsibilities; (ii) reduces Executive's salary below that in effect as of the date of this Agreement; (iii) requires Executive to relocate Executive's principal business office or Executive's principal place of residence outside the Minneapolis/Saint Paul, Minnesota Standard Metropolitan Statistical Area (the "Geographical Employment Area"), or assigns to Executive duties that would reasonably require such relocation; or (iv) fails to continue in effect any cash or stock-based incentive or bonus plan, retirement plan, or Benefit Plan, unless (A) the aggregate value (as computed by an independent employee benefits consultant selected by the Company) of all such compensation, retirement and benefit plans, programs and arrangements provided to Executive is not materially less than their aggregate value as of the date of this Agreement, or (B) the same reduction applies uniformly to all senior executives. -4- Severance payments, in case of Executive's termination of this Agreement and resignation for Good Reason, shall be made to Executive in the same amounts, for the same periods, and subject to the same conditions as provided for the Company's termination of this Agreement without Good Cause in Section 6(a). (d) Coordination With Employment Security Agreement. If Executive is a party to an employment security agreement (the "ESA") with the Company, Executive will be entitled to the greater of the payments and benefits under this Agreement or the payments and benefits under the ESA, but not the sum of such payments and benefits. 7. Restrictive Covenants. (a) Confidentiality. Executive agrees not to directly or indirectly: (i) use or disclose, for the benefit of any person, firm or entity other than the Company and its subsidiaries, the Confidential Business Information of the Company or any of its subsidiaries; (ii) distribute or disseminate in any way to anyone other than the Company employees with a "need to know" any Confidential Information in any form whatsoever; (iii) copy any Confidential Information other than for use by the Company or any of its subsidiaries; (iv) remove any Confidential Information from the premises of the Company without prior approval of an authorized officer of the Company; (v) fail to safeguard all confidential and/or classified documents; and (vi) copy any confidential and/or classified documents belonging to any of the Company's customers. Confidential Business Information means information or material that is not generally available to or used by others or the utility or value of which is not generally known or recognized as a standard practice, whether or not the underlying details are in the public domain, including but not limited to its computerized and manual systems, procedures, reports, client lists, review criteria and methods, financial methods and practices, plans, pricing and marketing techniques, business methods and procedures and other valuable and proprietary information relating to the pricing, marketing, design, manufacture and formulation of educational software, as well as information regarding the past, present and prospective clients of the Company or any of its subsidiaries, and their particular needs and requirements, and their own confidential information. -5- Upon termination of employment under this Agreement, with or without Good Cause, Executive agrees to return to the Company all policy and procedure manuals, records, notes, data, memoranda, and reports of any nature (including computerized and electronically stored information) which are in Executive's possession and/or control which relate to (i) the Confidential Business Information of the Company or any of its subsidiaries, (ii) the business activities or facilities of the Company or its past, present, or prospective clients, as well as any original documents related to Executive's employment with the Company, other than Executive's originals of this Agreement, Executive's Employment Security Agreement and Executive's Indemnification Agreement, and any successors thereto. (b) Non-Compete. During the period of employment and for the ((Term)) term of employment under this Agreement (the "Restricted Period"), Executive will not directly or indirectly, on Executive's behalf, or as a partner, officer, director, trustee, member, employee, or otherwise, within the United States or in any foreign market in which Executive was engaged in activities on behalf of the Company or any of its subsidiaries, own, engage in or participate in, in any way, any business that is similar to or competitive with any actual or planned business activity engaged in or planned by the Company or any of its subsidiaries at the time the employment under this Agreement was terminated, if in the course of such ownership or employment, it could reasonably be anticipated that Executive would be required to use or disclose the Confidential Business Information of the Company or any of its subsidiaries. However, this Agreement shall not prohibit ownership of up to 2% of the shares of stock of any such corporation whose stock is listed on a national securities exchange or is traded in the over-the-counter market. Executive further agrees that during the Restricted Period, Executive will promptly notify the Company of any business with which Executive is associated or in which Executive has an ownership interest and provide the Company with a description of Executive's duties or interests. (c) Non-Solicitation. During the Restricted Period, Executive will not directly or indirectly, for the purpose of selling services and/or products provided or planned by the Company or any of its subsidiaries at the time the employment under this Agreement was terminated, call upon, solicit or divert any actual customer or prospective customer of the Company or any of its subsidiaries, unless employed by the Company to do so. An actual customer, for purposes of this Section, is any customer to whom the Company or any of its subsidiaries has provided services and/or products within one year prior to Executive's termination of employment under this Agreement. A prospective customer, for purposes of this Section, is any prospective customer to whom the Company or any of its subsidiaries sought to provide services and/or products within one year prior to the date of Executive's termination of employment under this Agreement when Executive had knowledge of or was involved in such solicitation. -6- Executive further agrees that during the Restricted Period Executive shall not directly or indirectly induce any person to leave the employ of the Company or any of its subsidiaries, or solicit any person who is currently or was an employee of the Company or any of its subsidiaries at any time during the twelve months prior to Executive's termination of employment under this Agreement. (d) Judicial Modification. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section is invalid or unenforceable, the parties agree that (i) the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or geographic area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, (ii) the parties shall request that the court exercise that power, and (iii) this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment or decision may be appealed. 8. Remedies. In the event Executive breaches or threatens to breach and provision of Section 7 of this Agreement, the Company shall be entitled to injunctive relief, enjoining or restraining such breach or threatened breach. Executive acknowledges that the Company's remedy at law is inadequate and that the Company and its subsidiaries will suffer irreparable injury if such conduct is not prohibited. Executive and the Company agree that, because of the difficulty of ascertaining the amount of damages in the event that Executive breaches Section 7 of this Agreement, the Company shall be entitled to recover, at its option, as liquidated damages and not as a penalty, a sum equal to six (6) month's annual salary of the employee(s) solicited to leave the Company's employ. The parties further agree that the existence of this remedy will not preclude employer from seeking or receiving injunctive relief. Executive further agrees that the covenants contained in Section 7 shall be construed as separate and independent of other provisions of this Agreement and the existence of any claim by Executive against the Company or any of its subsidiaries, except for a claim that Executive was terminated without Good Cause or terminated Executive's employment for Good Reason, shall not constitute a defense to the enforcement by the Company of either of these Sections. 9. Property Rights. All discoveries, designs, improvements, ideas, inventions, intellectual property, creations, and works of art, whether or not patentable or subject to copyright, relating to the business of the Company or any of its subsidiaries, or its clients, conceived, developed or made by Executive during employment under this Agreement, either solely or jointly with others (hereafter "Developments") shall automatically become the sole property of the Company. Executive shall immediately disclose to the Company all such Developments and shall, without additional compensation, execute all assignments, application or any other documents deemed necessary by the Company to perfect the Company's rights therein. These obligations shall continue throughout the Restricted -7- Period under this Agreement with respect to Developments conceived, developed or made by Executive during the period of employment under this Agreement. The Company acknowledges and agrees that the provisions of this section shall not apply to inventions or for which no equipment, supplies, facility or trade secret information of the Company or its clients were used by Executive and which were developed entirely on Executive's own time unless (a) such inventions relate (i) to the business of the Company or (ii) to the Company's actual or demonstrably anticipated research or development or (b) such inventions result from any work performed by Executive for the Company. 10. Assignments. Neither party shall have the right or power to assign any rights or duties under this Agreement without the written consent of the other party, provided, however, that the Company shall have the right to assign this Agreement without consent pursuant to any corporate reorganization, merger, or other transaction involving a change of control of the Company or any of its subsidiary companies, in which case, further rights and duties of the Company and Executive are set forth in Executive's Employment Security Agreement, or any successor agreement thereto. Any attempted assignment in breach of this Section 10 shall be void. If Executive performs services and duties for any subsidiary or other affiliated entity of the Company, then the provisions of Sections 7 and 9 shall apply to the confidential information and business activities, property rights, clients, and employees of that subsidiary or other entity. 11. Certain Reductions of Payments by the Company. If it is determined by the independent auditor (the "Auditor") jointly selected by Executive and the Company and paid by the Company that any payment, benefit or distribution by or on behalf of the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the "Payments") are or will become subject to any excise taxes, then the Auditor shall determine if the payment of excise taxes in addition to any federal, state, local or other income, excise or other taxes ("Other Taxes") payable by Executive with respect to the Payments will cause Executive to pay an amount of excise and Other Taxes such that the net payment Executive will receive after payment of all excise and Other Taxes on payments under this Agreement is less than if the payment he would receive was reduced to the maximum amount payable without imposition of any excise taxes ("Economic Detriment"). If the Auditor determines that the Executive will incur an Economic Detriment as a result of the receipt of the full payment, the portion of the Payments made to Executive under this Agreement will be reduced to the maximum possible amount that can be paid to Executive without Executive incurring any Economic Detriment. The Auditor shall be a nationally recognized United States public accounting firm that has not, during the two years preceding the date of its selection, acted in any way on behalf of the Company or any of its subsidiaries. 12. Severability. Each section, paragraph, clause, sub-clause and provision (collectively "Provisions") of this Agreement shall be severable from each of the others, and if for any reason the Section, clause, sub-clause or provision is invalid or unenforceable, such -8- invalidity or unenforceability shall not prejudice or in any way affect the validity or enforceability of any other Provision hereof. 13. Miscellaneous. (a) This Agreement, Executive's Employment Security Agreement, Indemnification Agreement, Confidentiality Agreement, and any successor agreements thereto, contain the entire agreement of the parties with respect to the employment of Executive and supersede all other understandings, whether written or oral; provided, however, that Executive shall comply with all reasonable policies, procedures and other requirements of the Company which are not inconsistent with those three agreements. (b) Failure on the part of either party to insist upon strict compliance by the other with respect to any of the terms, covenants and conditions hereof, shall not be deemed a subsequent waiver of such term, covenant or condition. (c) The provisions of any Section containing a continuing obligation after termination shall survive such termination whether with or without cause and even if occasioned by the Company's breach or wrongful termination. (d) This Agreement may not be modified except in a written amendment signed by the parties; provided, however, that the Company may amend or terminate its Benefit Plans, cash bonus Plan, and any Company policies, procedures and other requirements of the Company, subject to subsection (a) above and to Sections 5(d), 5(e) and 6(c), in its sole discretion. (e) Except for action by the Company to enforce the restrictive covenants of Section 7, any dispute, controversy or difference that may arise between the parties hereto out of or in relation to or in connection with this Agreement or for the breach thereof which cannot be settled amicably by the parties within thirty (30) days shall be finally and exclusively settled by arbitration in Minneapolis, Minnesota, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The arbitrator shall have discretion to award the prevailing party reasonable attorney's fees. In the event of litigation under this Agreement, the court shall have discretion to award the prevailing party reasonable attorney's fees. (f) The headings in this Agreement are inserted for convenience and identification only and are not intended to describe, interpret, define or limit the scope, extent, or intent of this Agreement or any provision hereof. Each party has cooperated in the preparation of this Agreement. As a result, this Agreement shall not be construed against any party on the basis that the party was the draftsperson. (g) All forms of compensation referred to in this letter are subject to reduction to reflect withholding for applicable income, payroll and other taxes. -9- 14. Governing Law. It is the intention of the parties hereto that all questions with respect to the construction, formation, and performance of this Agreement and the rights and liabilities of the parties hereto shall be determined in accordance with the laws of the State of Minnesota. The parties hereto submit to the jurisdiction and venue of the courts of Hennepin County, Minnesota in respect to any dispute arising out of this agreement. 15. Insurance. For the period from the date hereof through at least the fifth anniversary of Executive's termination of employment from the Company, the Company agrees to maintain Executive as an insured party on all directors' and officers' liability insurance maintained by the Company for the benefit of its directors and officers on at least the same basis as all other covered individuals. 16. Notices. Any notice required pursuant to this Agreement will be in writing and will be deemed given upon the earlier of (i) delivery thereof, if by hand, (ii) five business days after mailing if sent by mail (registered or certified mail, postage prepaid, return receipt requested), (iii) the next business day after deposit if sent by a recognized overnight delivery service, or (iv) upon transmission if sent by facsimile transmission or by electronic mail, with return notification (provided that any notice sent by facsimile or electronic mail shall also promptly be sent by one of the means described in clauses (i) through (iii) of this Section. All notices will be addressed as follows or to such other address as a party may identify in a written notice to the other party: to the Company: PLATO Learning, Inc. Attn: Chief Executive Officer 10801 Nesbitt Avenue South Bloomington, MN 55437-3109 to Executive: ((Name)) PLATO Learning, Inc. 10801 Nesbitt Avenue South Bloomington, MN 55437-3109 Each party named above may change its address and that of its representative for notice by the giving of notice thereof in the manner hereinabove provided. 17. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. IN WITNESS WHEREOF, the parties hereto, have executed this Employment Agreement effective as of the day and year first above written. PLATO LEARNING, INC. By: - ------------------------------ --------------------------------------- ((NAME)) John Murray President and Chief Executive Officer -10- EXECUTIVE TEAM EMPLOYMENT AGREEMENT SUMMARY Dated January 1, 2002, except for Melsen's dated February 4, 2002

EXECUTIVE EXECUTIVE BASE EXECUTIVE TYPE EXECUTIVE NAME EXECUTIVE POSITION TERM SALARY OPTIONS A John Buske Chief Operating Officer 12 Months $200,000 30,000 A Rob Kilgarriff Executive Vice President Sales & Marketing 12 Months $180,000 20,000 A Greg Melsen Chief Financial Officer 12 Months $170,000 30,000 A Frank Preese Chief Technology Officer 9 Months $155,000 15,000 A Dave LePage Senior Vice President Operations 6 Months $160,000 15,000

EX-10.38 4 c68141ex10-38.txt FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.38 EMPLOYMENT AGREEMENT This AGREEMENT ("Agreement") is made effective as of January 1, 2002 (the "Effective Date") by and between PLATO Learning, Inc., a Delaware corporation headquartered in Minneapolis (the "Company"), and ((Name)) ("Executive"). WITNESSETH THAT: WHEREAS, the Company currently employs Executive as its ((Position)), and the Company desires to continue to employ Executive as its ((Position)); and WHEREAS, Executive desires to continue to be employed by the Company in that capacity. NOW, THEREFORE, for and in consideration of the promises and of the mutual covenants hereinafter set forth, it is hereby agreed by and between the parties as follows: 1. Employment. The Company hereby agrees to employ Executive to perform the duties set forth in Section 3 hereof ("Executive Services"), and subject to the restrictions of Section 7. Executive hereby accepts continued employment to perform Executive Services for the Company under the terms and conditions of this Agreement. 2. Term. The Term of this Agreement shall be twelve (12) months, subject to termination pursuant to Section 6. On each annual anniversary of the Effective Date, unless earlier terminated pursuant to Section 6, this Agreement will automatically renew for an additional twelve (12) months, subject to termination pursuant to Section 6. 3. Duties. Executive will serve as the Company's ((Position)), and perform all the responsibilities and duties set forth in the Executive's job description, or any successor thereto which does not materially reduce such responsibilities and duties, and any other consistent responsibilities and duties assigned or delegated to Executive by the Company's Chief Executive Officer. Executive represents that Executive's employment by the Company and performance of the position will not violate or interfere with any employment-related agreement Executive may have entered into with any previous employer (a "Prior Employment Agreement"). 4. Time Commitment. Executive will devote Executive's time, attention and energies to the performance of Executive Services. Executive may not be associated with, consult, advise, work for, be employed by, contract with, or otherwise devote any of Executive's time to the pursuit of any other work or business activities that may interfere with the performance of Executive Services hereunder. The foregoing shall not preclude Executive from devoting reasonable time to the supervision of Executive's personal investments, civic, charitable, educational, religious and similar types of activities, speaking engagements and membership on other boards of directors, provided such activities do not interfere in any way with the business of the Company; and provided further that, the Executive cannot serve on the board of directors of more than one publicly-traded company without the Chief Executive Officer's written consent. The time involved in such activities shall not be -E1- treated as vacation time. The Executive shall be entitled to keep any amounts paid to Executive in connection with such activities (e.g., director fees and honoraria). 5. Compensation and Benefits. The Company will pay the following compensation to Executive in full consideration for performance of Executive Services hereunder in accordance with the Company's then-current payroll policies and procedures. (a) Salary. Executive will receive an annual salary of ((BaseSalary)), payable in accordance with the Company's then-current payroll policies and procedures. The Chief Executive Officer will review Executive's salary at least annually. Executive's salary will not be reduced, and after any increase the term "salary" for purposes of this Agreement shall refer to base salary annualized, as most recently increased. (b) Expenses. The Company will reimburse Executive for all reasonable and necessary expenses incurred by Executive in connection with the performance of Executive Services upon submission by Executive of expense reports with substantiating vouchers, in accordance with the Company's then-current expense reimbursement policy. (c) Stock Options. Executive shall be entitled to be granted options to purchase shares of Company common stock in accordance with the Company Stock Option Plan (the "Stock Options"), pursuant to the following schedule: (i) Executive is eligible to participate in the annual September Stock Option award program in each year during which this Agreement is in effect. Such options will be granted from an Executive Team pool at the Board's September meetings, at fair market value as of the date of the grant. (ii) Executive is also eligible to participate in the annual performance-based stock option award plan in each year during which this Agreement is in effect. Such options will be granted at the Board's December meetings, at fair market value as of the date of the grant and will be subject to the Company achieving its annual goals. (iii) Executive's stock option grants pursuant to subsections (i) and (ii) shall be subject to the vesting schedule contained in the stock option agreement under which they are granted. The award of the Stock Options under subsections (i) and (ii) is subject to execution by Executive of the then-current Stock Option Agreement, provided such agreement contains no terms that are inconsistent with this Employment Agreement or Executive's Employment Security Agreement or Indemnification Agreement. (d) Benefits. Executive shall be entitled to participate in such group life insurance, major medical, and other employee benefit plans and programs (collectively "Benefit Plans") as established by the Company in accordance with the applicable -2- terms and conditions of such Benefit Plans, which Benefit Plans may be modified or discontinued by the Company at any time; provided, however that Executive shall meet the requirements of the Benefit Plans for participation and in no event, including breach or wrongful termination of this Agreement, shall Executive be entitled to any amount of compensation in lieu of participation, unless otherwise provided by the terms of the Benefit Plan. The benefits under the Benefit Plans available to Executive shall be no less favorable than those available to other senior executives, excluding the Chief Executive Officer, and commensurate with Executive's position and salary; provided that, Executive may not permit or cause an increase or improvement in benefits under the Benefit Plans without the Company's approval. In the event of termination pursuant to Section 6, Executive may elect to continue to participate in Company benefits programs through COBRA. In the event of termination of Executive without Good Cause or termination by the employee for Good Cause as defined in Section 6, the Company will pay the difference between the then-current employee portion of the cost of said benefits and the COBRA costs. (e) Bonus Compensation. Executive shall be eligible to receive cash bonus compensation for the Company's Fiscal Year 2002, based on the performance criteria previously agreed upon by the Chief Executive Officer and the Board for that year, and shall remain eligible for such cash bonus compensation in subsequent fiscal years of this Agreement based on bonus amounts and performance criteria to be mutually agreed between the Chief Executive Officer and the Board for any given fiscal year of the Company. Unless otherwise specifically agreed, earned cash bonus compensation will be paid only while Executive is actively employed by the Company; accordingly, if Executive ceases to be actively employed by the Company, Executive will only receive a prorated portion of the earned cash bonus compensation for the portion of the Company's fiscal year that Executive was actively employed by the Company. 6. Termination. (a) Either party may terminate this Agreement, without Good Cause and without any liability on the part of either party, other than as provided herein, upon forty-five (45) days prior written notice. In such event, Executive, if requested by the Company, will continue to render Executive Services and be paid Executive's salary during such notice period and up to the date of termination, as well as any earned cash bonus compensation relative to such period of Executive Services, in accordance with the Company's then-current payroll policies and procedures. Irrespective of whether Executive performs such Executive Services, Executive shall receive, in case of such termination without Good Cause by the Company of Executive's employment severance payments equivalent to Executive's then-current salary for a period of ((Term)). Executive's Eligibility to receive benefits under this Section 6(a) is subject to Executive's abiding by the provisions of Section 7 of this Agreement, and Executive's execution of a general release of all claims or potential claims against -3- the Company, in a form prepared by the Company and mutually agreed upon between Executive and the Company. (b) The Company may terminate this Agreement at any time upon fourteen (14) days written notice for Good Cause. Good Cause, for the purposes of this Agreement, shall mean Executive's: (i) conviction of or plea of nolo contendere to any felony or gross misdemeanor involving dishonesty, fraud, or breach of trust under any law of the United States or any State thereof; (ii) willful engagement in any conduct that materially injures the Company or any of its subsidiaries; or (iii) willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after the Company has given written notice of such nonperformance and of its intention to terminate Executive's employment because of such nonperformance. For purposes of this section, no act on Executive's part shall be considered "willful" unless it is done by Executive in bad faith or without reasonable belief that such action was in the Company's best interests. (c) Executive may terminate this Agreement and resign Executive's employment at any time upon fourteen (14) days' written notice to the Chief Executive Officer for Good Reason. Good Reason, for the purpose of this Agreement shall exist if the Company, without Executive's written consent: (i) materially reduces the nature, scope, level or extent of Executive's responsibilities, or fails to provide Executive with adequate office facilities and support services, similar to those in place at the effective date of this Agreement, to perform such responsibilities; (ii) reduces Executive's salary below that in effect as of the date of this Agreement; (iii) requires Executive to relocate Executive's principal business office or Executive's principal place of residence outside the Minneapolis/Saint Paul, Minnesota Standard Metropolitan Statistical Area (the "Geographical Employment Area"), or assigns to Executive duties that would reasonably require such relocation; or (iv) fails to continue in effect any cash or stock-based incentive or bonus plan, retirement plan, or Benefit Plan, unless (A) the aggregate value (as computed by an independent employee benefits consultant selected by the Company) of all such compensation, retirement and benefit plans, programs and arrangements provided to Executive is not materially less than their aggregate value as of the date of this Agreement, or (B) the same reduction applies uniformly to all senior executives. -4- Severance payments, in case of Executive's termination of this Agreement and resignation for Good Reason, shall be made to Executive in the same amounts, for the same periods, and subject to the same conditions as provided for the Company's termination of this Agreement without Good Cause in Section 6(a). (d) Coordination With Employment Security Agreement. If Executive is a party to an employment security agreement (the "ESA") with the Company, Executive will be entitled to the greater of the payments and benefits under this Agreement or the payments and benefits under the ESA, but not the sum of such payments and benefits. 7. Restrictive Covenants. (a) Confidentiality. Executive agrees not to directly or indirectly: (i) use or disclose, for the benefit of any person, firm or entity other than the Company and its subsidiaries, the Confidential Business Information of the Company or any of its subsidiaries; (ii) distribute or disseminate in any way to anyone other than the Company employees with a "need to know" any Confidential Information in any form whatsoever; (iii) copy any Confidential Information other than for use by the Company or any of its subsidiaries; (iv) remove any Confidential Information from the premises of the Company without prior approval of an authorized officer of the Company; (v) fail to safeguard all confidential and/or classified documents; and (vi) copy any confidential and/or classified documents belonging to any of the Company's customers. Confidential Business Information means information or material that is not generally available to or used by others or the utility or value of which is not generally known or recognized as a standard practice, whether or not the underlying details are in the public domain, including but not limited to its computerized and manual systems, procedures, reports, client lists, review criteria and methods, financial methods and practices, plans, pricing and marketing techniques, business methods and procedures and other valuable and proprietary information relating to the pricing, marketing, design, manufacture and formulation of educational software, as well as information regarding the past, present and prospective clients of the Company or any of its subsidiaries, and their particular needs and requirements, and their own confidential information. -5- Upon termination of employment under this Agreement, with or without Good Cause, Executive agrees to return to the Company all policy and procedure manuals, records, notes, data, memoranda, and reports of any nature (including computerized and electronically stored information) which are in Executive's possession and/or control which relate to (i) the Confidential Business Information of the Company or any of its subsidiaries, (ii) the business activities or facilities of the Company or its past, present, or prospective clients, as well as any original documents related to Executive's employment with the Company, other than Executive's originals of this Agreement, Executive's Employment Security Agreement and Executive's Indemnification Agreement, and any successors thereto. (b) Non-Compete. During the period of employment and for the ((Term)) term of employment under this Agreement (the "Restricted Period"), Executive will not directly or indirectly, on Executive's behalf, or as a partner, officer, director, trustee, member, employee, or otherwise, within the United States or in any foreign market in which Executive was engaged in activities on behalf of the Company or any of its subsidiaries, own, engage in or participate in, in any way, any business that is similar to or competitive with any actual or planned business activity engaged in or planned by the Company or any of its subsidiaries at the time the employment under this Agreement was terminated, if in the course of such ownership or employment, it could reasonably be anticipated that Executive would be required to use or disclose the Confidential Business Information of the Company or any of its subsidiaries. However, this Agreement shall not prohibit ownership of up to 2% of the shares of stock of any such corporation whose stock is listed on a national securities exchange or is traded in the over-the-counter market. Executive further agrees that during the Restricted Period, Executive will promptly notify the Company of any business with which Executive is associated or in which Executive has an ownership interest and provide the Company with a description of Executive's duties or interests. (c) Non-Solicitation. During the Restricted Period, Executive will not directly or indirectly, for the purpose of selling services and/or products provided or planned by the Company or any of its subsidiaries at the time the employment under this Agreement was terminated, call upon, solicit or divert any actual customer or prospective customer of the Company or any of its subsidiaries, unless employed by the Company to do so. An actual customer, for purposes of this Section, is any customer to whom the Company or any of its subsidiaries has provided services and/or products within one year prior to Executive's termination of employment under this Agreement. A prospective customer, for purposes of this Section, is any prospective customer to whom the Company or any of its subsidiaries sought to provide services and/or products within one year prior to the date of Executive's termination of employment under this Agreement when Executive had knowledge of or was involved in such solicitation. -6- Executive further agrees that during the Restricted Period Executive shall not directly or indirectly induce any person to leave the employ of the Company or any of its subsidiaries, or solicit any person who is currently or was an employee of the Company or any of its subsidiaries at any time during the twelve months prior to Executive's termination of employment under this Agreement. (d) Judicial Modification. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section is invalid or unenforceable, the parties agree that (i) the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or geographic area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, (ii) the parties shall request that the court exercise that power, and (iii) this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment or decision may be appealed. 8. Remedies. In the event Executive breaches or threatens to breach and provision of Section 7 of this Agreement, the Company shall be entitled to injunctive relief, enjoining or restraining such breach or threatened breach. Executive acknowledges that the Company's remedy at law is inadequate and that the Company and its subsidiaries will suffer irreparable injury if such conduct is not prohibited. Executive and the Company agree that, because of the difficulty of ascertaining the amount of damages in the event that Executive breaches Section 7 of this Agreement, the Company shall be entitled to recover, at its option, as liquidated damages and not as a penalty, a sum equal to six (6) month's annual salary of the employee(s) solicited to leave the Company's employ. The parties further agree that the existence of this remedy will not preclude employer from seeking or receiving injunctive relief. Executive further agrees that the covenants contained in Section 7 shall be construed as separate and independent of other provisions of this Agreement and the existence of any claim by Executive against the Company or any of its subsidiaries, except for a claim that Executive was terminated without Good Cause or terminated Executive's employment for Good Reason, shall not constitute a defense to the enforcement by the Company of either of these Sections. 9. Property Rights. All discoveries, designs, improvements, ideas, inventions, intellectual property, creations, and works of art, whether or not patentable or subject to copyright, relating to the business of the Company or any of its subsidiaries, or its clients, conceived, developed or made by Executive during employment under this Agreement, either solely or jointly with others (hereafter "Developments") shall automatically become the sole property of the Company. Executive shall immediately disclose to the Company all such Developments and shall, without additional compensation, execute all assignments, application or any other documents deemed necessary by the Company to perfect the Company's rights therein. These obligations shall continue throughout the Restricted -7- Period under this Agreement with respect to Developments conceived, developed or made by Executive during the period of employment under this Agreement. The Company acknowledges and agrees that the provisions of this section shall not apply to inventions or for which no equipment, supplies, facility or trade secret information of the Company or its clients were used by Executive and which were developed entirely on Executive's own time unless (a) such inventions relate (i) to the business of the Company or (ii) to the Company's actual or demonstrably anticipated research or development or (b) such inventions result from any work performed by Executive for the Company. 10. Assignments. Neither party shall have the right or power to assign any rights or duties under this Agreement without the written consent of the other party, provided, however, that the Company shall have the right to assign this Agreement without consent pursuant to any corporate reorganization, merger, or other transaction involving a change of control of the Company or any of its subsidiary companies, in which case, further rights and duties of the Company and Executive are set forth in Executive's Employment Security Agreement, or any successor agreement thereto. Any attempted assignment in breach of this Section 10 shall be void. If Executive performs services and duties for any subsidiary or other affiliated entity of the Company, then the provisions of Sections 7 and 9 shall apply to the confidential information and business activities, property rights, clients, and employees of that subsidiary or other entity. 11. Certain Reductions of Payments by the Company. If it is determined by the independent auditor (the "Auditor") jointly selected by Executive and the Company and paid by the Company that any payment, benefit or distribution by or on behalf of the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the "Payments") are or will become subject to any excise taxes, then the Auditor shall determine if the payment of excise taxes in addition to any federal, state, local or other income, excise or other taxes ("Other Taxes") payable by Executive with respect to the Payments will cause Executive to pay an amount of excise and Other Taxes such that the net payment Executive will receive after payment of all excise and Other Taxes on payments under this Agreement is less than if the payment he would receive was reduced to the maximum amount payable without imposition of any excise taxes ("Economic Detriment"). If the Auditor determines that the Executive will incur an Economic Detriment as a result of the receipt of the full payment, the portion of the Payments made to Executive under this Agreement will be reduced to the maximum possible amount that can be paid to Executive without Executive incurring any Economic Detriment. The Auditor shall be a nationally recognized United States public accounting firm that has not, during the two years preceding the date of its selection, acted in any way on behalf of the Company or any of its subsidiaries. 12. Severability. Each section, paragraph, clause, sub-clause and provision (collectively "Provisions") of this Agreement shall be severable from each of the others, and if for any reason the Section, clause, sub-clause or provision is invalid or unenforceable, such -8- invalidity or unenforceability shall not prejudice or in any way affect the validity or enforceability of any other Provision hereof. 13. Miscellaneous. (a) This Agreement, Executive's Employment Security Agreement, Indemnification Agreement, Confidentiality Agreement, and any successor agreements thereto, contain the entire agreement of the parties with respect to the employment of Executive and supersede all other understandings, whether written or oral; provided, however, that Executive shall comply with all reasonable policies, procedures and other requirements of the Company which are not inconsistent with those three agreements. (b) Failure on the part of either party to insist upon strict compliance by the other with respect to any of the terms, covenants and conditions hereof, shall not be deemed a subsequent waiver of such term, covenant or condition. (c) The provisions of any Section containing a continuing obligation after termination shall survive such termination whether with or without cause and even if occasioned by the Company's breach or wrongful termination. (d) This Agreement may not be modified except in a written amendment signed by the parties; provided, however, that the Company may amend or terminate its Benefit Plans, cash bonus Plan, and any Company policies, procedures and other requirements of the Company, subject to subsection (a) above and to Sections 5(d), 5(e) and 6(c), in its sole discretion. (e) Except for action by the Company to enforce the restrictive covenants of Section 7, any dispute, controversy or difference that may arise between the parties hereto out of or in relation to or in connection with this Agreement or for the breach thereof which cannot be settled amicably by the parties within thirty (30) days shall be finally and exclusively settled by arbitration in Minneapolis, Minnesota, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The arbitrator shall have discretion to award the prevailing party reasonable attorney's fees. In the event of litigation under this Agreement, the court shall have discretion to award the prevailing party reasonable attorney's fees. (f) The headings in this Agreement are inserted for convenience and identification only and are not intended to describe, interpret, define or limit the scope, extent, or intent of this Agreement or any provision hereof. Each party has cooperated in the preparation of this Agreement. As a result, this Agreement shall not be construed against any party on the basis that the party was the draftsperson. (g) All forms of compensation referred to in this letter are subject to reduction to reflect withholding for applicable income, payroll and other taxes. -9- 14. Governing Law. It is the intention of the parties hereto that all questions with respect to the construction, formation, and performance of this Agreement and the rights and liabilities of the parties hereto shall be determined in accordance with the laws of the State of Minnesota. The parties hereto submit to the jurisdiction and venue of the courts of Hennepin County, Minnesota in respect to any dispute arising out of this agreement. 15. Insurance. For the period from the date hereof through at least the fifth anniversary of Executive's termination of employment from the Company, the Company agrees to maintain Executive as an insured party on all directors' and officers' liability insurance maintained by the Company for the benefit of its directors and officers on at least the same basis as all other covered individuals. 16. Notices. Any notice required pursuant to this Agreement will be in writing and will be deemed given upon the earlier of (i) delivery thereof, if by hand, (ii) five business days after mailing if sent by mail (registered or certified mail, postage prepaid, return receipt requested), (iii) the next business day after deposit if sent by a recognized overnight delivery service, or (iv) upon transmission if sent by facsimile transmission or by electronic mail, with return notification (provided that any notice sent by facsimile or electronic mail shall also promptly be sent by one of the means described in clauses (i) through (iii) of this Section. All notices will be addressed as follows or to such other address as a party may identify in a written notice to the other party: to the Company: PLATO Learning, Inc. Attn: Chief Executive Officer 10801 Nesbitt Avenue South Bloomington, MN 55437-3109 to Executive: ((Name)) PLATO Learning, Inc. 10801 Nesbitt Avenue South Bloomington, MN 55437-3109 Each party named above may change its address and that of its representative for notice by the giving of notice thereof in the manner hereinabove provided. 17. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. IN WITNESS WHEREOF, the parties hereto, have executed this Employment Agreement effective as of the day and year first above written. PLATO LEARNING, INC. By: - ------------------------------ --------------------------------------- ((NAME)) John Murray President and Chief Executive Officer -10- EXECUTIVE TEAM EMPLOYMENT AGREEMENT SUMMARY Dated January 1, 2002

EXECUTIVE EXECUTIVE BASE EXECUTIVE TYPE EXECUTIVE NAME EXECUTIVE POSITION TERM SALARY OPTIONS B Nancy Hanna Vice President Human Resources 6 Months $140,000 N/A B John Super Vice President Strategic Planning 6 Months $150,000 N/A B Mike Reynolds Vice President North American Sales 9 Months $135,000 N/A B Jim Riesterer Vice President Marketing 6 Months $150,000 N/A B Rob Foshay Vice President Instructional Design & Quality Assurance 6 Months $160,000 N/A

EX-10.39 5 c68141ex10-39.txt FORM OF EMPLOYMENT SECURITY AGREEMENT Exhibit 10.39 EMPLOYMENT SECURITY AGREEMENT THIS EMPLOYMENT SECURITY AGREEMENT ("Agreement") is entered into this 24th day of January, 2002 ("Effective Date"), between PLATO LEARNING, INC., a Delaware Corporation (the "Company"), and ((FirstName)) ((LastName)) (the "Executive"), the Company's ((Title)). This Agreement hereby rescinds the previous Employment Security Agreement entered into by the above-mentioned two parties on January 30, 2001. WITNESSETH THAT: WHEREAS, Executive currently serves as a key employee of the Company and the Company has determined that it is in the best interests of the Company and its stockholders to secure the services of the Executive and to ensure the Executive's continued dedication and objectivity in the event of any negotiation or other action that could lead to, or create the possibility of, a Change in Control of the Company (as defined below), without concern as to whether the Executive might be hindered or distracted by personal uncertainties or risks created by such possible Change in Control; and WHEREAS, the Company desires to encourage the Executive's full attention and dedication to the Company, and this Agreement is intended for that purpose. NOW, THEREFORE, it is hereby agreed by and between the parties, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, as follows: 1. Retention Bonus. (a) As compensation for services rendered to the Company, the Company shall pay to Executive (or Executive's beneficiary or estate), a lump sum cash amount equal to Executive's Annual Compensation (as defined below), which shall be known as "Retention Bonus". The Retention Bonus shall be payable only after a Change in Control, and no later than the earliest to occur of (i) the date that is thirty days after the date of the Change in Control so long as the Executive is employed by the Company (or the person who assumes this Agreement) on the date of the Change in Control, and (ii) the date of the Change in Control, if the Executive's employment is terminated prior to the Change in Control by the Company without Good Cause (as defined below) or by the Executive for Good Reason (as defined below) at a time when the Company is a party to a letter of intent that contemplates effecting, or a binding written agreement (subject to customary closing conditions) to effect, a transaction contemplating a Change in Control. 2. Payments and Benefits Upon a Change in Control. If within twelve (12) months after a Change in Control or during the Period Pending a Change in Control (as defined below), (i) the Company shall terminate Executive's employment with the Company without Good Cause or (ii) Executive shall voluntarily terminate such employment with Good Reason, the Company shall, within 30 days of Executive's Employment Termination (as 1 defined below), make the payments and provide the benefits described below, in lieu of any other severance payments: (a) Cash Payment. The Company shall continue Executive's current Annual Compensation for a period of((Term))months through regular payroll payments. (b) Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as defined below), for the period beginning on Executive's Employment Termination and ending on the earlier of (i)((Term)) months following Executive's Employment Termination, or (ii) the date Executive becomes covered by a welfare benefit plan or program maintained by an entity other than the Company which provides coverage or benefits at least equal, in all respects, to such Welfare Benefit Plan, Executive shall continue to participate in such Welfare Benefit Plan on the same basis and at the same cost to Executive as was the case immediately prior to the Change in Control (or, if more favorable to Executive, as was the case at any time hereafter), or, if any benefit or coverage cannot be provided under a Welfare Benefit Plan because of applicable law or contractual provisions, Executive shall be provided with substantially similar benefits and coverage for such period. Immediately following the expiration of the continuation period required by the preceding sentence, Executive shall be entitled to continued group health benefit plan coverage (so-called "COBRA coverage") in accordance with Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"), it being intended that COBRA coverage shall be consecutive to the benefits and coverage provided for in the preceding sentence. (c) Stock Incentive Plans. All stock options granted under any Company or TRO Learning, Inc. (the Company's predecessor) stock incentive or stock option plan (collectively referred to as the "SIPs"), will immediately become fully vested and exercisable upon the Change in Control. All restricted stock granted under the SIPs will immediately be fully vested and distributed to Executive upon the Change in Control. (d) Salary to Date of Employment Termination. The Company shall pay to Executive any unpaid salary or other compensation of any kind earned with respect to any period prior to Executive's Employment Termination and a lump sum cash payment for accumulated but unused vacation earned through such Employment Termination. 3. Definitions. For purposes of this Agreement: (a) "Good Cause" shall mean: (i) Executive's conviction of any criminal violation involving dishonesty, fraud, or breach of trust; (ii) Executive's willful engagement in any misconduct in the performance of Executive's duty that materially injures the Company; or (iii) Executive's willful and substantial nonperformance of assigned duties, provided that such nonperformance has 2 continued more than ten days after the Company has given written notice of such nonperformance and of its intention to terminate Executive's employment because of such nonperformance. (b) "Good Reason" shall exist if, without Executive's express written consent: (i) The Company shall materially reduce the nature, scope, level or extent of Executive's responsibilities from the nature, scope, level or extent of such responsibilities prior to the Change in Control, or shall fail to provide Executive with adequate office facilities and support services to perform such responsibilities; (ii) The Company shall reduce Executive's salary below that in effect as of the date of this Agreement (or as of the Change in Control, if greater); (iii) The Company shall require Executive to relocate Executive's principal business office or his principal place of residence outside the Minneapolis/St. Paul, Minnesota, Standard Metropolitan Statistical Area (the "Geographical Employment Area"), or assign to Executive duties that would reasonably require such relocation; or (iv) The Company shall fail to continue in effect any cash or stock-based incentive or bonus plan, retirement plan, welfare benefit plan, or other benefit plan, program or arrangement, unless the aggregate value (as computed by an independent employee benefits consultant selected by the Company) of all such compensation, retirement and benefit plans, programs and arrangements provided to Executive is not materially less than their aggregate value as of the date of this Agreement (or as of the Change in Control, if greater). (c) "Change in Control" shall be deemed to occur on the earliest of: (i) The acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 50% or more of either (A) the then outstanding share of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (C) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities), 3 (D) any acquisition by the Company, (E) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (F) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company if, immediately after such reorganization, merger or consolidation, each of the conditions described in clause (A), (B) and (C) of paragraph (c) below shall be satisfied; and provided further that, for purposes of Clause (D), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 50% or more of the Outstanding Company Common Stock or 50% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional share of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control; (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director the Company subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; (iii) approval of the stockholders of the Company or a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (A) more than 60% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 60% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or 4 consolidation, of the Outstanding Company Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 50% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be, beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock of such corporation or 50% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors providing for such reorganization, merger or consolidation; or (iv) approval by the stockholders of the Company of (A) a plan of complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the company other than to a corporation with respect to which, immediately after such sale or other disposition, (C) more than 60% of the then outstanding shares of common stock thereof and more than 60% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (D) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company) and any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 50% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be, beneficially owns, directly or indirectly, 50% or more of the then outstanding shares of common stock thereof or 50% or more of the combined voting power of the then outstanding securities thereof entitled 5 to vote generally in the election of directors and (E) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition. (d) "Annual Compensation" shall mean Executive's base annual salary in effect on the date of: (i) this Agreement; (ii) the Change in Control; or (iii) Executive's Employment Termination, whichever is greater. (e) "Employment Termination" shall mean the effective date of: (i) Executive's voluntary termination of employment with the Company with Good Reason; or (ii) the termination of Executive's employment by the Company without Good Cause. (f) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained or contributed to by the Company, including, but not limited to a plan that provides health (including medical and dental), life, accident or disability benefits or insurance, or similar coverage, in which Executive was participating at the time of the Change in Control. (g) "Period Pending a Change in Control" shall mean the period after the approval by the Company's stockholders and prior to the effective time of (i) a merger or consolidation of the Company with one or more other corporations as a result of which the holders of the outstanding voting stock of the Company immediately prior to such merger or consolidation hold less than 60% of the voting stock of the surviving or resulting corporation, or (ii) a transfer of substantially all of the property of the Company other than to an entity of which the Company owns at least 80% of the voting stock. 4. Mitigation and Set-Off. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. The Company's obligations under this Agreement shall not be reduced in any way by reason of any compensation or benefits received (or foregone) by Executive from sources other than the Company after Executive's Employment Termination, or any amounts that might have been received by Executive in other employment had Executive sought such other employment. Executive's entitlement to benefits and coverage under this Agreement shall continue after, and shall not be affected by, Executive's obtaining other employment after his Employment Termination, provided that any such benefit or coverage shall not be furnished if Executive expressly waives the specific benefit or coverage by giving written notice of waiver to the Company. 5. Litigation Expenses. The Company shall pay to Executive all out-of-pocket expenses, including attorneys' fees, incurred by Executive in the event Executive successfully enforces any provision of this Agreement in any action, arbitration or lawsuit. 6 6. Assignment Successors. This Agreement may not be assigned by the Company without the written consent of Executive but the obligations of the Company under this Agreement shall be the binding legal obligations of any successor to the Company by merger, consolidation or otherwise, and in the event of any business combination or transaction that results in the transfer of substantially all of the assets or business of the Company, the Company will cause the transferee to assume the obligations of the Company under this Agreement. This Agreement may not be assigned by Executive during Executive's life, and upon Executive's death will inure to the benefit of Executive's heirs, legatees and legal representatives of Executive's estate. 7. Interpretation. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota, without regard to the conflict of law principles thereof. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. The parties both agree to submit to jurisdiction and venue in the Courts of Hennepin County, Minnesota. 8. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law. 9. Amendment or Termination. This Agreement may be amended at any time by written agreement between the Company and Executive. This Agreement terminates on January 24, 2004, provided that, if a change in control occurs prior to the effective date of such termination, the termination of this Agreement shall not be effective and Executive shall be entitled to the full benefits of this Agreement. Any such amendment or termination shall be made pursuant to a resolution of the Board. 10. Financing. Cash and benefit payments under this Agreement shall constitute general obligations of the Company. Executive shall have only an unsecured right to payment thereof out of the general assets of the Company. Notwithstanding the foregoing, the Company may, by agreement with one or more trustees to be selected by the Company, create a trust on such terms as the Company shall determine to make payments to Executive in accordance with the terms of this Agreement. 11. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 12. Certain Reductions of Payments by the Company. If it is determined by the independent auditor (the "Auditor") jointly selected by Executive and the Company and paid by the Company that the payments under this Agreement are or will become subject to any excise taxes, then it shall determine if the payment of excise taxes in addition to any federal, state, local or other income, excise or other taxes ("Other Taxes") payable by 7 Executive with respect to the payments under this Agreement will cause Executive to pay an amount of excise and Other Taxes such that the net payment Executive will receive after payment of all excise and Other Taxes on payments under this Agreement is less than if the payment he would receive was reduced to the maximum amount payable without imposition of any excise taxes ("Economic Detriment"). If the Auditor determines that the Executive will incur an Economic Detriment as a result of the receipt of the full payment, the payment made to Executive under this Agreement will be reduced to the maximum possible amount that can be paid to Executive without him incurring any Economic Detriment. The Auditor shall be a nationally recognized United States public accounting firm that has not, during the two years preceding the date of its selection, acted in any way on behalf of the Company or any of its subsidiaries. IN WITNESS WHEREOF, the parties hereto, on the day and year first written above, pursuant to a duly authorized resolution of the Board of Directors of the Company, have executed this Agreement, which represents an amendment to and/or pre-termination renewal of a predecessor Agreement dated January 30, 2001, between the Executive and the Company. PLATO LEARNING, INC. By: --------------------------------- ------------------------------------ John Murray ((FirstName))((LastName)) Its: PRESIDENT AND EXECUTIVE CHIEF EXECUTIVE OFFICER 8 EXECUTIVE EMPLOYMENT SECURITY AGREEMENTS TWO YEAR EMPLOYMENT SECURITY AGREEMENTS DATED JANUARY 24, 2002 (EXCEPT MELSEN'S DATED FEBRUARY 4, 2002):

Annual Retention Severance Name Compensation Bonus** Payments* Term - ---------------------------------------------------------------------------------------------- Murray, John $ 270,000 $ 270,000 $ 540,000 24 months Buske, John M $ 200,000 $ 200,000 $ 300,000 18 months Foshay, Wellesley R $ 160,000 $ 160,000 $ 160,000 12 months Hanna, Nancy L $ 140,000 $ 140,000 $ 140,000 12 months Kilgarriff, Robert M $ 180,000 $ 180,000 $ 270,000 18 months LePage, David H $ 160,000 $ 160,000 $ 160,000 12 months Melsen, Gregory J $ 170,000 $ 170,000 $ 255,000 18 months Preese, Frank $ 155,000 $ 155,000 $ 155,000 12 months Reynolds, Michael J $ 135,000 $ 135,000 $ 135,000 12 months Riesterer, James S $ 150,000 $ 150,000 $ 150,000 12 months Super, John C $ 150,000 $ 150,000 $ 150,000 12 months Schuster, Steven R $ 119,600 None $ 59,800 6 months Murphy, Mary Jo $ 115,700 None $ 57,850 6 months TOTALS: $2,105,300 $1,870,000 $2,532,650 ========== ========== ==========

* If within twelve months after a Change in Control or during the Period Pending a Change in Control (i) the Company terminates Executive's employment with the Company without Good Cause or (ii) Executive shall voluntarily terminate employment with Good Reason, the Company shall, within 30 days of Executive's Employment Termination, make the payments and provide other benefits (outlined in Agreement), in lieu of any other severance payments. ** Lump sum cash payment payable only after a Change in Control and no later than the earliest to occur of (i) the date that is thirty days after the date of the Change in Control so long as the Executive is employed by the Company on the date of the Change, and (ii) the date of the Change in Control, if the Executive's employment is terminated prior to the Change in Control by the Company without Good Cause or by the Executive for Good Reason at a time when the Company is a party to a letter of intent that contemplates effecting, or a binding written agreement to effect, a transaction contemplating a Change in Control. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.37

                                                                   EXHIBIT 10.37

                              EMPLOYMENT AGREEMENT

      This AGREEMENT ("Agreement") is made effective as of January 1, 2002 (the
"Effective Date") by and between PLATO Learning, Inc., a Delaware corporation
headquartered in Minneapolis (the "Company"), and ((Name)) ("Executive").

                                WITNESSETH THAT:

      WHEREAS, the Company currently employs Executive as its ((Position)), and
the Company desires to continue to employ Executive as its ((Position)); and

      WHEREAS, Executive desires to continue to be employed by the Company in
that capacity.

      NOW, THEREFORE, for and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the parties
as follows:

1.    Employment. The Company hereby agrees to employ Executive to perform the
      duties set forth in Section 3 hereof ("Executive Services"), and subject
      to the restrictions of Section 7. Executive hereby accepts continued
      employment to perform Executive Services for the Company under the terms
      and conditions of this Agreement.

2.    Term. The Term of this Agreement shall be twelve (12) months, subject to
      termination pursuant to Section 6. On each annual anniversary of the
      Effective Date, unless earlier terminated pursuant to Section 6, this
      Agreement will automatically renew for an additional twelve (12) months,
      subject to termination pursuant to Section 6.

3.    Duties. Executive will serve as the Company's ((Position)), and perform
      all the responsibilities and duties set forth in the Executive's job
      description, or any successor thereto which does not materially reduce
      such responsibilities and duties, and any other consistent
      responsibilities and duties assigned or delegated to Executive by the
      Company's Chief Executive Officer. Executive represents that Executive's
      employment by the Company and performance of the position will not violate
      or interfere with any employment-related agreement Executive may have
      entered into with any previous employer (a "Prior Employment Agreement").

4.    Time Commitment. Executive will devote Executive's time, attention and
      energies to the performance of Executive Services. Executive may not be
      associated with, consult, advise, work for, be employed by, contract with,
      or otherwise devote any of Executive's time to the pursuit of any other
      work or business activities that may interfere with the performance of
      Executive Services hereunder. The foregoing shall not preclude Executive
      from devoting reasonable time to the supervision of Executive's personal
      investments, civic, charitable, educational, religious and similar types
      of activities, speaking engagements and membership on other boards of
      directors, provided such activities do not interfere in any way with the
      business of the Company; and provided further that, the Executive cannot
      serve on the board of directors of more than one publicly-traded company
      without the Chief Executive Officer's written consent. The time involved
      in such activities shall not be

      treated as vacation time. The Executive shall be entitled to keep any
      amounts paid to Executive in connection with such activities (e.g.,
      director fees and honoraria).

5.    Compensation and Benefits.  The Company will pay the following
      compensation to Executive in full consideration for performance of
      Executive Services hereunder in accordance with the Company's
      then-current payroll policies and procedures.

      (a)   Salary. Executive will receive an annual salary of ((BaseSalary)),
            payable in accordance with the Company's then-current payroll
            policies and procedures. The Chief Executive Officer will review
            Executive's salary at least annually. Executive's salary will not be
            reduced, and after any increase the term "salary" for purposes of
            this Agreement shall refer to base salary annualized, as most
            recently increased.

      (b)   Expenses. The Company will reimburse Executive for all reasonable
            and necessary expenses incurred by Executive in connection with the
            performance of Executive Services upon submission by Executive of
            expense reports with substantiating vouchers, in accordance with the
            Company's then-current expense reimbursement policy.

      (c)   Stock Options. Executive shall be entitled to be granted options to
            purchase shares of Company common stock in accordance with the
            Company Stock Option Plan (the "Stock Options"), pursuant to the
            following schedule:

            (i)   Executive shall receive options to purchase ((Options)) shares
                  of Company stock in each year during which this Agreement is
                  in effect, to be granted at the Board's September meetings in
                  that year, at fair market value as of the date of the grant.

            (ii)  Executive is also eligible to participate in the annual
                  performance-based stock option award plan in each year during
                  which this Agreement is in effect. Such options will be
                  granted at the Board's December meetings, at fair market value
                  as of the date of the grant and will be subject to the Company
                  achieving its annual goals.

            (iii) Executive's stock option grants pursuant to subsections (i)
                  and (ii) shall be subject to the vesting schedule contained in
                  the stock option agreement under which they are granted.

            The award of the Stock Options under subsections (i) and (ii) is
            subject to execution by Executive of the then-current Stock Option
            Agreement, provided such agreement contains no terms that are
            inconsistent with this Employment Agreement or Executive's
            Employment Security Agreement or Indemnification Agreement.

      (d)   Benefits.  Executive shall be entitled to participate in such
            group life insurance, major medical, and other employee benefit
            plans and programs (collectively "Benefit Plans") as established
            by the Company in accordance with the applicable


                                       -2-

            terms and conditions of such Benefit Plans, which Benefit Plans may
            be modified or discontinued by the Company at any time; provided,
            however that Executive shall meet the requirements of the Benefit
            Plans for participation and in no event, including breach or
            wrongful termination of this Agreement, shall Executive be entitled
            to any amount of compensation in lieu of participation, unless
            otherwise provided by the terms of the Benefit Plan. The benefits
            under the Benefit Plans available to Executive shall be no less
            favorable than those available to other senior executives, excluding
            the Chief Executive Officer, and commensurate with Executive's
            position and salary; provided that, Executive may not permit or
            cause an increase or improvement in benefits under the Benefit Plans
            without the Company's approval. In the event of termination pursuant
            to Section 6, Executive may elect to continue to participate in
            Company benefits programs through COBRA. In the event of termination
            of Executive without Good Cause or termination by the employee for
            Good Cause as defined in Section 6, the Company will pay the
            difference between the then-current employee portion of the cost of
            said benefits and the COBRA costs.

      (e)   Bonus Compensation.  Executive shall be eligible to receive cash
            bonus compensation for the Company's Fiscal Year 2002, based on
            the performance criteria previously agreed upon by the Chief
            Executive Officer and the Board for that year, and shall remain
            eligible for such cash bonus compensation in subsequent fiscal
            years of this Agreement based on bonus amounts and performance
            criteria to be mutually agreed between the Chief Executive Officer
            and the Board for any given fiscal year of the Company.  Unless
            otherwise specifically agreed, earned cash bonus compensation will
            be paid only while Executive is actively employed by the Company;
            accordingly, if Executive ceases to be actively employed by the
            Company, Executive will only receive a prorated portion of the
            earned cash bonus compensation for the portion of the Company's
            fiscal year that Executive was actively employed by the Company.

6.    Termination.

      (a)   Either party may terminate this Agreement, without Good Cause and
            without any liability on the part of either party, other than as
            provided herein, upon forty-five (45) days prior written notice.
            In such event, Executive, if requested by the Company, will
            continue to render Executive Services and be paid Executive's
            salary during such notice period and up to the date of
            termination, as well as any earned cash bonus compensation
            relative to such period of Executive Services, in accordance with
            the Company's then-current payroll policies and procedures.
            Irrespective of whether Executive performs such Executive
            Services, Executive shall receive, in case of such termination
            without Good Cause by the Company of Executive's employment
            severance payments equivalent to Executive's then-current salary
            for a period of ((Term)).

            Executive's Eligibility to receive benefits under this Section 6(a)
            is subject to Executive's abiding by the provisions of Section 7 of
            this Agreement, and Executive's execution of a general release of
            all claims or potential claims against

                                       -3-

            the Company, in a form prepared by the Company and mutually agreed
            upon between Executive and the Company.

      (b)   The Company may terminate this Agreement at any time upon fourteen
            (14) days written notice for Good Cause.  Good Cause, for the
            purposes of this Agreement, shall mean Executive's:  (i)
            conviction of or plea of nolo contendere to any felony or gross
            misdemeanor involving dishonesty, fraud, or breach of trust under
            any law of the United States or any State thereof; (ii) willful
            engagement in any conduct that materially injures the Company or
            any of its subsidiaries; or (iii) willful and substantial
            nonperformance of assigned duties, provided that such
            nonperformance has continued more than ten days after the Company
            has given written notice of such nonperformance and of its
            intention to terminate Executive's employment because of such
            nonperformance.

            For purposes of this section, no act on Executive's part shall be
            considered "willful" unless it is done by Executive in bad faith or
            without reasonable belief that such action was in the Company's best
            interests.

      (c)   Executive may terminate this Agreement and resign Executive's
            employment at any time upon fourteen (14) days' written notice to
            the Chief Executive Officer for Good Reason. Good Reason, for the
            purpose of this Agreement shall exist if the Company, without
            Executive's written consent:

            (i)   materially reduces the nature, scope, level or extent of
                  Executive's responsibilities, or fails to provide Executive
                  with adequate office facilities and support services, similar
                  to those in place at the effective date of this Agreement, to
                  perform such responsibilities;

            (ii)  reduces Executive's salary below that in effect as of the
                  date of this Agreement;

            (iii) requires Executive to relocate Executive's principal business
                  office or Executive's principal place of residence outside the
                  Minneapolis/Saint Paul, Minnesota Standard Metropolitan
                  Statistical Area (the "Geographical Employment Area"), or
                  assigns to Executive duties that would reasonably require such
                  relocation; or

            (iv)  fails to continue in effect any cash or stock-based incentive
                  or bonus plan, retirement plan, or Benefit Plan, unless (A)
                  the aggregate value (as computed by an independent employee
                  benefits consultant selected by the Company) of all such
                  compensation, retirement and benefit plans, programs and
                  arrangements provided to Executive is not materially less than
                  their aggregate value as of the date of this Agreement, or (B)
                  the same reduction applies uniformly to all senior executives.


                                       -4-

            Severance payments, in case of Executive's termination of this
            Agreement and resignation for Good Reason, shall be made to
            Executive in the same amounts, for the same periods, and subject to
            the same conditions as provided for the Company's termination of
            this Agreement without Good Cause in Section 6(a).

      (d)   Coordination With Employment Security Agreement. If Executive is a
            party to an employment security agreement (the "ESA") with the
            Company, Executive will be entitled to the greater of the payments
            and benefits under this Agreement or the payments and benefits under
            the ESA, but not the sum of such payments and benefits.

7.     Restrictive Covenants.

      (a)   Confidentiality.  Executive agrees not to directly or indirectly:

            (i)   use or disclose, for the benefit of any person, firm or entity
                  other than the Company and its subsidiaries, the Confidential
                  Business Information of the Company or any of its
                  subsidiaries;

            (ii)  distribute or disseminate in any way to anyone other than the
                  Company employees with a "need to know" any Confidential
                  Information in any form whatsoever;

            (iii) copy any Confidential Information other than for use by the
                  Company or any of its subsidiaries;

            (iv)  remove any Confidential Information from the premises of the
                  Company without prior approval of an authorized officer of
                  the Company;

            (v)   fail to safeguard all confidential and/or classified
                  documents; and

            (vi)  copy any confidential and/or classified documents belonging
                  to any of the Company's customers.

            Confidential Business Information means information or material that
            is not generally available to or used by others or the utility or
            value of which is not generally known or recognized as a standard
            practice, whether or not the underlying details are in the public
            domain, including but not limited to its computerized and manual
            systems, procedures, reports, client lists, review criteria and
            methods, financial methods and practices, plans, pricing and
            marketing techniques, business methods and procedures and other
            valuable and proprietary information relating to the pricing,
            marketing, design, manufacture and formulation of educational
            software, as well as information regarding the past, present and
            prospective clients of the Company or any of its subsidiaries, and
            their particular needs and requirements, and their own confidential
            information.

                                       -5-

            Upon termination of employment under this Agreement, with or without
            Good Cause, Executive agrees to return to the Company all policy and
            procedure manuals, records, notes, data, memoranda, and reports of
            any nature (including computerized and electronically stored
            information) which are in Executive's possession and/or control
            which relate to (i) the Confidential Business Information of the
            Company or any of its subsidiaries, (ii) the business activities or
            facilities of the Company or its past, present, or prospective
            clients, as well as any original documents related to Executive's
            employment with the Company, other than Executive's originals of
            this Agreement, Executive's Employment Security Agreement and
            Executive's Indemnification Agreement, and any successors thereto.

      (b)   Non-Compete.  During the period of employment and for the ((Term))
            term of employment under this Agreement (the "Restricted Period"),
            Executive will not directly or indirectly, on Executive's behalf,
            or as a partner, officer, director, trustee, member, employee, or
            otherwise, within the United States or in any foreign market in
            which Executive was engaged in activities on behalf of the Company
            or any of its subsidiaries, own, engage in or participate in, in
            any way, any business that is similar to or competitive with any
            actual or planned business activity engaged in or planned by the
            Company or any of its subsidiaries at the time the employment
            under this Agreement was terminated, if in the course of such
            ownership or employment, it could reasonably be anticipated that
            Executive would be required to use or disclose the Confidential
            Business Information of the Company or any of its subsidiaries.
            However, this Agreement shall not prohibit ownership of up to 2%
            of the shares of stock of any such corporation whose stock is
            listed on a national securities exchange or is traded in the
            over-the-counter market.

            Executive further agrees that during the Restricted Period,
            Executive will promptly notify the Company of any business with
            which Executive is associated or in which Executive has an ownership
            interest and provide the Company with a description of Executive's
            duties or interests.

      (c)   Non-Solicitation.  During the Restricted Period, Executive will
            not directly or indirectly, for the purpose of selling services
            and/or products provided or planned by the Company or any of its
            subsidiaries at the time the employment under this Agreement was
            terminated, call upon, solicit or divert any actual customer or
            prospective customer of the Company or any of its subsidiaries,
            unless employed by the Company to do so.  An actual customer, for
            purposes of this Section, is any customer to whom the Company or
            any of its subsidiaries has provided services and/or products
            within one year prior to Executive's termination of employment
            under this Agreement.  A prospective customer, for purposes of
            this Section, is any prospective customer to whom the Company or
            any of its subsidiaries sought to provide services and/or products
            within one year prior to the date of Executive's termination of
            employment under this Agreement when Executive had knowledge of or
            was involved in such solicitation.

                                       -6-

            Executive further agrees that during the Restricted Period Executive
            shall not directly or indirectly induce any person to leave the
            employ of the Company or any of its subsidiaries, or solicit any
            person who is currently or was an employee of the Company or any of
            its subsidiaries at any time during the twelve months prior to
            Executive's termination of employment under this Agreement.

      (d)   Judicial Modification.  If the final judgment of a court of
            competent jurisdiction declares that any term or provision of this
            Section is invalid or unenforceable, the parties agree that (i)
            the court making the determination of invalidity or
            unenforceability shall have the power to reduce the scope,
            duration, or geographic area of the term or provision, to delete
            specific words or phrases, or to replace any invalid or
            unenforceable term or provision with a term or provision that is
            valid and enforceable and that comes closest to expressing the
            intention of the invalid or unenforceable term or provision, (ii)
            the parties shall request that the court exercise that power, and
            (iii) this Agreement shall be enforceable as so modified after the
            expiration of the time within which the judgment or decision may
            be appealed.

8.    Remedies. In the event Executive breaches or threatens to breach and
      provision of Section 7 of this Agreement, the Company shall be entitled to
      injunctive relief, enjoining or restraining such breach or threatened
      breach. Executive acknowledges that the Company's remedy at law is
      inadequate and that the Company and its subsidiaries will suffer
      irreparable injury if such conduct is not prohibited.

      Executive and the Company agree that, because of the difficulty of
      ascertaining the amount of damages in the event that Executive breaches
      Section 7 of this Agreement, the Company shall be entitled to recover, at
      its option, as liquidated damages and not as a penalty, a sum equal to six
      (6) month's annual salary of the employee(s) solicited to leave the
      Company's employ. The parties further agree that the existence of this
      remedy will not preclude employer from seeking or receiving injunctive
      relief.

      Executive further agrees that the covenants contained in Section 7 shall
      be construed as separate and independent of other provisions of this
      Agreement and the existence of any claim by Executive against the Company
      or any of its subsidiaries, except for a claim that Executive was
      terminated without Good Cause or terminated Executive's employment for
      Good Reason, shall not constitute a defense to the enforcement by the
      Company of either of these Sections.

9.    Property Rights.  All discoveries, designs, improvements, ideas,
      inventions, intellectual property, creations, and works of art, whether
      or not patentable or subject to copyright, relating to the business of
      the Company or any of its subsidiaries, or its clients, conceived,
      developed or made by Executive during employment under this Agreement,
      either solely or jointly with others (hereafter "Developments") shall
      automatically become the sole property of the Company.  Executive shall
      immediately disclose to the Company all such Developments and shall,
      without additional compensation, execute all assignments, application or
      any other documents deemed necessary by the Company to perfect the
      Company's rights therein.  These obligations shall continue throughout
      the Restricted


                                       -7-

      Period under this Agreement with respect to Developments conceived,
      developed or made by Executive during the period of employment under this
      Agreement.

      The Company acknowledges and agrees that the provisions of this section
      shall not apply to inventions or for which no equipment, supplies,
      facility or trade secret information of the Company or its clients were
      used by Executive and which were developed entirely on Executive's own
      time unless (a) such inventions relate (i) to the business of the Company
      or (ii) to the Company's actual or demonstrably anticipated research or
      development or (b) such inventions result from any work performed by
      Executive for the Company.

10.   Assignments.  Neither party shall have the right or power to assign any
      rights or duties under this Agreement without the written consent of the
      other party, provided, however, that the Company shall have the right to
      assign this Agreement without consent pursuant to any corporate
      reorganization, merger, or other transaction involving a change of
      control of the Company or any of its subsidiary companies, in which
      case, further rights and duties of the Company and Executive are set
      forth in Executive's Employment Security Agreement, or any successor
      agreement thereto.  Any attempted assignment in breach of this Section
      10 shall be void.

      If Executive performs services and duties for any subsidiary or other
      affiliated entity of the Company, then the provisions of Sections 7 and 9
      shall apply to the confidential information and business activities,
      property rights, clients, and employees of that subsidiary or other
      entity.

11.   Certain Reductions of Payments by the Company.  If it is determined by
      the independent auditor (the "Auditor") jointly selected by Executive
      and the Company and paid by the Company that any payment, benefit or
      distribution by or on behalf of the Company to or for the benefit of
      Executive (whether paid or payable or distributed or distributable
      pursuant to the terms of this Agreement or otherwise) (the "Payments")
      are or will become subject to any excise taxes, then the Auditor shall
      determine if the payment of excise taxes in addition to any federal,
      state, local or other income, excise or other taxes ("Other Taxes")
      payable by Executive with respect to the Payments will cause Executive
      to pay an amount of excise and Other Taxes such that the net payment
      Executive will receive after payment of all excise and Other Taxes on
      payments under this Agreement is less than if the payment he would
      receive was reduced to the maximum amount payable without imposition of
      any excise taxes ("Economic Detriment").  If the Auditor determines that
      the Executive will incur an Economic Detriment as a result of the
      receipt of the full payment, the portion of the Payments made to
      Executive under this Agreement will be reduced to the maximum possible
      amount that can be paid to Executive without Executive incurring any
      Economic Detriment.  The Auditor shall be a nationally recognized United
      States public accounting firm that has not, during the two years
      preceding the date of its selection, acted in any way on behalf of the
      Company or any of its subsidiaries.

12.   Severability. Each section, paragraph, clause, sub-clause and provision
      (collectively "Provisions") of this Agreement shall be severable from each
      of the others, and if for any reason the Section, clause, sub-clause or
      provision is invalid or unenforceable, such


                                       -8-

      invalidity or unenforceability shall not prejudice or in any way affect
      the validity or enforceability of any other Provision hereof.

13.   Miscellaneous.

      (a)   This Agreement, Executive's Employment Security Agreement,
            Indemnification Agreement, Confidentiality Agreement, and any
            successor agreements thereto, contain the entire agreement of the
            parties with respect to the employment of Executive and supersede
            all other understandings, whether written or oral; provided,
            however, that Executive shall comply with all reasonable policies,
            procedures and other requirements of the Company which are not
            inconsistent with those three agreements.

      (b)   Failure on the part of either party to insist upon strict compliance
            by the other with respect to any of the terms, covenants and
            conditions hereof, shall not be deemed a subsequent waiver of such
            term, covenant or condition.

      (c)   The provisions of any Section containing a continuing obligation
            after termination shall survive such termination whether with or
            without cause and even if occasioned by the Company's breach or
            wrongful termination.

      (d)   This Agreement may not be modified except in a written amendment
            signed by the parties; provided, however, that the Company may amend
            or terminate its Benefit Plans, cash bonus Plan, and any Company
            policies, procedures and other requirements of the Company, subject
            to subsection (a) above and to Sections 5(d), 5(e) and 6(c), in its
            sole discretion.

      (e)   Except for action by the Company to enforce the restrictive
            covenants of Section 7, any dispute, controversy or difference
            that may arise between the parties hereto out of or in relation to
            or in connection with this Agreement or for the breach thereof
            which cannot be settled amicably by the parties within thirty (30)
            days shall be finally and exclusively settled by arbitration in
            Minneapolis, Minnesota, in accordance with the Commercial
            Arbitration Rules of the American Arbitration Association then in
            effect.  The arbitrator shall have discretion to award the
            prevailing party reasonable attorney's fees.  In the event of
            litigation under this Agreement, the court shall have discretion
            to award the prevailing party reasonable attorney's fees.

      (f)   The headings in this Agreement are inserted for convenience and
            identification only and are not intended to describe, interpret,
            define or limit the scope, extent, or intent of this Agreement or
            any provision hereof. Each party has cooperated in the preparation
            of this Agreement. As a result, this Agreement shall not be
            construed against any party on the basis that the party was the
            draftsperson.

      (g)   All forms of compensation referred to in this letter are subject to
            reduction to reflect withholding for applicable income, payroll and
            other taxes.

                                       -9-

14.   Governing Law. It is the intention of the parties hereto that all
      questions with respect to the construction, formation, and performance of
      this Agreement and the rights and liabilities of the parties hereto shall
      be determined in accordance with the laws of the State of Minnesota. The
      parties hereto submit to the jurisdiction and venue of the courts of
      Hennepin County, Minnesota in respect to any dispute arising out of this
      agreement.

15.   Insurance. For the period from the date hereof through at least the fifth
      anniversary of Executive's termination of employment from the Company, the
      Company agrees to maintain Executive as an insured party on all directors'
      and officers' liability insurance maintained by the Company for the
      benefit of its directors and officers on at least the same basis as all
      other covered individuals.

16.   Notices.  Any notice required pursuant to this Agreement will be in
      writing and will be deemed given upon the earlier of (i) delivery
      thereof, if by hand, (ii) five business days after mailing if sent by
      mail (registered or certified mail, postage prepaid, return receipt
      requested), (iii) the next business day after deposit if sent by a
      recognized overnight delivery service, or (iv) upon transmission if sent
      by facsimile transmission or by electronic mail, with return
      notification (provided that any notice sent by facsimile or electronic
      mail shall also promptly be sent by one of the means described in
      clauses (i) through (iii) of this Section.  All notices will be
      addressed as follows or to such other address as a party may identify in
      a written notice to the other party:

            to the Company:   PLATO Learning, Inc.
                              Attn: Chief Executive Officer
                              10801 Nesbitt Avenue South
                              Bloomington, MN 55437-3109

            to Executive:     ((Name))
                              PLATO Learning, Inc.
                              10801 Nesbitt Avenue South
                              Bloomington, MN 55437-3109

      Each party named above may change its address and that of its
      representative for notice by the giving of notice thereof in the manner
      hereinabove provided.

17.   Counterparts. This Agreement may be executed in one or more counterparts,
      all of which together shall constitute but one Agreement.

      IN WITNESS WHEREOF, the parties hereto, have executed this Employment
Agreement effective as of the day and year first above written.

                                    PLATO LEARNING, INC.

                                    By:
- ------------------------------         ---------------------------------------
        ((NAME))                        John Murray
                                        President and Chief Executive Officer



                                      -10-

                   EXECUTIVE TEAM EMPLOYMENT AGREEMENT SUMMARY

Dated January 1, 2002, except for Melsen's dated February 4, 2002



                                                                          EXECUTIVE       EXECUTIVE BASE      EXECUTIVE
TYPE    EXECUTIVE NAME               EXECUTIVE POSITION                     TERM              SALARY           OPTIONS
                                                                                               
  A     John Buske         Chief Operating Officer                        12 Months          $200,000          30,000

  A     Rob Kilgarriff     Executive Vice President Sales & Marketing     12 Months          $180,000          20,000

  A     Greg Melsen        Chief Financial Officer                        12 Months          $170,000          30,000

  A     Frank Preese       Chief Technology Officer                       9 Months           $155,000          15,000

  A     Dave LePage        Senior Vice President Operations               6 Months           $160,000          15,000

EX-10.38

                                                                   EXHIBIT 10.38

                              EMPLOYMENT AGREEMENT

      This AGREEMENT ("Agreement") is made effective as of January 1, 2002 (the
"Effective Date") by and between PLATO Learning, Inc., a Delaware corporation
headquartered in Minneapolis (the "Company"), and ((Name)) ("Executive").

                                WITNESSETH THAT:

      WHEREAS, the Company currently employs Executive as its ((Position)), and
the Company desires to continue to employ Executive as its ((Position)); and

      WHEREAS, Executive desires to continue to be employed by the Company in
that capacity.

      NOW, THEREFORE, for and in consideration of the promises and of the mutual
covenants hereinafter set forth, it is hereby agreed by and between the parties
as follows:

1.    Employment. The Company hereby agrees to employ Executive to perform the
      duties set forth in Section 3 hereof ("Executive Services"), and subject
      to the restrictions of Section 7. Executive hereby accepts continued
      employment to perform Executive Services for the Company under the terms
      and conditions of this Agreement.

2.    Term. The Term of this Agreement shall be twelve (12) months, subject to
      termination pursuant to Section 6. On each annual anniversary of the
      Effective Date, unless earlier terminated pursuant to Section 6, this
      Agreement will automatically renew for an additional twelve (12) months,
      subject to termination pursuant to Section 6.

3.    Duties.  Executive will serve as the Company's ((Position)), and perform
      all the responsibilities and duties set forth in the Executive's job
      description, or any successor thereto which does not materially reduce
      such responsibilities and duties, and any other consistent
      responsibilities and duties assigned or delegated to Executive by the
      Company's Chief Executive Officer.  Executive represents that
      Executive's employment by the Company and performance of the position
      will not violate or interfere with any employment-related agreement
      Executive may have entered into with any previous employer (a "Prior
      Employment Agreement").

4.    Time Commitment.  Executive will devote Executive's time, attention and
      energies to the performance of Executive Services.  Executive may not be
      associated with, consult, advise, work for, be employed by, contract
      with, or otherwise devote any of Executive's time to the pursuit of any
      other work or business activities that may interfere with the
      performance of Executive Services hereunder.  The foregoing shall not
      preclude Executive from devoting reasonable time to the supervision of
      Executive's personal investments, civic, charitable, educational,
      religious and similar types of activities, speaking engagements and
      membership on other boards of directors, provided such activities do not
      interfere in any way with the business of the Company; and provided
      further that, the Executive cannot serve on the board of directors of
      more than one publicly-traded company without the Chief Executive
      Officer's written consent.  The time involved in such activities shall
      not be




                                        -E1-

      treated as vacation time. The Executive shall be entitled to keep any
      amounts paid to Executive in connection with such activities (e.g.,
      director fees and honoraria).

5.    Compensation and Benefits.  The Company will pay the following
      compensation to Executive in full consideration for performance of
      Executive Services hereunder in accordance with the Company's
      then-current payroll policies and procedures.

      (a)   Salary. Executive will receive an annual salary of ((BaseSalary)),
            payable in accordance with the Company's then-current payroll
            policies and procedures. The Chief Executive Officer will review
            Executive's salary at least annually. Executive's salary will not be
            reduced, and after any increase the term "salary" for purposes of
            this Agreement shall refer to base salary annualized, as most
            recently increased.

      (b)   Expenses. The Company will reimburse Executive for all reasonable
            and necessary expenses incurred by Executive in connection with the
            performance of Executive Services upon submission by Executive of
            expense reports with substantiating vouchers, in accordance with the
            Company's then-current expense reimbursement policy.

      (c)   Stock Options. Executive shall be entitled to be granted options to
            purchase shares of Company common stock in accordance with the
            Company Stock Option Plan (the "Stock Options"), pursuant to the
            following schedule:

            (i)   Executive is eligible to participate in the annual September
                  Stock Option award program in each year during which this
                  Agreement is in effect. Such options will be granted from an
                  Executive Team pool at the Board's September meetings, at fair
                  market value as of the date of the grant.

            (ii)  Executive is also eligible to participate in the annual
                  performance-based stock option award plan in each year during
                  which this Agreement is in effect. Such options will be
                  granted at the Board's December meetings, at fair market value
                  as of the date of the grant and will be subject to the Company
                  achieving its annual goals.

            (iii) Executive's stock option grants pursuant to subsections (i)
                  and (ii) shall be subject to the vesting schedule contained in
                  the stock option agreement under which they are granted.

            The award of the Stock Options under subsections (i) and (ii) is
            subject to execution by Executive of the then-current Stock Option
            Agreement, provided such agreement contains no terms that are
            inconsistent with this Employment Agreement or Executive's
            Employment Security Agreement or Indemnification Agreement.

      (d)   Benefits.  Executive shall be entitled to participate in such
            group life insurance, major medical, and other employee benefit
            plans and programs (collectively "Benefit Plans") as established
            by the Company in accordance with the applicable


                                      -2-

            terms and conditions of such Benefit Plans, which Benefit Plans may
            be modified or discontinued by the Company at any time; provided,
            however that Executive shall meet the requirements of the Benefit
            Plans for participation and in no event, including breach or
            wrongful termination of this Agreement, shall Executive be entitled
            to any amount of compensation in lieu of participation, unless
            otherwise provided by the terms of the Benefit Plan. The benefits
            under the Benefit Plans available to Executive shall be no less
            favorable than those available to other senior executives, excluding
            the Chief Executive Officer, and commensurate with Executive's
            position and salary; provided that, Executive may not permit or
            cause an increase or improvement in benefits under the Benefit Plans
            without the Company's approval. In the event of termination pursuant
            to Section 6, Executive may elect to continue to participate in
            Company benefits programs through COBRA. In the event of termination
            of Executive without Good Cause or termination by the employee for
            Good Cause as defined in Section 6, the Company will pay the
            difference between the then-current employee portion of the cost of
            said benefits and the COBRA costs.

      (e)   Bonus Compensation.  Executive shall be eligible to receive cash
            bonus compensation for the Company's Fiscal Year 2002, based on
            the performance criteria previously agreed upon by the Chief
            Executive Officer and the Board for that year, and shall remain
            eligible for such cash bonus compensation in subsequent fiscal
            years of this Agreement based on bonus amounts and performance
            criteria to be mutually agreed between the Chief Executive Officer
            and the Board for any given fiscal year of the Company.  Unless
            otherwise specifically agreed, earned cash bonus compensation will
            be paid only while Executive is actively employed by the Company;
            accordingly, if Executive ceases to be actively employed by the
            Company, Executive will only receive a prorated portion of the
            earned cash bonus compensation for the portion of the Company's
            fiscal year that Executive was actively employed by the Company.

6.    Termination.

      (a)   Either party may terminate this Agreement, without Good Cause and
            without any liability on the part of either party, other than as
            provided herein, upon forty-five (45) days prior written notice.
            In such event, Executive, if requested by the Company, will
            continue to render Executive Services and be paid Executive's
            salary during such notice period and up to the date of
            termination, as well as any earned cash bonus compensation
            relative to such period of Executive Services, in accordance with
            the Company's then-current payroll policies and procedures.
            Irrespective of whether Executive performs such Executive
            Services, Executive shall receive, in case of such termination
            without Good Cause by the Company of Executive's employment
            severance payments equivalent to Executive's then-current salary
            for a period of ((Term)).

            Executive's Eligibility to receive benefits under this Section 6(a)
            is subject to Executive's abiding by the provisions of Section 7 of
            this Agreement, and Executive's execution of a general release of
            all claims or potential claims against


                                      -3-

            the Company, in a form prepared by the Company and mutually agreed
            upon between Executive and the Company.

      (b)   The Company may terminate this Agreement at any time upon fourteen
            (14) days written notice for Good Cause.  Good Cause, for the
            purposes of this Agreement, shall mean Executive's:  (i)
            conviction of or plea of nolo contendere to any felony or gross
            misdemeanor involving dishonesty, fraud, or breach of trust under
            any law of the United States or any State thereof; (ii) willful
            engagement in any conduct that materially injures the Company or
            any of its subsidiaries; or (iii) willful and substantial
            nonperformance of assigned duties, provided that such
            nonperformance has continued more than ten days after the Company
            has given written notice of such nonperformance and of its
            intention to terminate Executive's employment because of such
            nonperformance.

            For purposes of this section, no act on Executive's part shall be
            considered "willful" unless it is done by Executive in bad faith or
            without reasonable belief that such action was in the Company's best
            interests.

      (c)   Executive may terminate this Agreement and resign Executive's
            employment at any time upon fourteen (14) days' written notice to
            the Chief Executive Officer for Good Reason. Good Reason, for the
            purpose of this Agreement shall exist if the Company, without
            Executive's written consent:

            (i)   materially reduces the nature, scope, level or extent of
                  Executive's responsibilities, or fails to provide Executive
                  with adequate office facilities and support services, similar
                  to those in place at the effective date of this Agreement, to
                  perform such responsibilities;

            (ii)  reduces Executive's salary below that in effect as of the
                  date of this Agreement;

            (iii) requires Executive to relocate Executive's principal business
                  office or Executive's principal place of residence outside the
                  Minneapolis/Saint Paul, Minnesota Standard Metropolitan
                  Statistical Area (the "Geographical Employment Area"), or
                  assigns to Executive duties that would reasonably require such
                  relocation; or

            (iv)  fails to continue in effect any cash or stock-based incentive
                  or bonus plan, retirement plan, or Benefit Plan, unless (A)
                  the aggregate value (as computed by an independent employee
                  benefits consultant selected by the Company) of all such
                  compensation, retirement and benefit plans, programs and
                  arrangements provided to Executive is not materially less than
                  their aggregate value as of the date of this Agreement, or (B)
                  the same reduction applies uniformly to all senior executives.

                                      -4-

            Severance payments, in case of Executive's termination of this
            Agreement and resignation for Good Reason, shall be made to
            Executive in the same amounts, for the same periods, and subject to
            the same conditions as provided for the Company's termination of
            this Agreement without Good Cause in Section 6(a).

      (d)   Coordination With Employment Security Agreement. If Executive is a
            party to an employment security agreement (the "ESA") with the
            Company, Executive will be entitled to the greater of the payments
            and benefits under this Agreement or the payments and benefits under
            the ESA, but not the sum of such payments and benefits.

7.     Restrictive Covenants.

      (a)   Confidentiality.  Executive agrees not to directly or indirectly:

            (i)   use or disclose, for the benefit of any person, firm or entity
                  other than the Company and its subsidiaries, the Confidential
                  Business Information of the Company or any of its
                  subsidiaries;

            (ii)  distribute or disseminate in any way to anyone other than the
                  Company employees with a "need to know" any Confidential
                  Information in any form whatsoever;

            (iii) copy any Confidential Information other than for use by the
                  Company or any of its subsidiaries;

            (iv)  remove any Confidential Information from the premises of the
                  Company without prior approval of an authorized officer of
                  the Company;

            (v)   fail to safeguard all confidential and/or classified
                  documents; and

            (vi)  copy any confidential and/or classified documents belonging
                  to any of the Company's customers.

            Confidential Business Information means information or material that
            is not generally available to or used by others or the utility or
            value of which is not generally known or recognized as a standard
            practice, whether or not the underlying details are in the public
            domain, including but not limited to its computerized and manual
            systems, procedures, reports, client lists, review criteria and
            methods, financial methods and practices, plans, pricing and
            marketing techniques, business methods and procedures and other
            valuable and proprietary information relating to the pricing,
            marketing, design, manufacture and formulation of educational
            software, as well as information regarding the past, present and
            prospective clients of the Company or any of its subsidiaries, and
            their particular needs and requirements, and their own confidential
            information.

                                      -5-

            Upon termination of employment under this Agreement, with or without
            Good Cause, Executive agrees to return to the Company all policy and
            procedure manuals, records, notes, data, memoranda, and reports of
            any nature (including computerized and electronically stored
            information) which are in Executive's possession and/or control
            which relate to (i) the Confidential Business Information of the
            Company or any of its subsidiaries, (ii) the business activities or
            facilities of the Company or its past, present, or prospective
            clients, as well as any original documents related to Executive's
            employment with the Company, other than Executive's originals of
            this Agreement, Executive's Employment Security Agreement and
            Executive's Indemnification Agreement, and any successors thereto.

      (b)   Non-Compete.  During the period of employment and for the ((Term))
            term of employment under this Agreement (the "Restricted Period"),
            Executive will not directly or indirectly, on Executive's behalf,
            or as a partner, officer, director, trustee, member, employee, or
            otherwise, within the United States or in any foreign market in
            which Executive was engaged in activities on behalf of the Company
            or any of its subsidiaries, own, engage in or participate in, in
            any way, any business that is similar to or competitive with any
            actual or planned business activity engaged in or planned by the
            Company or any of its subsidiaries at the time the employment
            under this Agreement was terminated, if in the course of such
            ownership or employment, it could reasonably be anticipated that
            Executive would be required to use or disclose the Confidential
            Business Information of the Company or any of its subsidiaries.
            However, this Agreement shall not prohibit ownership of up to 2%
            of the shares of stock of any such corporation whose stock is
            listed on a national securities exchange or is traded in the
            over-the-counter market.

            Executive further agrees that during the Restricted Period,
            Executive will promptly notify the Company of any business with
            which Executive is associated or in which Executive has an ownership
            interest and provide the Company with a description of Executive's
            duties or interests.

      (c)   Non-Solicitation.  During the Restricted Period, Executive will
            not directly or indirectly, for the purpose of selling services
            and/or products provided or planned by the Company or any of its
            subsidiaries at the time the employment under this Agreement was
            terminated, call upon, solicit or divert any actual customer or
            prospective customer of the Company or any of its subsidiaries,
            unless employed by the Company to do so.  An actual customer, for
            purposes of this Section, is any customer to whom the Company or
            any of its subsidiaries has provided services and/or products
            within one year prior to Executive's termination of employment
            under this Agreement.  A prospective customer, for purposes of
            this Section, is any prospective customer to whom the Company or
            any of its subsidiaries sought to provide services and/or products
            within one year prior to the date of Executive's termination of
            employment under this Agreement when Executive had knowledge of or
            was involved in such solicitation.

                                      -6-

            Executive further agrees that during the Restricted Period Executive
            shall not directly or indirectly induce any person to leave the
            employ of the Company or any of its subsidiaries, or solicit any
            person who is currently or was an employee of the Company or any of
            its subsidiaries at any time during the twelve months prior to
            Executive's termination of employment under this Agreement.

      (d)   Judicial Modification.  If the final judgment of a court of
            competent jurisdiction declares that any term or provision of this
            Section is invalid or unenforceable, the parties agree that (i)
            the court making the determination of invalidity or
            unenforceability shall have the power to reduce the scope,
            duration, or geographic area of the term or provision, to delete
            specific words or phrases, or to replace any invalid or
            unenforceable term or provision with a term or provision that is
            valid and enforceable and that comes closest to expressing the
            intention of the invalid or unenforceable term or provision, (ii)
            the parties shall request that the court exercise that power, and
            (iii) this Agreement shall be enforceable as so modified after the
            expiration of the time within which the judgment or decision may
            be appealed.

8.    Remedies. In the event Executive breaches or threatens to breach and
      provision of Section 7 of this Agreement, the Company shall be entitled to
      injunctive relief, enjoining or restraining such breach or threatened
      breach. Executive acknowledges that the Company's remedy at law is
      inadequate and that the Company and its subsidiaries will suffer
      irreparable injury if such conduct is not prohibited.

      Executive and the Company agree that, because of the difficulty of
      ascertaining the amount of damages in the event that Executive breaches
      Section 7 of this Agreement, the Company shall be entitled to recover, at
      its option, as liquidated damages and not as a penalty, a sum equal to six
      (6) month's annual salary of the employee(s) solicited to leave the
      Company's employ. The parties further agree that the existence of this
      remedy will not preclude employer from seeking or receiving injunctive
      relief.

      Executive further agrees that the covenants contained in Section 7 shall
      be construed as separate and independent of other provisions of this
      Agreement and the existence of any claim by Executive against the Company
      or any of its subsidiaries, except for a claim that Executive was
      terminated without Good Cause or terminated Executive's employment for
      Good Reason, shall not constitute a defense to the enforcement by the
      Company of either of these Sections.

9.    Property Rights.  All discoveries, designs, improvements, ideas,
      inventions, intellectual property, creations, and works of art, whether
      or not patentable or subject to copyright, relating to the business of
      the Company or any of its subsidiaries, or its clients, conceived,
      developed or made by Executive during employment under this Agreement,
      either solely or jointly with others (hereafter "Developments") shall
      automatically become the sole property of the Company.  Executive shall
      immediately disclose to the Company all such Developments and shall,
      without additional compensation, execute all assignments, application or
      any other documents deemed necessary by the Company to perfect the
      Company's rights therein.  These obligations shall continue throughout
      the Restricted


                                      -7-

      Period under this Agreement with respect to Developments conceived,
      developed or made by Executive during the period of employment under this
      Agreement.

      The Company acknowledges and agrees that the provisions of this section
      shall not apply to inventions or for which no equipment, supplies,
      facility or trade secret information of the Company or its clients were
      used by Executive and which were developed entirely on Executive's own
      time unless (a) such inventions relate (i) to the business of the Company
      or (ii) to the Company's actual or demonstrably anticipated research or
      development or (b) such inventions result from any work performed by
      Executive for the Company.

10.   Assignments.  Neither party shall have the right or power to assign any
      rights or duties under this Agreement without the written consent of the
      other party, provided, however, that the Company shall have the right to
      assign this Agreement without consent pursuant to any corporate
      reorganization, merger, or other transaction involving a change of
      control of the Company or any of its subsidiary companies, in which
      case, further rights and duties of the Company and Executive are set
      forth in Executive's Employment Security Agreement, or any successor
      agreement thereto.  Any attempted assignment in breach of this Section
      10 shall be void.

      If Executive performs services and duties for any subsidiary or other
      affiliated entity of the Company, then the provisions of Sections 7 and 9
      shall apply to the confidential information and business activities,
      property rights, clients, and employees of that subsidiary or other
      entity.

11.   Certain Reductions of Payments by the Company.  If it is determined by
      the independent auditor (the "Auditor") jointly selected by Executive
      and the Company and paid by the Company that any payment, benefit or
      distribution by or on behalf of the Company to or for the benefit of
      Executive (whether paid or payable or distributed or distributable
      pursuant to the terms of this Agreement or otherwise) (the "Payments")
      are or will become subject to any excise taxes, then the Auditor shall
      determine if the payment of excise taxes in addition to any federal,
      state, local or other income, excise or other taxes ("Other Taxes")
      payable by Executive with respect to the Payments will cause Executive
      to pay an amount of excise and Other Taxes such that the net payment
      Executive will receive after payment of all excise and Other Taxes on
      payments under this Agreement is less than if the payment he would
      receive was reduced to the maximum amount payable without imposition of
      any excise taxes ("Economic Detriment").  If the Auditor determines that
      the Executive will incur an Economic Detriment as a result of the
      receipt of the full payment, the portion of the Payments made to
      Executive under this Agreement will be reduced to the maximum possible
      amount that can be paid to Executive without Executive incurring any
      Economic Detriment.  The Auditor shall be a nationally recognized United
      States public accounting firm that has not, during the two years
      preceding the date of its selection, acted in any way on behalf of the
      Company or any of its subsidiaries.

12.   Severability. Each section, paragraph, clause, sub-clause and provision
      (collectively "Provisions") of this Agreement shall be severable from each
      of the others, and if for any reason the Section, clause, sub-clause or
      provision is invalid or unenforceable, such


                                      -8-

      invalidity or unenforceability shall not prejudice or in any way affect
      the validity or enforceability of any other Provision hereof.

13.   Miscellaneous.

      (a)   This Agreement, Executive's Employment Security Agreement,
            Indemnification Agreement, Confidentiality Agreement, and any
            successor agreements thereto, contain the entire agreement of the
            parties with respect to the employment of Executive and supersede
            all other understandings, whether written or oral; provided,
            however, that Executive shall comply with all reasonable policies,
            procedures and other requirements of the Company which are not
            inconsistent with those three agreements.

      (b)   Failure on the part of either party to insist upon strict compliance
            by the other with respect to any of the terms, covenants and
            conditions hereof, shall not be deemed a subsequent waiver of such
            term, covenant or condition.

      (c)   The provisions of any Section containing a continuing obligation
            after termination shall survive such termination whether with or
            without cause and even if occasioned by the Company's breach or
            wrongful termination.

      (d)   This Agreement may not be modified except in a written amendment
            signed by the parties; provided, however, that the Company may amend
            or terminate its Benefit Plans, cash bonus Plan, and any Company
            policies, procedures and other requirements of the Company, subject
            to subsection (a) above and to Sections 5(d), 5(e) and 6(c), in its
            sole discretion.

      (e)   Except for action by the Company to enforce the restrictive
            covenants of Section 7, any dispute, controversy or difference
            that may arise between the parties hereto out of or in relation to
            or in connection with this Agreement or for the breach thereof
            which cannot be settled amicably by the parties within thirty (30)
            days shall be finally and exclusively settled by arbitration in
            Minneapolis, Minnesota, in accordance with the Commercial
            Arbitration Rules of the American Arbitration Association then in
            effect.  The arbitrator shall have discretion to award the
            prevailing party reasonable attorney's fees.  In the event of
            litigation under this Agreement, the court shall have discretion
            to award the prevailing party reasonable attorney's fees.

      (f)   The headings in this Agreement are inserted for convenience and
            identification only and are not intended to describe, interpret,
            define or limit the scope, extent, or intent of this Agreement or
            any provision hereof. Each party has cooperated in the preparation
            of this Agreement. As a result, this Agreement shall not be
            construed against any party on the basis that the party was the
            draftsperson.

      (g)   All forms of compensation referred to in this letter are subject to
            reduction to reflect withholding for applicable income, payroll and
            other taxes.

                                      -9-

14.   Governing Law. It is the intention of the parties hereto that all
      questions with respect to the construction, formation, and performance of
      this Agreement and the rights and liabilities of the parties hereto shall
      be determined in accordance with the laws of the State of Minnesota. The
      parties hereto submit to the jurisdiction and venue of the courts of
      Hennepin County, Minnesota in respect to any dispute arising out of this
      agreement.

15.   Insurance. For the period from the date hereof through at least the fifth
      anniversary of Executive's termination of employment from the Company, the
      Company agrees to maintain Executive as an insured party on all directors'
      and officers' liability insurance maintained by the Company for the
      benefit of its directors and officers on at least the same basis as all
      other covered individuals.

16.   Notices.  Any notice required pursuant to this Agreement will be in
      writing and will be deemed given upon the earlier of (i) delivery
      thereof, if by hand, (ii) five business days after mailing if sent by
      mail (registered or certified mail, postage prepaid, return receipt
      requested), (iii) the next business day after deposit if sent by a
      recognized overnight delivery service, or (iv) upon transmission if sent
      by facsimile transmission or by electronic mail, with return
      notification (provided that any notice sent by facsimile or electronic
      mail shall also promptly be sent by one of the means described in
      clauses (i) through (iii) of this Section.  All notices will be
      addressed as follows or to such other address as a party may identify in
      a written notice to the other party:

            to the Company:   PLATO Learning, Inc.
                              Attn: Chief Executive Officer
                              10801 Nesbitt Avenue South
                              Bloomington, MN 55437-3109

            to Executive:     ((Name))
                              PLATO Learning, Inc.
                              10801 Nesbitt Avenue South
                              Bloomington, MN 55437-3109

      Each party named above may change its address and that of its
      representative for notice by the giving of notice thereof in the manner
      hereinabove provided.

17.   Counterparts.  This Agreement may be executed in one or more
      counterparts, all of which together shall constitute but one Agreement.

      IN WITNESS WHEREOF, the parties hereto, have executed this Employment
Agreement effective as of the day and year first above written.

                                    PLATO LEARNING, INC.

                                    By:
- ------------------------------         ---------------------------------------
          ((NAME))                       John Murray
                                         President and Chief Executive Officer


                                      -10-

                  EXECUTIVE TEAM EMPLOYMENT AGREEMENT SUMMARY

Dated January 1, 2002


                                                                                     EXECUTIVE       EXECUTIVE BASE    EXECUTIVE
 TYPE   EXECUTIVE NAME                   EXECUTIVE POSITION                             TERM             SALARY         OPTIONS
                                                                                                        
  B     Nancy Hanna       Vice President Human Resources                              6 Months          $140,000          N/A

  B     John Super        Vice President Strategic Planning                           6 Months          $150,000          N/A

  B     Mike Reynolds     Vice President North American Sales                         9 Months          $135,000          N/A

  B     Jim Riesterer     Vice President Marketing                                    6 Months          $150,000          N/A

  B     Rob Foshay        Vice President Instructional Design & Quality Assurance     6 Months          $160,000          N/A

EX-10.39

                                                                   Exhibit 10.39


                          EMPLOYMENT SECURITY AGREEMENT


      THIS EMPLOYMENT SECURITY AGREEMENT ("Agreement") is entered into this 24th
day of January, 2002 ("Effective Date"), between PLATO LEARNING, INC., a
Delaware Corporation (the "Company"), and ((FirstName)) ((LastName)) (the
"Executive"), the Company's ((Title)). This Agreement hereby rescinds the
previous Employment Security Agreement entered into by the above-mentioned two
parties on January 30, 2001.

                                WITNESSETH THAT:

      WHEREAS, Executive currently serves as a key employee of the Company and
the Company has determined that it is in the best interests of the Company and
its stockholders to secure the services of the Executive and to ensure the
Executive's continued dedication and objectivity in the event of any negotiation
or other action that could lead to, or create the possibility of, a Change in
Control of the Company (as defined below), without concern as to whether the
Executive might be hindered or distracted by personal uncertainties or risks
created by such possible Change in Control; and

      WHEREAS, the Company desires to encourage the Executive's full attention
and dedication to the Company, and this Agreement is intended for that purpose.

      NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:

1.    Retention Bonus. (a) As compensation for services rendered to the Company,
      the Company shall pay to Executive (or Executive's beneficiary or estate),
      a lump sum cash amount equal to Executive's Annual Compensation (as
      defined below), which shall be known as "Retention Bonus". The Retention
      Bonus shall be payable only after a Change in Control, and no later than
      the earliest to occur of (i) the date that is thirty days after the date
      of the Change in Control so long as the Executive is employed by the
      Company (or the person who assumes this Agreement) on the date of the
      Change in Control, and (ii) the date of the Change in Control, if the
      Executive's employment is terminated prior to the Change in Control by the
      Company without Good Cause (as defined below) or by the Executive for Good
      Reason (as defined below) at a time when the Company is a party to a
      letter of intent that contemplates effecting, or a binding written
      agreement (subject to customary closing conditions) to effect, a
      transaction contemplating a Change in Control.

2.    Payments and Benefits Upon a Change in Control.  If within twelve (12)
      months after a Change in Control or during the Period Pending a Change
      in Control (as defined below), (i) the Company shall terminate
      Executive's employment with the Company without Good Cause or (ii)
      Executive shall voluntarily terminate such employment with Good Reason,
      the Company shall, within 30 days of Executive's Employment Termination
      (as

                                       1

      defined below), make the payments and provide the benefits described
      below, in lieu of any other severance payments:

      (a)   Cash Payment. The Company shall continue Executive's current Annual
            Compensation for a period of((Term))months through regular payroll
            payments.

      (b)   Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as
            defined below), for the period beginning on Executive's Employment
            Termination and ending on the earlier of (i)((Term)) months
            following Executive's Employment Termination, or (ii) the date
            Executive becomes covered by a welfare benefit plan or program
            maintained by an entity other than the Company which provides
            coverage or benefits at least equal, in all respects, to such
            Welfare Benefit Plan, Executive shall continue to participate in
            such Welfare Benefit Plan on the same basis and at the same cost to
            Executive as was the case immediately prior to the Change in Control
            (or, if more favorable to Executive, as was the case at any time
            hereafter), or, if any benefit or coverage cannot be provided under
            a Welfare Benefit Plan because of applicable law or contractual
            provisions, Executive shall be provided with substantially similar
            benefits and coverage for such period. Immediately following the
            expiration of the continuation period required by the preceding
            sentence, Executive shall be entitled to continued group health
            benefit plan coverage (so-called "COBRA coverage") in accordance
            with Section 4980B of the Internal Revenue Code of 1986, as amended
            (the "Code"), it being intended that COBRA coverage shall be
            consecutive to the benefits and coverage provided for in the
            preceding sentence.

      (c)   Stock Incentive Plans. All stock options granted under any Company
            or TRO Learning, Inc. (the Company's predecessor) stock incentive or
            stock option plan (collectively referred to as the "SIPs"), will
            immediately become fully vested and exercisable upon the Change in
            Control. All restricted stock granted under the SIPs will
            immediately be fully vested and distributed to Executive upon the
            Change in Control.

      (d)   Salary to Date of Employment Termination. The Company shall pay to
            Executive any unpaid salary or other compensation of any kind earned
            with respect to any period prior to Executive's Employment
            Termination and a lump sum cash payment for accumulated but unused
            vacation earned through such Employment Termination.

3.    Definitions.  For purposes of this Agreement:

      (a)   "Good Cause" shall mean: (i) Executive's conviction of any criminal
            violation involving dishonesty, fraud, or breach of trust; (ii)
            Executive's willful engagement in any misconduct in the performance
            of Executive's duty that materially injures the Company; or (iii)
            Executive's willful and substantial nonperformance of assigned
            duties, provided that such nonperformance has

                                       2

            continued more than ten days after the Company has given written
            notice of such nonperformance and of its intention to terminate
            Executive's employment because of such nonperformance.

      (b)   "Good Reason" shall exist if, without Executive's express written
            consent:

            (i)   The Company shall materially reduce the nature, scope, level
                  or extent of Executive's responsibilities from the nature,
                  scope, level or extent of such responsibilities prior to the
                  Change in Control, or shall fail to provide Executive with
                  adequate office facilities and support services to perform
                  such responsibilities;

            (ii)  The Company shall reduce Executive's salary below that in
                  effect as of the date of this Agreement (or as of the Change
                  in Control, if greater);

            (iii) The Company shall require Executive to relocate Executive's
                  principal business office or his principal place of residence
                  outside the Minneapolis/St. Paul, Minnesota, Standard
                  Metropolitan Statistical Area (the "Geographical Employment
                  Area"), or assign to Executive duties that would reasonably
                  require such relocation; or

            (iv)  The Company shall fail to continue in effect any cash or
                  stock-based incentive or bonus plan, retirement plan, welfare
                  benefit plan, or other benefit plan, program or arrangement,
                  unless the aggregate value (as computed by an independent
                  employee benefits consultant selected by the Company) of all
                  such compensation, retirement and benefit plans, programs and
                  arrangements provided to Executive is not materially less than
                  their aggregate value as of the date of this Agreement (or as
                  of the Change in Control, if greater).

      (c)   "Change in Control" shall be deemed to occur on the earliest of:

            (i)   The acquisition by any individual, entity or group (a
                  "Person"), including any "person" within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act"), of beneficial ownership
                  within the meaning of Rule 13d-3 promulgated under the
                  Exchange Act, of 50% or more of either (A) the then
                  outstanding share of common stock of the Company (the
                  "Outstanding Company Common Stock") or (B) the combined voting
                  power of the then outstanding securities of the Company
                  entitled to vote generally in the election of directors (the
                  "Outstanding Company Voting Securities"); provided, however,
                  that the following acquisitions shall not constitute a Change
                  in Control: (C) any acquisition directly from the Company
                  (excluding any acquisition resulting from the exercise of a
                  conversion or exchange privilege in respect of outstanding
                  convertible or exchangeable securities),

                                       3

                  (D) any acquisition by the Company, (E) any acquisition by an
                  employee benefit plan (or related trust) sponsored or
                  maintained by the Company or any corporation controlled by the
                  Company or (F) any acquisition by any corporation pursuant to
                  a reorganization, merger or consolidation involving the
                  Company if, immediately after such reorganization, merger or
                  consolidation, each of the conditions described in clause (A),
                  (B) and (C) of paragraph (c) below shall be satisfied; and
                  provided further that, for purposes of Clause (D), if any
                  Person (other than the Company or any employee benefit plan
                  (or related trust) sponsored or maintained by the Company or
                  any corporation controlled by the Company) shall become the
                  beneficial owner of 50% or more of the Outstanding Company
                  Common Stock or 50% or more of the Outstanding Company Voting
                  Securities by reason of an acquisition by the Company, and
                  such Person shall, after such acquisition by the Company,
                  become the beneficial owner of any additional share of the
                  Outstanding Company Common Stock or any additional Outstanding
                  Company Voting Securities and such beneficial ownership is
                  publicly announced, such additional beneficial ownership shall
                  constitute a Change in Control;

            (ii)  individuals who, as of the date hereof, constitute the Board
                  (the "Incumbent Board") cease for any reason to constitute at
                  least a majority of such Board; provided, however, that any
                  individual who becomes a director the Company subsequent to
                  the date hereof whose election, or nomination for election by
                  the Company's stockholders, was approved by the vote of at
                  least a majority of the directors then comprising the
                  Incumbent Board shall be deemed to have been a member of the
                  Incumbent Board; and provided further, that no individual who
                  was initially elected as a director of the Company as a result
                  of an actual or threatened election contest, as such terms are
                  used in Rule 14a-11 of Regulation 14A promulgated under the
                  Exchange Act, or any other actual or threatened solicitation
                  of proxies or consents by or on behalf of any Person other
                  than the Board shall be deemed to have been a member of the
                  Incumbent Board;

            (iii) approval of the stockholders of the Company or a
                  reorganization, merger or consolidation unless, in any such
                  case, immediately after such reorganization, merger or
                  consolidation, (A) more than 60% of the then outstanding
                  shares of common stock of the corporation resulting from such
                  reorganization, merger or consolidation and more than 60% of
                  the combined voting power of the then outstanding securities
                  of such corporation entitled to vote generally in the election
                  of directors is then beneficially owned, directly or
                  indirectly, by all or substantially all of the individuals or
                  entities who were the beneficial owners, respectively, of the
                  Outstanding Company Common Stock and the Outstanding Company
                  Voting Securities immediately prior to such reorganization,
                  merger or consolidation and in substantially the same
                  proportions relative to each other as their ownership,
                  immediately prior to such reorganization, merger or


                                       4

                  consolidation, of the Outstanding Company Stock and the
                  Outstanding Company Voting Securities, as the case may be, (B)
                  no Person (other than the Company, any employee benefit plan
                  (or related trust) sponsored or maintained by the Company or
                  the corporation resulting from such reorganization, merger or
                  consolidation (or any corporation controlled by the Company)
                  and any Person which beneficially owned, immediately prior to
                  such reorganization, merger or consolidation, directly or
                  indirectly, 50% or more of the Outstanding Company Common
                  Stock or the Outstanding Company Voting Securities, as the
                  case may be, beneficially owns, directly or indirectly, 50% or
                  more of the then outstanding shares of common stock of such
                  corporation or 50% or more of the combined voting power of the
                  then outstanding securities of such corporation entitled to
                  vote generally in the election of directors and (C) at least a
                  majority of the members of the board of directors of the
                  corporation resulting from such reorganization, merger or
                  consolidation were members of the Incumbent Board at the time
                  of the execution of the initial agreement or action of the
                  Board of Directors providing for such reorganization, merger
                  or consolidation; or

            (iv)  approval by the stockholders of the Company of (A) a plan of
                  complete liquidation or dissolution of the Company or (B) the
                  sale or other disposition of all or substantially all of the
                  assets of the company other than to a corporation with respect
                  to which, immediately after such sale or other disposition,
                  (C) more than 60% of the then outstanding shares of common
                  stock thereof and more than 60% of the combined voting power
                  of the then outstanding securities thereof entitled to vote
                  generally in the election of directors is then beneficially
                  owned, directly or indirectly, by all or substantially all of
                  the individuals and entities who were the beneficial owners,
                  respectively, of the Outstanding Company Common Stock and the
                  Outstanding Company Voting Securities immediately prior to
                  such sale or other disposition and in substantially the same
                  proportions relative to each other as their ownership,
                  immediately prior to such sale or other disposition, of the
                  Outstanding Company Common Stock and the Outstanding Company
                  Voting Securities, as the case may be, (D) no Person (other
                  than the Company, any employee benefit plan (or related trust)
                  sponsored or maintained by the Company or such corporation (or
                  any corporation controlled by the Company) and any Person
                  which beneficially owned, immediately prior to such sale or
                  other disposition, directly or indirectly, 50% or more of the
                  Outstanding Company Common Stock or the Outstanding Company
                  Voting Securities, as the case may be, beneficially owns,
                  directly or indirectly, 50% or more of the then outstanding
                  shares of common stock thereof or 50% or more of the combined
                  voting power of the then outstanding securities thereof
                  entitled

                                       5

                  to vote generally in the election of directors and (E) at
                  least a majority of the members of the board of directors
                  thereof were members of the Incumbent Board at the time of the
                  execution of the initial agreement or action of the Board
                  providing for such sale or other disposition.

      (d)   "Annual Compensation" shall mean Executive's base annual salary in
            effect on the date of: (i) this Agreement; (ii) the Change in
            Control; or (iii) Executive's Employment Termination, whichever is
            greater.

      (e)   "Employment Termination" shall mean the effective date of: (i)
            Executive's voluntary termination of employment with the Company
            with Good Reason; or (ii) the termination of Executive's employment
            by the Company without Good Cause.

      (f)   "Welfare Benefit Plan" shall mean each welfare benefit plan
            maintained or contributed to by the Company, including, but not
            limited to a plan that provides health (including medical and
            dental), life, accident or disability benefits or insurance, or
            similar coverage, in which Executive was participating at the time
            of the Change in Control.

      (g)   "Period Pending a Change in Control" shall mean the period after the
            approval by the Company's stockholders and prior to the effective
            time of (i) a merger or consolidation of the Company with one or
            more other corporations as a result of which the holders of the
            outstanding voting stock of the Company immediately prior to such
            merger or consolidation hold less than 60% of the voting stock of
            the surviving or resulting corporation, or (ii) a transfer of
            substantially all of the property of the Company other than to an
            entity of which the Company owns at least 80% of the voting stock.

4.    Mitigation and Set-Off.  Executive shall not be required to mitigate
      Executive's damages by seeking other employment or otherwise. The
      Company's obligations under this Agreement shall not be reduced in any
      way by reason of any compensation or benefits received (or foregone) by
      Executive from sources other than the Company after Executive's
      Employment Termination, or any amounts that might have been received by
      Executive in other employment had Executive sought such other
      employment.  Executive's entitlement to benefits and coverage under
      this Agreement shall continue after, and shall not be affected by,
      Executive's obtaining other employment after his Employment
      Termination, provided that any such benefit or coverage shall not be
      furnished if Executive expressly waives the specific benefit or
      coverage by giving written notice of waiver to the Company.

5.    Litigation Expenses.  The Company shall pay to Executive all
      out-of-pocket expenses, including attorneys' fees, incurred by
      Executive in the event Executive successfully enforces any provision of
      this Agreement in any action, arbitration or lawsuit.



                                       6

6.    Assignment Successors.  This Agreement may not be assigned by the
      Company without the written consent of Executive but the obligations of
      the Company under this Agreement shall be the binding legal obligations
      of any successor to the Company by merger, consolidation or otherwise,
      and in the event of any business combination or transaction that
      results in the transfer of substantially all of the assets or business
      of the Company, the Company will cause the transferee to assume the
      obligations of the Company under this Agreement.  This Agreement may
      not be assigned by Executive during Executive's life, and upon
      Executive's death will inure to the benefit of Executive's heirs,
      legatees and legal representatives of Executive's estate.

7.    Interpretation. The validity, interpretation, construction and performance
      of this Agreement shall be governed by the laws of the State of Minnesota,
      without regard to the conflict of law principles thereof. The invalidity
      or unenforceability of any provision of this Agreement shall not affect
      the validity or enforceability of any other provision of this Agreement.
      The parties both agree to submit to jurisdiction and venue in the Courts
      of Hennepin County, Minnesota.

8.    Withholding.  The Company may withhold from any payment that it is
      required to make under this Agreement amounts sufficient to satisfy
      applicable withholding requirements under any federal, state or local
      law.

9.    Amendment or Termination. This Agreement may be amended at any time by
      written agreement between the Company and Executive. This Agreement
      terminates on January 24, 2004, provided that, if a change in control
      occurs prior to the effective date of such termination, the termination of
      this Agreement shall not be effective and Executive shall be entitled to
      the full benefits of this Agreement. Any such amendment or termination
      shall be made pursuant to a resolution of the Board.

10.   Financing. Cash and benefit payments under this Agreement shall constitute
      general obligations of the Company. Executive shall have only an unsecured
      right to payment thereof out of the general assets of the Company.
      Notwithstanding the foregoing, the Company may, by agreement with one or
      more trustees to be selected by the Company, create a trust on such terms
      as the Company shall determine to make payments to Executive in accordance
      with the terms of this Agreement.

11.   Severability.  In the event that any provision or portion of this
      Agreement shall be determined to be invalid or unenforceable for any
      reason, the remaining provisions of this Agreement shall be unaffected
      thereby and shall remain in full force and effect.

12.   Certain Reductions of Payments by the Company.  If it is determined by
      the independent auditor (the "Auditor") jointly selected by Executive
      and the Company and paid by the Company that the payments under this
      Agreement are or will become subject to any excise taxes, then it shall
      determine if the payment of excise taxes in addition to any federal,
      state, local or other income, excise or other taxes ("Other Taxes")
      payable by

                                       7

      Executive with respect to the payments under this Agreement will cause
      Executive to pay an amount of excise and Other Taxes such that the net
      payment Executive will receive after payment of all excise and Other Taxes
      on payments under this Agreement is less than if the payment he would
      receive was reduced to the maximum amount payable without imposition of
      any excise taxes ("Economic Detriment"). If the Auditor determines that
      the Executive will incur an Economic Detriment as a result of the receipt
      of the full payment, the payment made to Executive under this Agreement
      will be reduced to the maximum possible amount that can be paid to
      Executive without him incurring any Economic Detriment. The Auditor shall
      be a nationally recognized United States public accounting firm that has
      not, during the two years preceding the date of its selection, acted in
      any way on behalf of the Company or any of its subsidiaries.

      IN WITNESS WHEREOF, the parties hereto, on the day and year first written
above, pursuant to a duly authorized resolution of the Board of Directors of the
Company, have executed this Agreement, which represents an amendment to and/or
pre-termination renewal of a predecessor Agreement dated January 30, 2001,
between the Executive and the Company.



PLATO LEARNING, INC.


By:
   ---------------------------------      ------------------------------------
   John Murray                             ((FirstName))((LastName))
Its:  PRESIDENT AND                        EXECUTIVE
     CHIEF EXECUTIVE OFFICER



                                       8

                                    EXECUTIVE
                         EMPLOYMENT SECURITY AGREEMENTS

TWO YEAR EMPLOYMENT SECURITY AGREEMENTS DATED JANUARY 24, 2002 (EXCEPT MELSEN'S
DATED FEBRUARY 4, 2002):



                              Annual           Retention          Severance
Name                          Compensation       Bonus**          Payments*         Term
- ----------------------------------------------------------------------------------------------
                                                                       
Murray, John                 $  270,000        $  270,000        $  540,000        24 months

Buske, John M                $  200,000        $  200,000        $  300,000        18 months

Foshay, Wellesley R          $  160,000        $  160,000        $  160,000        12 months

Hanna, Nancy L               $  140,000        $  140,000        $  140,000        12 months

Kilgarriff, Robert M         $  180,000        $  180,000        $  270,000        18 months

LePage, David H              $  160,000        $  160,000        $  160,000        12 months

Melsen, Gregory J            $  170,000        $  170,000        $  255,000        18 months

Preese, Frank                $  155,000        $  155,000        $  155,000        12 months

Reynolds, Michael J          $  135,000        $  135,000        $  135,000        12 months

Riesterer, James S           $  150,000        $  150,000        $  150,000        12 months

Super, John C                $  150,000        $  150,000        $  150,000        12 months

Schuster, Steven R           $  119,600              None        $   59,800        6 months

Murphy, Mary Jo              $  115,700              None        $   57,850        6 months

      TOTALS:                $2,105,300        $1,870,000        $2,532,650
                             ==========        ==========        ==========


* If within twelve months after a Change in Control or during the Period Pending
a Change in Control (i) the Company terminates Executive's employment with the
Company without Good Cause or (ii) Executive shall voluntarily terminate
employment with Good Reason, the Company shall, within 30 days of Executive's
Employment Termination, make the payments and provide other benefits (outlined
in Agreement), in lieu of any other severance payments.

** Lump sum cash payment payable only after a Change in Control and no later
than the earliest to occur of (i) the date that is thirty days after the date of
the Change in Control so long as the Executive is employed by the Company on the
date of the Change, and (ii) the date of the Change in Control, if the
Executive's employment is terminated prior to the Change in Control by the
Company without Good Cause or by the Executive for Good Reason at a time when
the Company is a party to a letter of intent that contemplates effecting, or a
binding written agreement to effect, a transaction contemplating a Change in
Control.