<PAGE>
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 quarter ended March 31, 1996 Commission File Number 0-21860
DATAWARE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1232140
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
222 THIRD STREET 02142
SUITE 3300 (Zip Code)
CAMBRIDGE, MA
(Address of principal executive offices)
617-621-0820
(Registrant's telephone number, including area code)
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____
Number of shares outstanding of the issuer's classes of common stock as of
April 30, 1996:
Class Number of Shares
- ------------------------------------------------- ----------------
Outstanding Common Stock, par value $.01 per share 6,334,516
Total number of pages 27
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DATAWARE TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
March 31, 1996 and December 31,1995 3
Consolidated Condensed Statements of Income for the
Three Months Ended March 31, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports Filed on Form 8-K 10
SIGNATURE 11
EXHIBIT INDEX 12
</TABLE>
2
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Part I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Dataware Technologies, Inc.
Consolidated Condensed Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,688 $ 7,734
Accounts receivable, less allowance for
doubtful accounts of $610 and $610 8,648 10,063
Prepaid expenses and other current assets 2,439 2,734
Deferred taxes 1,196 336
------------ -----------
Total current assets 16,971 20,867
Property and equipment, net 6,410 5,543
Computer software costs, net 3,238 3,002
Marketable securities 8,943 8,908
Deferred taxes 284 284
Intangible assets 3,260 3,362
------------ -----------
Total assets $ 39,106 $ 41,966
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes, software license
payable and capital leases $ --- $ 189
Demand note payable to related party --- 50
Accounts payable 2,212 1,963
Accrued expenses 1,845 1,396
Accrued compensation 1,431 1,690
Income taxes payable 1,882 1,928
Deferred revenue 2,428 2,530
------------ -----------
Total current liabilities 9,798 9,746
Notes, software license payable, and capital leases 16 4
Stockholders' equity:
Preferred stock, $.01 par value, 8,000,000 shares authorized,
none issued --- ---
Common stock, $.01 par value: 14,000,000 shares authorized;
6,314,875, and 6,239,123 shares issued and outstanding
at March 31, 1996 and December 31, 1995, respectively 63 62
Additional paid-in capital 37,127 36,782
Accumulated deficit (7,645) (4,445)
Cumulative translation adjustment (243) (209)
Unrealized gain (loss) on marketable securities (10) 26
------------ -----------
Total stockholders' equity 29,292 32,216
------------ -----------
Total liabilities and stockholders' equity $ 39,106 $ 41,966
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements
3
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DATAWARE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Software license fees $ 3,001 $ 4,278
Services 5,350 5,383
---------- ----------
Total revenues 8,351 9,661
Cost of revenues:
Software license fees 855 546
Services 3,204 2,953
---------- ----------
Total cost of revenues 4,059 3,499
---------- ----------
Gross margin 4,292 6,162
Operating expenses:
Sales and marketing 3,767 3,158
Product development 1,801 1,235
General and administrative 1,719 1,279
In-process research and development 1,193 ---
---------- ----------
Total operating expenses 8,480 5,672
---------- ----------
Income (loss) from operations (4,188) 490
Interest income 168 127
Other income (expenses), net (40) 32
---------- ----------
Income (loss) before income taxes (4,060) 649
Provision (benefit) for income taxes (860) 204
---------- ----------
Net income (loss) $ (3,200) $ 445
========== ==========
Net income (loss) per common share $ (0.50) $ 0.07
========== ==========
Weighted average number of common
and common equivalent shares 6,366 6,423
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements
4
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DATAWARE TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION> THREE MONTHS ENDED MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ (3,200) $ 445
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 972 730
Loss (gain) on foreign currency transactions 36 (49)
Deferred taxes (860) ---
Charge for purchased research and development 1,193 ---
Changes in operating assets and liabilities, net
of effects from acquisitions of businesses:
Accounts receivable 1,891 (710)
Prepaid expenses and other current assets 324 (109)
Accounts payable 155 (105)
Accrued expenses and compensation (145) 170
Income taxes payable (14) 174
Deferred revenue (366) 602
------------ ------------
Net cash provided by (used in) operating activities (14) 1,148
------------ ------------
Cash flows used in investing activities:
Purchase of marketable securities (6,210) ---
Proceeds from sales and maturities of marketable securities 6,139 ---
Additions to property and equipment (1,189) (576)
Acquisition of businesses, net of cash
acquired (1,394) ---
Additions to capitalized software costs (439) (376)
------------ ------------
Net cash used in investing activities (3,093) (952)
------------ ------------
Cash flows provided by financing activities:
Proceeds from issuance of common stock and exercise of stock options 346 712
Principal payments on notes, software license payable and capital leases (227) (192)
------------ ------------
Net cash provided by financing activities 119 520
------------ ------------
Effect of exchange rate changes on cash (58) (86)
------------ ------------
Net change in cash and cash equivalents (3,046) 630
Cash and cash equivalents at beginning of period 7,734 4,642
------------ ------------
Cash and cash equivalents at end of period $ 4,688 $ 5,272
============ ============
Supplemental disclosure of non-cash financing transactions:
Stock and stock warrants issued in connection with acquisitions $ 238 $ ---
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements
5
<PAGE>
DATAWARE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
These consolidated financial statements should be read in conjunction with
portions of the Company's Annual Report incorporated by reference in Form 10-K
for the fiscal year ended December 31, 1995 and the financial statements and
footnotes included therein. In the opinion of management, the accompanying
unaudited financial statements include all adjustments, consisting of only
normal recurring accruals, necessary to present fairly the consolidated
financial position, results of operations and cash flows of Dataware
Technologies, Inc. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission rules and regulations.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current presentation.
B. COMPUTER SOFTWARE COSTS
During the three month period ended March 31, 1996, the Company capitalized
approximately $446,000 of internally developed software costs and capitalized
$376,000 during the same period in 1995. These costs, net of accumulated
amortization, amounted to $2,362,000 at March 31, 1996. For the three month
periods ended March 31, 1996 and March 31, 1995, amortization expense related to
internally developed software was $326,000 and $147,000, respectively.
The cost of capitalized software purchased, net of accumulated amortization,
amounted to $876,000 at March 31, 1996. Amortization expense for computer
software purchased was $59,000 and $54,000 for the three months ended March 31,
1996 and 1995, respectively.
C. ACCOUNTING FOR GOODWILL
The company periodically reviews and evaluates the recoverability of goodwill
whenever events or changes in circumstances indicate that the carrying amount of
goodwill may not be recoverable. The Company's assessment of impairment
considers the expected future operating income of the acquired entity. Goodwill
is generally amortized over a ten-year period.
D. ACQUISITION
On March 29, 1996 the Company completed the acquisition of all of the
outstanding shares of Status/IQ Ltd. ("Status"), located in the United Kingdom,
in exchange for approximately $1,394,000 (including acquisition expenses),
consisting of cash, common stock of the Company, and warrants to purchase
additional common stock of the Company. The acquisition has been accounted for
as a purchase and, accordingly, the assets, liabilities and results of
operations are included in the financial statements from the acquisition date.
Because Status was acquired on the last business day of the quarter, the results
of operations in the first quarter are not affected by the acquisition other
than a one-time charge of $1,193,000 for purchased research and development. In
addition, $175,000 of the purchase price has been allocated to computer software
costs and is being amortized over a one year period. The allocation of the
purchase price is preliminary and is subject to change.
6
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DATAWARE TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
- ----------------------
The Company's results for the first quarter of 1995 have been restated to
include the operations of Ledge Multimedia, Inc., which was acquired on December
30, 1995 in a pooling transaction. Additionally, the former systems integration
category has been combined with the services category in the revenues and cost
of revenues sections of our statements of operations for all periods shown.
On March 29, 1996 the Company completed the acquisition of all of the
outstanding shares of Status/IQ Ltd. ("Status") in exchange for approximately
$1.4 million (including acquisition expenses), consisting of cash, common stock
of the Company, and warrants to purchase additional common stock of the Company.
The acquisition has been accounted for as a purchase and, accordingly, the
assets, liabilities and results of operations are included in the financial
statements from the acquisition date. Since the acquisition was completed on
the last business day of the quarter, the results of operations in the first
quarter are not affected by the transaction other than a one-time charge of $1.2
million for purchased research and development.
REVENUES
The Company's total revenues decreased 14% from $9.7 million in the first
quarter of 1995 to $8.4 million in the first quarter of 1996. Quarter over
quarter, software license fees decreased 30% from $4.3 million to $3.0 million
and services revenues remained flat at $5.4 million. The decrease in software
license fees resulted from the normal first quarter seasonal downturn and delays
in certain large customer orders, as well as the continuing softness in the
government sector and increasing product competition, particularly in North
America.
Software revenues decreased to 36% of total revenues in the first quarter of
1996, down from 44% in the first quarter of 1995, and services revenues
increased to 64% of total revenues in the first quarter of 1996, up from 56% in
the first quarter of 1995.
Consistent with past experience, a higher percentage of the Company's revenues
are expected to be realized in the third month of each fiscal quarter and tend
to be concentrated in the latter half of that month. The Company's orders early
in a quarter will not generally be large enough to assure that it will meet its
revenue targets for any particular quarter. Accordingly, the Company's
quarterly results will be difficult to predict until the end of the quarter, and
a shortfall in shipments or contract orders at the end of any particular quarter
may cause the results for that quarter to fall short of anticipated levels.
COST OF REVENUES
Cost of revenues increased 16% from $3.5 million in the first quarter of 1995 to
$4.1 million during the same period in 1996. As a percent of revenues, total
cost of revenues increased from 36% of total revenues for the three months ended
March 31, 1995 to 49% for the three months ended March 31, 1996. This increase
is due to a shift in product mix from software license fees to our higher cost
services business as well as increased fixed costs.
The cost of software licenses as a percentage of software license fees increased
from 13% during the first quarter of 1995 to 28% during the same period in 1996.
This increase was due to a decrease in sales volume while fixed costs, primarily
amortization of capitalized software, increased quarter over quarter.
The cost of services as a percentage of service revenues increased from 55% for
the first quarter of 1995 to 60% during the first quarter of 1996. This
increase primarily reflects higher direct and indirect expenses in services
projects.
7
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GROSS MARGIN
Total gross margin was $6.2 million or 64% of total revenues for the first
quarter of 1995 and $4.3 million or 51% of total revenues for the first quarter
of 1996. Changes in total gross margin from period to period have resulted from
lower total revenue volume, higher costs within each revenue category, and a
significant shift in product mix from higher margin software products to
relatively lower margin services. Although management anticipates that gross
margin as a percentage of revenues will improve in the long run as the Company's
revenue base grows and the Company shifts product mix toward higher margin
software, there are a number of important factors that could adversely affect
the Company's future gross margins resulting in higher than anticipated costs
and/or lower than anticipated revenues. These factors include: the existence
of stiff competition for the Company's products and services, including the
introduction of new products from competitors, the timing of which cannot be
foreseen by the Company; the inherent risks of new product introductions,
including uncertainty of customer acceptance; and the Company's reliance on
third parties for supply of certain product components.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 19% from $3.2 million during the first
quarter of 1995 to $3.8 million during the same period in 1996. Sales and
marketing expenses increased as a percentage of revenues from 33% to 45% on a
quarter to quarter basis. The increase in sales and marketing expenses reflects
the Company's continuing investment in development of new distribution channels
and strengthening the Company's marketing capabilities.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses, which excludes capitalized software costs,
increased 46% from $1.2 million in the first quarter of 1995 to $1.8 million in
the first quarter of 1996. The Company capitalized software development costs
in the amount of $446,000 in the first quarter of 1996 as compared to $376,000
in the first quarter of 1995. Product development expenses as a percentage of
total revenues increased from 13% during the first quarter of 1995, to 22%
during the same period in 1996. The increased product development expenses in
terms of real dollars as well as in relation to total revenues reflects the
Company's continuing investment in internet-related and other projects,
compounded by the decline in revenue during the first quarter of 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 34% from $1.3 million in the first
quarter of 1995 to $1.7 million in the first quarter of 1996. This increase was
primarily due to the build-up of the Company's financial and administrative
infrastructure in systems and administrative personnel during the second half of
1995. General and administrative expenses as a percent of total revenues
increased from 13% in the first quarter of 1995 to 21% in the first quarter of
1996, due to increased fixed costs while revenues declined during the first
quarter of 1996.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT
In conjunction with the acquisition of Status in March 1996, the Company
acquired certain technologies under development that the Company hopes will
prove valuable to the future growth of the Company. Such technology, valued at
approximately $1.2 million, was charged to operations during the first quarter
of 1996 as purchased research and development.
8
<PAGE>
PROVISION FOR INCOME TAXES
The Company recorded a tax benefit of $860,000 for the first quarter of 1996
reflecting a 30% tax rate (before the one-time charge for purchased research and
development) as compared to a $204,000 tax provision for the same period a year
ago, also a 30% tax rate. The effective tax rate including the charge for
purchased research and development was 21% for the first quarter of 1996. The
tax rate of 30% expected in 1996 is consistent with the rate for the full year
in 1995.
RESTRUCTURING
The Company is currently developing and implementing a restructuring plan. The
purpose of this restructuring plan is to increase sales and service capacity as
well as to focus on new market opportunities. Consequently, management
anticipates that the restructuring will result in a one-time charge during the
second quarter of 1996, the amount of which cannot be quantified at this time.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
As of March 31, 1996, the Company had cash, cash equivalents, and marketable
securities of approximately $13.6 million and working capital of $7.2 million.
Operating activities used $14,000 of the Company's cash during the first three
months of 1996. Days sales outstanding increased from 78 days at December 31,
1995 to 85 days at March 31, 1996. This deterioration was due to the decline in
revenue during the quarter and the delay in receipt of cash until after the
quarter end from certain large accounts.
The Company's investing activities used cash of $3.1 million during the first
three months of 1996, consisting of additions to property and equipment of $1.2
million, $1.4 million to fund the acquisition of Status and capitalization of
$439,000 in software costs.
The Company's financing activities provided cash of $119,000 during the first
three months of 1996. The cash consisted of $346,000 in proceeds received from
the issuance of stock and exercise of stock options, partially offset by the
paydown of $227,000 in debt.
The Company currently has no major capital investment requirements and believes
that its cash, cash equivalents, and marketable securities, together with cash
from operations, will be sufficient to meet its liquidity needs for the
foreseeable future. However, working capital and other capital requirements may
change because of unanticipated changes in business conditions, in addition to
such other considerations as expansion of operations or research and development
activities, competitive and technological developments, costs associated with
litigation, and possible future acquisitions of businesses and/or product
rights.
9
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DATAWARE TECHNOLOGIES, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K.
- -----------------------------------------------
(a) Exhibits. See exhibit list on page 12.
(b) Reports on Form 8-K. On January 10, 1996, the Company filed a report on
Form 8-K reporting the merger of the Company with Ledge Multimedia, Inc.
and on March 8, 1996, the Company filed an amendment to the Form 8-K to
include the required financial information.
10
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DATAWARE TECHNOLOGIES, INC.
SIGNATURE
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.
DATAWARE TECHNOLOGIES, INC.
(REGISTRANT)
Date: May 15, 1996 By: Christopher Lorch
------------------------------------------
Christopher Lorch
Chief Financial Officer
(Principal Financial and Principal Accounting
Officer-Acting)
11
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Exhibit Index
2.1 Agreement - Sale of Shares dated March 29, 1996 among the Registrant,
Entrust Nominees Limited "D" Account, and Status/IQ Limited. (1)
10.1 1993 Equity Incentive Plan, as amended April 15, 1996.*
10.2 Severance Agreement between the Registrant and David Wilcox.*
27.1 Financial Data Schedule.
(1) Filed as Exhibit 2.2 to Form 10-K for 1995 and incorporated by reference
herein.
* Denotes management contracts and compensation plans.
1
12
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EXHIBIT 10.1
------------
AS AMENDED THROUGH APRIL 15, 1996
DATAWARE TECHNOLOGIES, INC.
1993 EQUITY INCENTIVE PLAN
Section 1. Purpose
-------
The purpose of the Dataware Technologies, Inc. 1993 Equity Incentive Plan
(the "Plan") is to attract and retain key employees and directors and
consultants of the Company and its Affiliates, to provide an incentive for them
to achieve long-range performance goals, and to enable them to participate in
the long-term growth of the Company.
The Plan constitutes an amendment and restatement of the Dataware
Technologies, Inc. 1988 Stock Option Plan (the "1988 Plan"), which is hereby
merged with and into the Plan, and the separate existence of the 1988 Plan shall
terminate on the Effective Date. The rights and privileges of holders of
outstanding options or rights under the 1988 Plan shall not be adversely
affected by the foregoing action.
Section 2. Definitions
-----------
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, Stock Unit or Other Stock-Based Award awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor to such Code.
"Committee" means a committee of not less than three members of the Board
appointed by the Board to administer the Plan, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor provision, as applicable to the Company at the time ("Rule
16b-3").
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
Company.
"Company" means Dataware Technologies, Inc.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the
<PAGE>
event of the Participant's death. In the absence of an effective designation by
a Participant, "Designated Beneficiary" shall mean the Participant's estate.
"Effective Date" means May 19, 1993.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock, which may be earned by
the achievement of performance goals, awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time during which an Award may be
forfeited to the Company pursuant to the terms and conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
-2-
<PAGE>
Section 3. Administration
--------------
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The
Committee's decisions shall be final and binding. To the extent permitted by
applicable law, the Committee may delegate to one or more executive officers of
the Company the power to make Awards to Participants who are not Reporting
Persons and all determinations under the Plan with respect thereto, provided
that the Committee shall fix the maximum amount of such Awards for all such
Participants and a maximum for any one Participant.
Section 4. Eligibility
-----------
All employees and, in the case of Awards other than Incentive Stock
Options, directors and consultants of the Company or any Affiliate, capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible and other than
members of the Committee during their service as such and for such additional
periods as are required to ensure that they are "disinterested persons" under
Rule 16b-3 with respect to such service, are eligible to be Participants in the
Plan. Incentive Stock Options may be awarded only to persons eligible to
receive such Options under the Code.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 2,500,000 shares of Common Stock (after giving effect to the
3:1 reverse stock split approved by the Board on the Effective Date). If any
Award in respect of shares of Common Stock expires or is terminated unexercised
or is forfeited without the Participant having had the benefits of ownership
(other than voting rights), the shares subject to such Award, to the extent of
such expiration, termination or forfeiture, shall again be available for award
under the Plan. Common Stock issued through the assumption or substitution of
outstanding grants from an acquired company shall not reduce the shares
available for Awards under the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee (subject, in the case of Incentive
Stock Options, to any limitation required under the Code) shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Committee
may make provision for a cash payment with
-3-
<PAGE>
respect to an outstanding Award, provided that the number of shares subject to
any Award shall always be a whole number.
Section 6. Stock Options
-------------
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code or any successor provision and any regulations
thereunder, and no Incentive Stock Option may be granted hereunder more than ten
years after the Effective Date.
(b) The Committee shall establish the option price at the time each Option
is awarded, which price shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of award with respect to Incentive Stock Options.
Nonstatutory Stock Options may be granted at such prices as the Committee may
determine.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.
(e) The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery or retention of shares to the Company
in payment of an Option, the Participant automatically be awarded an Option for
up to the number of shares so delivered.
Section 7. Stock Appreciation Rights
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs granted in
tandem with Options shall have an exercise price not less than the exercise
price of the related Option. SARs granted alone and unrelated to an Option may
be granted at such exercise prices as the Committee may determine.
(b) An SAR related to an Option, which SAR can only be exercised upon or
during limited periods following a change in control of the Company, may entitle
the Participant to
-4-
<PAGE>
receive an amount based upon the highest price paid or offered for Common Stock
in any transaction relating to the change in control or paid during the thirty-
day period immediately preceding the occurrence of the change in control in any
transaction reported in the stock market in which the Common Stock is normally
traded.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares
shall be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The committee shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares awarded for
such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares that have been earned
on the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Committee may award shares
of Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Committee, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
to the Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
-5-
<PAGE>
Section 10. Stock Units
-----------
(a) Subject to the provisions of the Plan, the Committee may award Stock
Units subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration as may
be required by applicable law.
Section 11. Other Stock-Based Awards
------------------------
(a) Subject to the provisions of the Plan, the Committee may make other
awards of Common Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Common Stock, including without
limitation convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based Awards may be
granted either alone or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.
(b) The Committee may establish performance goals, which may be based on
performance goals related to book value, subsidiary performance or such other
criteria as the Committee may determine, Restricted Periods, Performance Cycles,
conversion prices, maturities and security, if any, for any Other Stock-Based
Award. Other Stock-Based Awards may be sold to Participants at the face value
thereof or any discount therefrom or awarded for no consideration or such
minimum consideration as may be required by applicable law.
Section 12. General Provisions Applicable to Awards
---------------------------------------
(a) Reporting Person Limitations. Notwithstanding any other provision of
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3, Awards made to a Reporting Person shall not be transferable by such
person other than by will or the laws of descent and distribution or, if then
permitted by Rule 16b-3, pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder.
(b) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type
of Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
-6-
<PAGE>
(d) Settlement. The Committee shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Company,
Awards or other property. The Committee may permit a Participant to defer all or
any portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
(e) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(f) Termination of Employment. The Committee shall determine the effect
on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(g) Change in Control. In order to preserve a Participant's rights under
an Award in the event of a Change in Control (as defined below), the Committee
in its discretion may, at the time an Award is made or at any time thereafter,
take one or more of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or realization of the Award, (ii)
provide for the purchase of the Award upon the Participant's request for an
amount of cash or other property that could have been received upon the exercise
or realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the Change in Control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
As used herein, a "Change in Control" of the Company shall be deemed
to have occurred upon the occurrence of any of the following:
(A) Any transaction or series of transactions, as a result of which
any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder) (a "Person") is or becomes a "beneficial
owner" (as defined in Rule 13d-3 under such act), directly or
indirectly, of securities of the Company representing thirty
percent (30%) or more of the combined voting power of the
Company's then outstanding voting securities (the "Company's
Outstanding Voting Securities"); provided, however, that a Change
in Control shall not be deemed to have occurred solely because of
the acquisition of securities of the Company by (1) one or more
employee benefit plans or related trusts established for the
benefit of the employees of the Company or any Affiliate of the
Company; or (2) any Person when such acquisition (a) is effected
primarily to prevent the Company from being declared insolvent
and (b) is approved by the Board of Directors of the Company (the
"Board").
-7-
<PAGE>
(B) Any change in the membership of the Board such that individuals
who are Incumbent Directors (as defined herein) cease for any
reason to constitute at least a majority of the Board. The
Incumbent Directors shall be (1) those members of the Board who
were Directors as of April 15, 1996 and who have served
continuously as Directors since such date, and (2) any other
member of the Board who subsequently became a Director and whose
election or nomination for election by the Company's stockholders
at the beginning of his or her current tenure was approved by a
vote of at least a majority of the Directors who were then
Incumbent Directors, except that no individual shall be an
Incumbent Director if such individual's initial assumption of
office as a Director occurred as a result of an actual or
threatened election contest with respect to the election or
removal of Directors, or other actual or threatened solicitation
of proxies or consents, by, or on behalf of, a Person other than
the Board.
(C) The consummation of a reorganization, merger, consolidation, sale
or other disposition of all or substantially all of the assets of
the Company, or similar transaction (a "Business Combination"),
unless all of the following conditions are met:
(1) the individuals and entities who are the beneficial owners
of the Company's Outstanding Voting Securities immediately
before the consummation of the Business Combination would
beneficially own, directly or indirectly, securities
representing more than 50% of the outstanding combined
voting power of the voting securities that would be
outstanding and entitled to vote generally in the election
of the governing body of the corporation or other entity
resulting from such Business Combination (including, without
limitation, a corporation or other entity that as a result
of such transaction would own the Company or all or
substantially all of the Company's assets, either directly
or through one or more subsidiaries) (the "Resulting
Entity"), and the securities of the Resulting Entity that
would be owned by such beneficial owners of the Company's
Outstanding Voting Securities would be owned by them in
substantially the same proportions as they own the Company's
Outstanding Voting Securities;
(2) no Person (excluding any corporation or other entity
resulting from such Business Combination, and excluding any
employee benefit plan or related trust of the Company or of
such corporation or other entity resulting from such
Business Combination) would beneficially own, directly or
indirectly, 30% or more of the combined voting power of the
outstanding voting securities of the Resulting Entity except
to the extent that such ownership existed before the
Business Combination; and
-8-
<PAGE>
(3) at least a majority of the members of the board of directors
of the Resulting Entity would be persons who were Incumbent
Directors at the time of the execution of the initial
agreement or of the action of the Board providing for such
Business Combination.
(D) Approval by the Company's stockholders of a liquidation or
dissolution of the Company (unless the liquidation or dissolution
is part of a Business Combination excepted from clause (C)
above).
(E) The close of business on the latest of the following dates:
(1) the date that a tender or exchange offer by any Person
(other than the Company, any Affiliate of the Company, or
any employee benefit plan or related trust established for
the benefit of the employees of the Company or any Affiliate
of the Company) that, if consummated, would result in such
Person becoming a "beneficial owner" (as defined in clause
(A) above), directly or indirectly, of securities of the
Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding
voting securities, is first published or sent or given
within the meaning of Rule 14d-2(a) of the Securities
Exchange Act of 1934, as amended, and the rules and
regulations thereunder;
(2) the date upon which all regulatory approvals required for
the acquisition of securities pursuant to the tender or
exchange offer referred to in clause (1) have been obtained
or waived; or
(3) the date upon which any approval of the security holders of
the Person publishing or sending or giving the tender or
exchange offer referred to in clause (1) required for the
acquisition of securities pursuant to such tender or
exchange offer is obtained or waived."
(h) Loans. The Committee may authorize the making of loans or cash
payments to Participants in connection with any Award under the Plan, which
loans may be secured by any security, including Common Stock, underlying or
related to such Award (provided that such Loan shall not exceed the Fair Market
Value of the security subject to such Award), and which may be forgiven upon
such terms and conditions as the Committee may establish at the time of such
loan or at any time thereafter.
(i) Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to
the
-9-
<PAGE>
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(j) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
(k) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 13. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the stockholders of the
Company, the Plan shall be effective on the Effective Date. Before such
approval, Awards may be made under the Plan expressly subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, subject to any stockholder approval that the
Board determines to be necessary or advisable.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
-10-
<PAGE>
____________________________________________
. Plan adopted by the Board of Directors on May 19, 1993.
. Plan approved by the stockholders on May 19, 1993.
. Amendments adopted by the Board of Directors April 15, 1994 and
approved by the Shareholders May 25, 1994.
. Amendments adopted by the Board of Directors April 15, 1996.
-11-
<PAGE>
(Company Letterhead) Exhibit 10.2
March 20, 1996
Mr. David Wilcox
132 Amory Street #4
Brookline, MA 02146
Dear David:
This letter will confirm our conversation in which we offered you the position
of Senior Vice President of Corporate Marketing, effective immediately, at the
same base salary and bonus compensation package you currently receive.
You indicated that you did not want to accept this position and would prefer to
terminate your employment and receive severance in accordance with the
termination benefit contained in your offer letter. Your last day of employment
will be March 22, 1996. At that time you will receive payment for 323.85 hours
of accrued vacation. Under the severance portion of your offer letter, you are
entitled to salary continuation at your base salary rate for four months plus an
additional month for each full year of service or seven months, for a total of
eleven months. The Company will increase that benefit and continue your base
salary for a total of twelve months. You acknowledge that you are not entitled
to any other compensation on any other basis including salary, bonus or
commission.
Additionally, during the course of your employment, you have been granted a
number of options under the Company's Equity Incentive Plan, some portion of
which have vested. Under the Company's Equity Incentive Plan, you must exercise
your options on the vested shares within 90 days of the termination of your
employment. At that time, all unexercised options will terminate.
You may continue your health care coverage at the group rate under COBRA by
paying the premium until you secure coverage from another source or for a
maximum of eighteen months whichever is less. You will receive a separate
notice of your COBRA rights.
You acknowledge that you continue to be bound by the non-compete and non-
disclosure agreements that you signed during the course of your employment.
Additionally, you have been named an individual defendant in a class action
lawsuit that is pending against Dataware in federal district court in Boston.
You agree that you will continue to cooperate with Dataware in the defense of
that case. Dataware agrees that it will continue to indemnify you with respect
to that case on the same basis as when you were employed by the Company. You
further agree that you will not make any statements or take any actions that
would disparage Dataware.
<PAGE>
Mr. David Wilcox, Page 2
In exchange for the increased severance payment and the other benefits outlined
above, you hereby fully, forever, irrevocably and unconditionally release,
remise and discharge Dataware Technologies from any and all manner of claims,
charges, complaints, demands, actions, causes of action, suits, rights, debts,
dues, sums of money, costs, losses, accounts, reckonings, covenants, contracts,
promises, liabilities and expenses (including attorneys' fees and costs), of
every kind and nature whatsoever, whether known or unknown, either at law, in
equity, or mixed which you ever had, now has or may have by reason of any matter
or thing which has happened, developed, or occurred before the signing of this
Agreement including, but not in limitation of the foregoing general terms, any
claims, asserted or unasserted, arising from your employment with or separation
from Dataware, and specifically including any claims you may have under any
federal or state labor, employment or discrimination laws, including but not
limited to, Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination In Employment Act of 1967, as amended, the Fair Labor Standards
Act of 1938, as amended, the Americans with Disabilities Act of 1992, Chapter
151B of the Massachusetts General Laws, Sections 24A-24J of Chapter 149 of the
Massachusetts General Laws, the Massachusetts Civil Rights Act, the
Massachusetts Equal Rights Law, or at common law. It is expressly agreed and
understood that this release is a General Release, provided that this release
shall not serve as a release of claims arising out of this agreement. Nothing in
this agreement shall be deemed to alter your rights in the 401(k) plan as set
forth in the plan documents.
Dataware shall not withhold any moneys due you under this agreement, on the
grounds that you have breached your obligations under this agreement or under
the non-compete and non-disclosure agreements,without first giving you a) 30
days prior written notice describing in detail the alleged breach and b) an
opportunity to cure the alleged breach within 30 days of the notice.
All disputes related to or arising out of this agreement shall be submitted to
binding arbitration before the American Arbitration Association ("AAA") in
accordance with the AAA's usual procedures for conducting arbitration. The
arbitration shall be conducted by a single arbitrator selected in accordance
with the AAA's procedures for selecting arbitrators and shall be held in the
Boston area. The parties shall bear equally the costs of arbitration and each
party shall bear their own attorney's fees.
Since this is a binding legal document, you should consider it carefully before
signing. You should consult with an attorney if you wish to do so. If you wish
to accept the severance package set out in this letter please sign the enclosed
copy of this letter and return it to me. You may have up to twenty-one days to
decide whether to accept this severance agreement and release and you may have
up to seven days after signing to rescind your acceptance. Therefore the
agreement will not become binding until seven days after you have accepted it.
Sincerely,
DATAWARE TECHNOLOGIES, INC.
Kurt Mueller
Kurt Mueller
Chairman and CEO
I have read the foregoing terms, fully understand them and freely accept them.
David Wilcox
________________________________________
David Wilcox
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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