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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
incorporation or organization) identification No.)
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g)
OF THE SECURITIES EXCHANGE ACT OF 1934:
Common Stock, Par Value $.01 Per Share
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to
this Form 10-K. [_]
Aggregate market value of Registrant's voting stock held by non-affiliates of
the Registrant as of February 28, 1997: $27,152,464
Shares of Common Stock outstanding as of February 28, 1997: 6,641,707
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders to be held on May 23, 1997 (the "1997 Proxy Statement") are
incorporated by reference into Part III of this Report.
Exhibits Index at Page 46
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PART I
ITEM 1. BUSINESS
OVERVIEW
Dataware's base business is software and services for high-end
electronic publishing. Through its direct sales and service organizations (20
offices worldwide), the Company has developed relationships with more than
2,000 blue chip customers serving over 800,000 end users.
Dataware's sophisticated software products and extensive services
enable customers to maximize the advantage of the latest information
technologies, such as the Internet, intranets, CD-ROM, client/server, and
multimedia. The Company's software systems, applications, and custom software
are designed to enable customers to successfully deploy real-world applications
that save money, increase productivity, generate increased revenue and profit,
and create competitive advantages. Dataware's base business is a "customer
intimate" business with substantial recurring revenues. Customer relationships
tend to last for many years. Dataware derives recurring revenues from software
licenses, software maintenance, and service revenues from updating existing
customers' electronic publishing applications.
The Company was incorporated in Delaware on March 15, 1988.
Significant operations of the Company did not commence until October 1, 1988
upon the purchase of the worldwide rights to certain software developed by
Dataware 2000 GmbH and the acquisition of its United States distributor.
Acquisitions of related businesses have contributed significantly to the
Company's growth since 1991. Effective April 1991, the Company acquired all of
the outstanding shares of its German distributor, Dataware 2000 GmbH, in return
for cash and stock. Effective April 1992, the Company completed the acquisition
for cash of the CD-ROM business of its United Kingdom distributor, Archetype
Systems, Ltd. Effective April 1992, the Company completed the acquisition for
cash of substantially all the assets of Reference Technology, Inc., a software
and services company headquartered in Boulder, Colorado. On December 31, 1993,
the Company acquired for cash all of the outstanding shares of Megalith
Technologies, Inc., its Canadian distributor. During the first quarter of 1994,
the Company acquired three businesses: it acquired the assets of its Swedish
distributor, PCD Consult AB, in exchange for assuming certain liabilities; it
acquired the assets and assumed certain liabilities of BRS Software Products,
for cash; and it acquired for cash, all the outstanding shares of another of its
Canadian distributors, OPTIM Corporation. On December 30, 1995, the Company
acquired Ledge Multimedia, Inc. ("Ledge"), a multimedia services and software
Company, by merger in exchange for Dataware stock which was accounted for as a
pooling of interests. During the first quarter of 1996, the Company acquired for
cash and common stock of the Company, all of the outstanding shares of Status/IQ
Ltd., located in the United Kingdom. During the second quarter of 1996, the
Company acquired the assets and assumed the liabilities of S Cube srl of Milan,
Italy for cash. Finally, during the third quarter of 1996, the Company acquired
for cash and common stock of the Company, Ntergaid Inc. of Milford, CT, through
the merger of a wholly owned subsidiary of the Company with Ntergaid. Additional
information about the development of the Company's business during the past year
is contained in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
INDUSTRY
The Company competes in four major application areas: CD-ROM software and
services, text management software, software and services for on-line/Internet
applications, and electronic publishing management systems. Increasingly, these
application areas are overlapping, as hybrid-media solutions are requested by
customers.
CD-ROM software and services
CD-ROM is primarily used as a medium for distributing large amounts of
electronic information to multiple locations in a compact format. CD-ROM
competes primarily with other distribution media such as paper (print media),
microfiche and on-line information delivery. The advantages of CD-ROM derive
primarily from the combination of large storage capacity, low cost (in volume),
very compact form and random access, which permits electronic searching and
multimedia display.
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There are numerous examples of applications which require these features.
Magazine and newspaper publishers are generating incremental revenues and
profits by publishing their historical information on CD-ROM for purchase by
libraries, industry analysts and other professionals. Leading manufacturers are
improving the effectiveness of sales and service personnel by distributing
broad-based and constantly changing product information on CD-ROM, including
comprehensive parts, prices and specifications databases. Government agencies
are replacing warehouses of policy and procedure manuals, regulations and forms
with CD-ROM based information products.
Dataware recognized early on that CD-ROM technology presented significant
opportunities for organizations to reduce costs and generate additional revenues
by distributing large amounts of information in a compact, portable format.
However, in order to enable customers to take full advantage of these
opportunities, two important additional building blocks were required:
specialized authoring software and services, and CD-ROM optimized retrieval
software.
Specialized authoring software and services are required because of the
many challenges involved in capturing, converting, indexing and preparing
information from various source formats to make it appropriate for CD-ROM media.
CD-ROM optimized retrieval software is required because of the inherent slowness
of CD-ROM hardware technology: although a CD-ROM disc often contains 100 times
more information than the typical PC database, the rate at which the CD-ROM
drive can get to the various locations on the disc (the "average seek time") is
at least 10 times slower than a magnetic disk.
Dataware responded to these requirements by developing a comprehensive
suite of authoring and retrieval software products and services. The Company's
authoring software and services enable CD-ROM publishers to design applications,
create appealing user interfaces, define data structures, import information
from a variety of native sources, convert it to formats appropriate for CD-ROM
deployment, index it to expedite searching and retrieval, and prepare the
information for premastering, mastering and replication of finished CD-ROM
discs. The Company's retrieval software, which is typically incorporated
directly on the CD-ROM or CDR disc, includes both the search engine that rapidly
locates the desired information as well as a user interface that presents
options, assists in framing queries and enables the end user to navigate through
the information on the CD-ROM disc.
The Company believes that its advanced CD-ROM software and extensive
services meet the needs of customers by providing a comprehensive set of
solutions for creating, updating, distributing and supporting professional,
educational, and consumer CD-ROM applications.
Text management software
Studies show that only 10% of the information in most organizations
is structured and resides in database management systems. The other 90% is
unstructured information of various types, mostly textual in nature. Fast,
accurate, and thorough updating and retrieval of information from large
collections of text requires novel systems and approaches that go beyond
automating manual processes, and require software which is fundamentally
different than that used for structured database management. The task is complex
because text is relatively unstructured and subject to linguistic
interpretation. As a result of these requirements, a market for text document
management and retrieval software has developed.
Text document management and retrieval software is used in a variety
of application areas, including accounting, for tax procedures, legislation, and
standards; corporate, for document management, document image processing, and
workflow; education, for on-line public access catalogs and research databases;
specifications, plans, drawings, charts, and microfilm indexing; financial
services, for procedures, workflow integration, and skills registers;
government, for policies and procedures, defense and intelligence, and
regulatory compliance; legal, for litigation support, conflict of interest, and
attorney work product; medicine, for patient records, clinical notes, and
discharge summaries; pharmaceuticals, for product details, supplier details, R&D
reports, and abstract libraries; police and security, for criminal records,
incident reports, and firearm registers; and publishing, for editorial content,
cross-reference validation, and on-line hosting.
Dataware participates in this market area through the BRS/Search and
NetAnswer software product families. These products are used in mission-critical
and mission-support systems throughout the world to manage collections
("repositories") of unstructured information, including word processor files,
research papers, market reports, project files, supplier details, product
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specifications, articles, memos, precedents, case notes, transcripts,
depositions, regulations, standards, resumes, e-mail, and plans with associated
charts, tables, diagrams and photographs. These repositories can be accessed
over LAN's, WAN's, or the Internet.
Software and services for on-line/Internet information distribution
Software and services for on-line/Internet applications is the third
major application area where Dataware is active. Dataware sells server software
(NetAnswer, BRS/Search, CD Answer, and Electronic Publishing Management Systems
("EPMS")), user interface development tools (Total Recall, HLI, ADL, and EPMS
SDKs) and services to assist information providers in developing on-
line/Internet applications. These applications are deployed through proprietary
or publicly available networks (e.g. Internet).
Historically, the market for commercial on-line information
distribution has been dominated by a few large competitors in most sectors
("traditional on-line services") who have their own proprietary software (e.g.
Dialog, Mead Data Central, WestLaw, Orbit, CompuServe, America On-line). These
services obtain information from a variety of different providers and resell it
through their proprietary networks to targeted groups of end users, e.g. Dialog
to libraries, Mead and WestLaw to attorneys, Orbit to patent attorneys,
CompuServe and AOL to consumers.
Dataware believes that the long-run model for the future of the
commercial on-line business in many segments will be quite similar to the CD-ROM
model, i.e. information providers will take control of their own destinies in
order to control product quality, obtain more direct relationships to customers,
and most importantly, to obtain a much larger slice of the value added which
accrues to their information content. They will accomplish this by purchasing
best-of-breed services, software, and hardware in order to provide their own
targeted on-line services.
Dataware believes that many of these commercial on-line services will
be provided through the Internet, or its descendants. The Internet is a loose
collection of millions of computers at thousands of sites around the world whose
users can pass along information and share files using a common protocol
(Transmission Control Protocol/Internet Protocol, or "TCP/IP").
The Internet opportunity for Dataware is two-fold: 1) sell server
software (e.g. Net Answer and EPMS) to information providers and 2) sell
services to help information providers prepare and deliver their content and
applications for the Internet. The markets for both of these categories are
still in their infancy, but have the potential for explosive growth as
traditional information providers move to take advantage of this new electronic
distribution option.
Electronic Publishing Management Systems
Organizations are grappling today with unprecedented information
access and delivery challenges. The changes brought on by rapid growth and
constant restructuring in these organizations result in lost knowledge, islands
of information, and redundancies and duplication in work efforts. Geographic
isolation of workers means inefficiencies and knowledge workers not
communicating. However, rapid changes in technology, the competitive
environment, and users' experiences and expectations is causing a revolution in
the way organizations create, manage, and access information of all types.
Providing timely and accurate information to knowledge workers is a
publishing process, and these environmental changes highlight the need for
efficient and effective publishing activities. Industry studies indicate that
publishing consumes 12% to 15% of corporate revenues. Today, every business's
second business is publishing, because every business runs on information.
Organizations are starting to realize bottom-line benefits from
installing Internet and intranet applications. Intranets are inside-the-
organization networks that employ the same common protocol for communication and
file sharing as the public Internet (TCP/IP). Many of these are publishing
applications, such as product and technical documentation, policy and procedures
manuals, as well as commercial publishing applications such as on-line
encyclopedias. The market opportunity for Dataware is selling products and
services to assist these organizations in making their publishing processes run
efficiently and effectively. Dataware participates in this market with a product
introduced in 1996 - Dataware EPMS. EPMS is a new type of electronic publishing
management system specifically designed to help organizations manage the often
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complex and expensive process of electronic publishing.
CORPORATE STRATEGY
The Company's key objectives are to create high levels of customer
satisfaction, to deliver superior long-term returns for shareholders, and to
create a challenging and enjoyable work environment for employees. To achieve
these objectives, Dataware is pursuing a strategy which includes the following
key elements:
Focus on fast growth market areas
Dataware focuses on fast growth market areas where the Company's core
competencies apply. The Company believes that it has five core competencies at
the present time: CD-ROM software, software for managing and retrieving text and
unstructured information, specialized information conversion and processing
software and services, applications development software and services, and
worldwide direct sales, marketing and services capabilities. These competencies
are applied to four fast growth application areas: CD-ROM, text management, on-
line/Internet applications, and electronic publishing management systems. Each
of these areas is projected to grow in excess of 20% annually for the next
several years, according to industry sources.
Close relationships with customers
Dataware views the long-term partnerships with its customers as a
critical element in the Company's historical and future success. In order to
continue to meet their needs in a timely fashion, the Company works directly
with existing and prospective customers to identify and develop new product
features and functionality and to offer new and improved services. To promote a
close and continuing relationship with customers, Dataware sells to and supports
customers primarily through direct sales and service organizations in North
America, Europe, Australia and Singapore.
Recurring business
The Company's marketing, pricing and support strategies are focused
on the generation of both one-time and recurring revenues. Many of the Company's
customers are involved in developing CD-ROM applications where the information
content by its nature needs to be updated on a regular basis, thus providing
Dataware with recurring annual or per disc software licenses and/or repeat
services business. Other customers purchase text management software from the
Company and wish to acquire annual maintenance contracts for the updating and
support of these software products. In 1996, recurring revenues represented
approximately 51% of total revenues.
Market and technology leadership
Dataware continuously strives for leadership in its chosen market areas,
both in terms of market share and technology leadership. This can be
accomplished through a combination of internal growth and development, as well
as through selected acquisitions.
Comprehensive product and service offering
Dataware's comprehensive set of products and services distinguishes
the Company from its competitors. Many competitors offer only a single product
type, such as text retrieval, or do not offer the full complement of specialized
services to enable large organizations to develop text management systems, CD-
ROM titles, or on-line/Internet services. Dataware provides a broad range of
software tools, information conversion and processing services and systems
integration products and services to enable these organizations to develop and
update their applications. The Company's complete product and service offerings
permit customers to migrate smoothly at any time from Dataware provided
services to in-house production.
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Global marketing and distribution
The Company operates direct sales, marketing, and support operations
in 10 countries: Australia, Canada, Denmark, France, Germany, Italy, Singapore,
Sweden, United Kingdom, and the United States. In addition Dataware works with
distribution partners in many other areas of the world, including Japan,
Southeast Asia, Europe, and South America. This organization permits Dataware to
serve both local and multi-national customers more effectively, and to better
meet their short and long term needs.
Diversified revenue base
The Company has created and intends to maintain a diversified revenue
base along several dimensions: geographic, customer and product mix. Since its
founding, Dataware has devoted substantial resources to international product
development, marketing and sales, and a significant proportion of the Company's
revenues is derived from international customers. Dataware sells products and
services to customers in several market segments, including commercial
publishing, corporate, government, higher education, and legal. These customers,
in turn, employ the Company's products and services to create a wide variety of
different applications. No customer accounted for more than 5% of total revenues
in 1996.
Selective acquisitions
Since 1991, the Company has continued to selectively acquire related
businesses that will broaden its customer base, allow the development of more
direct customer relationships, and provide important new products and services
for customers.
PRODUCT STRATEGY
The Company's product strategy is to address the evolving needs of its
markets by meeting the following key objectives:
Technological leadership
Dataware intends to maintain and enhance its technological leadership
position through continued investments in its core software products and through
the introduction of new products. The key areas of planned software development
include Internet-related applications, improved information presentation and
display (e.g. formatted data, text, tables, mathematics, images, multimedia,
etc.), enhanced information retrieval (e.g. natural language, relevance ranking,
semantic networks, associative indexing, document clustering, etc.), more
extensive information processing capabilities (e.g. SGML parsing, word processor
conversions), better graphics processing, faster indexing, and improved
compression. In addition to internal development, the Company may also license
or acquire appropriate third party technology to achieve its goals.
Open systems architecture
The Company's open systems architecture permits customers to attach
their own user interfaces or to use third party tools to develop front ends for
their applications. This approach gives customers flexibility to determine the
look and feel of their applications. In addition, the Company has designed its
software so that it can easily be integrated into the broader systems and
computing environments of the customer organization. For example, Dataware
software applications have been integrated with on-line ordering systems,
relational databases, document management systems, imaging solutions, and with
desktop productivity software.
Multi-platform and multi-lingual
Dataware's strategy is to offer software that runs on multiple platforms
and with user interfaces in multiple languages. These multi-platform and multi-
lingual capabilities are important to commercial publishers seeking to increase
their revenues and to other large organizations seeking to reduce the costs of
distributing information into heterogeneous computing environments worldwide.
The ability to deploy applications across various computing platforms and in
multiple languages also minimizes manufacturing and handling costs. Advanced
multi-platform and multi-lingual capability distinguishes Dataware from
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competitors. Dataware's software products can be used to create applications
with user interfaces in up to 15 languages, including English, French, German,
Spanish, Italian, Russian and Japanese (Kanji).
Support for industry standards
The Company supports official standards and de facto standards where
these are important for competitive success. Some of the important standards
which the Company currently supports or intends to support include Microsoft
DOS, Microsoft Windows (WIN 3.1, WIN 95 and WIN NT), Standard Generalized Markup
Language (SGML), Open DataBase Connectivity (ODBC), HyperText Markup Language
(HTML), World Wide Web (WWW), and Z39.50. Dataware constantly reviews various
standards to determine if new standards are becoming important, or if existing
standards can be removed from the supported list.
PRODUCTS AND SERVICES
The Company's revenues are derived from two primary sources: software and
services.
Software
Dataware's CD-ROM software products allow integration of data, text,
graphics and multimedia in the same CD-ROM application. The Company has
optimized its CD-ROM software products for enhanced retrieval performance and
user-friendliness across a broad range of delivery platforms. Dataware's major
CD-ROM software products are CD Author Development System, CD Answer retrieval
software and CD Author Advanced Design Library.
The company's primary text management product line is BRS/Search.
BRS/Search provides fast, authoritative, and uniform multi-user access to all
types of information including text, images, data, graphics, and multimedia such
as audio and video. BRS/Search is an open product, which can be integrated with
other systems through the use of add-on products such as WordPlus. BRS can be
integrated with relational databases (RDBMS), word processors, document image
processing (DIP) systems, and other office automation systems. BRS/Search
provides multiple customization options which conform to established working
practices, including Dataware software tools and other 4GL tools such as Visual
Basic(R), Powersoft(R), and SQL Forms(R). State-of-the-art technological
innovations in information searching including natural language, concept
searching, and semantic networks can be added to BRS/Search to enhance
applications.
In the on-line/Internet area, Dataware offers NetAnswer, a
comprehensive, off-the-shelf, Internet software offering. A robust information
management, query, and retrieval system for the World Wide Web, NetAnswer
software enables information providers to distribute large volumes of data,
text, and multimedia content via the Internet. NetAnswer includes extensive
accounting and security features for publishers planning to sell or monitor
access to information and is optimized for many users accessing large databases.
The software includes sophisticated capabilities such as multi-fielded searches,
thesauri and concept searching, relevance ranking, and user-customized search
and display formats.
Dataware has created a new generation software product family -
Dataware EPMS - the first enterprise Electronic Publishing Management System,
based on its extensive experience in developing hundreds of high-end electronic
publishing applications. As the content available on the Internet moves from the
initial "brochure-ware" phase towards mainstream information applications, the
Dataware EPMS is intended to meet the emerging needs of corporate and commercial
publishers for managing their mission-critical electronic publishing activities.
Dataware EPMS has been architected to enable organizations to create consistent,
compelling electronic publications from a wide variety of source information
types, such as word processors, groupware, database management, document
management, composition, HTML and SGML systems. Information is managed within an
industry-standard (SGML ISO-8879), open publishing repository, and can be
refined and packaged for delivery simultaneously to the Internet, intranet, CD-
ROM, DVD-ROM and client/server systems, providing the flexibility to deliver
cost-effective, custom publications to highly targeted audiences. Dataware EPMS
is expected to generate revenue from the sale of developer seats, server
licenses with concurrent user pricing, end-user licenses, software maintenance,
and support services. Version 1.0 of Dataware EPMS shipped during the fourth
quarter of 1996.
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Dataware offers several additional software products, modules, object
libraries and utilities, which generate smaller amounts of revenue for the
Company.
Services
Dataware provides an extensive range of services to support customers
in their use of Dataware software products. These include: data capture, data
preparation, database hosting, software support, training, software maintenance
and custom software development services. Dataware's services may be
characterized as one-time, such as legacy data capture, project setup and user
interface development services, or recurring, such as update conversion,
indexing, pre-mastering and mastering services for monthly, quarterly or other
periodic updates, and annual software maintenance services.
Historically, the Company's revenues have been somewhat more heavily
oriented toward services, in part due to the acquisitions during the past
several years. Management anticipates that the Dataware EPMS offering will help
improve the proportion of higher margin software sales in the revenue mix going
forward.
SALES AND MARKETING
The Company's sales and marketing organization, consisting of 122
persons, operates from the Company's headquarters in Cambridge, Massachusetts
and its European headquarters in Munich, Germany. In addition, the Company
maintains sales offices in fifteen other cities in the United States, Canada,
Europe, Australia, and Singapore.
The Company's direct sales force allows Dataware to better assess and meet
customer needs. The direct sales effort is closely supported by sales
engineering and pre-sales consulting personnel. These individuals assist the
sales force in understanding the technical needs of customers and provide
responses to these needs, including product demonstrations and prototypes,
pricing quotations and time estimates.
The Company conducts marketing at three levels: corporate marketing,
business unit marketing, and product marketing. Corporate marketing is focused
on company positioning, public relations and investor relations. Business unit
marketing is focused on generating leads for the local sales organizations
through trade shows, mailings, telemarketing, etc. in order to more deeply
penetrate the key market segments in each local country. Product marketing is
focused on creating more demand for Dataware's software products through
installed base marketing and new product marketing (e.g. Dataware EPMS).
The Company's direct sales and marketing organization is complemented by
its network of authorized distributors and VARs throughout the world. Dataware
continuously evaluates new potential distribution partners who may provide
improved access to selected vertical or geographic markets.
CUSTOMERS
More than 1,200 customers did business with Dataware Technologies in
1996, and Dataware software has been deployed by more than 2,000 customers
worldwide. Dataware software has now been used to produce 1,080 CD-ROM titles.
At year's end, there were an estimated 840,000 end users of Dataware software
products.
Dataware's customer base is broad and diverse. In 1996, no single
customer accounted for more than 5 percent of total revenues. Sales from
operations outside North America comprised about 48% of Dataware revenues in
1996, 42% in 1995, and 43% in 1994.
An estimated 51% of total 1996 revenues came from recurring sources,
such as annual renewals of retrieval software subscriptions and per disc
licenses, CD-ROM update services, and software maintenance fees.
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PRODUCT DEVELOPMENT
Software products are developed in small to medium sized teams typically
consisting of a product marketing specialist, product manager, development
manager, software architect, software engineers, QA and documentation
specialists. All newer development projects are focused on object-oriented
design and development using C++ or Java, with a further focus on Windows NT as
the strategic operating system platform.
The Company's current development focus is to continue to enhance the
features, performance and functionality of its products, to port its products to
new development and distribution platforms and to develop or license additional
complementary products and technologies.
The key areas of planned software development include Internet-related
software, improved information presentation and display (e.g. formatted data,
text, tables, mathematics, images, multimedia, etc.), enhanced information
retrieval (e.g. natural language, relevance ranking, semantic networks,
associative indexing, document clustering, etc.), more extensive information
processing capabilities (e.g. SGML parsing, word processor conversions), better
graphics processing, faster indexing, and improved compression. In addition to
internal development, the Company may also license or acquire appropriate third
party technology to achieve its goals.
During 1996, 1995 and 1994, the Company's expenditures in research and
development, including capitalized software costs, were $10,100,000, $6,602,000,
and $5,290,000, representing 27%, 16% and 16% of revenues, respectively. As of
December 31, 1996, the Company had 99 full-time employees engaged in product
development activities.
COMPETITION
Competition in Dataware's base business varies by (a) geography, e.g. North
America, Europe, Asia; (b) type of customer, e.g. commercial, corporate,
government agency; (c) market segment, e.g. yellow page telephone directory
publishers, and (d) application category - from high-end, complete software and
service solutions to pure software sales. In North America, competitors include
Folio (OMKT), Electronic Book Technologies (INSO), Fulcrum (FULCF), Verity
(VRTY) and IDI. In Europe and Asia, competitors include MPW Lasec, TRIP
(Fulcrum), and IDI. Dataware competes by focusing on electronic publishing
applications within its key market sectors. Dataware believes that it is
differentiated in the market by its more complete set of products and services
than the competition. Some of the competitors sell only software with few
supporting services, and some are search engine companies without Dataware's
specific focus on electronic publishing applications.
Many of the Company's existing and potential competitors have longer
operating histories and significantly greater financial, technical, sales,
marketing and other resources than the Company. Furthermore, as the markets
grow, a number of companies with significantly greater resources than the
Company could attempt to increase their presence in the Company's market areas
by acquiring or forming strategic alliances with competitors of the Company or
by introducing products or services specifically designed for these markets.
The principal competitive factors affecting the market for the Company's
products and services include vendor and product reputation, breadth of product
and services offering, direct and indirect sales presence, product performance,
functionality, price, ease of use, architecture, platform coverage, quality of
support and international language support. Based on these factors, the Company
believes that it has competed effectively to date. The Company expects
competition to increase and such increased competition could result in price
reductions and loss of market share for the Company. The Company must continue
to introduce enhancements to its existing products and services and new products
and services in a timely manner in order to remain competitive. In particular,
as the market for managing and distributing information grows, both new entrants
and existing customers are becoming increasingly price sensitive. Certain of the
Company's competitors are already addressing this situation with lower priced,
less sophisticated products. The Company is responding by adding lower-price
products that do not include the level of features and custom service that have
characterized traditional offerings, as well as developing appropriate
distribution channels. However, even if the Company introduces such products and
services in this manner, it may not be able to compete effectively because of
the significantly larger resources available to many of its competitors. There
can be no assurance that the Company will be able to compete successfully or
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that competition will not have a material adverse effect on the Company's
business, operating results and financial condition.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary and attempts to protect it
with a combination of copyright, trademark and trade secret laws, employee and
third party non-disclosure agreements and other methods of protection. The
Company does not rely on patent protection for its software products and
existing copyright laws afford only limited protection.
The Company generally provides its software products under non-exclusive,
non-transferable license agreements. As is customary in the software industry,
in order to protect its intellectual property rights, the Company does not sell
or transfer title to its software products to customers. Under the Company's
current standard form of license agreement, licensed authoring software may be
used solely for the customer's internal operations and only on designated
computers at specified sites. The Company relies primarily on "shrink wrap"
licenses for the protection of its retrieval software products. A shrink wrap
license agreement is a printed license agreement included within packaged
software that sets forth the terms and conditions under which the purchaser can
use the product and binds the purchaser by its acceptance and purchase of the
software products to such terms and conditions. Shrink wrap licenses typically
are not signed by the licensee and therefore may be unenforceable under the laws
of certain jurisdictions.
The Company has entered into source code escrow agreements with a number of
customers that require release of source code to such parties with a limited,
non-exclusive right to use such code in the event there is a bankruptcy
proceeding by or against the Company, the Company ceases to do business or the
Company breaches its contractual obligations to the customer. The Company has,
in certain cases, licensed its source code or portions thereof, to customers for
specific uses.
There can be no assurance that third parties will not assert infringement
claims against the Company in the future with respect to current or future
products or trademarks or that any such assertion will not result in costly
litigation or require the Company to obtain a license to intellectual property
rights of third parties. There can be no assurance that such licenses will be
available on reasonable terms or at all. As the number of software products in
the industry increases and the functionality of these products further overlap,
the Company believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend.
EMPLOYEES
As of December 31, 1996, the Company had 394 full-time employees, including
99 in product development, 122 in sales and marketing, 131 in customer services
and 42 in finance and administration. The Company's employees are not
represented by any collective bargaining organization and the Company has never
experienced a work stoppage.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the executive officers of the Company called for
by Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G to
Form 10-K is incorporated herein by reference from Part III, Item 10 hereof.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Cambridge,
Massachusetts, in a leased facility consisting of approximately 24,200 square
feet of office space occupied under a lease expiring in December, 1999. The
Company leases additional facilities and offices, including locations in Munich,
Germany; Denham, UK; Milan and Rome, Italy; Paris, France; Stockholm, Sweden;
Ontario, Canada; Sydney, Australia; Copenhagen, Denmark; Singapore;
Vienna, Virginia; Albany, New York; Maplewood, New Jersey; Walnut Creek,
California; Bloomington, Minnesota; Dublin, Ohio and Boulder, Colorado.
10
<PAGE>
The Company believes that its existing facilities and offices and additional
space available to it are adequate to meet its requirements through 1997 and
that suitable additional or alternate space sufficient to serve the Company's
foreseeable needs will be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
On November 14, 1994, two named shareholder plaintiffs, Oscar Haskell and
S. Kent Hiser, each gave notice that they had filed related class action suits
in the United States District Court for the District of Massachusetts, naming as
defendants (i) the Company, (ii) Kurt Mueller, Jeffrey Nyweide, Edward Black,
James Kearney, David Wilcox and G. Mead Wyman, each officers of the Company, and
(iii) Hambrecht & Quist and Volpe, Welty & Company, the managing underwriters of
the 1993 initial public offering of the Company's common stock.
The complaints each alleged violation of federal securities laws and fraud,
stemming from alleged misrepresentations by the defendants about the Company's
financial prospects, including projected sales volumes, during and after the
initial public offering of the Company's common stock in July 1993. According to
the complaints, the defendants' misrepresentations inflated the market value of
the Company's common stock in the period prior to the Company's announcement of
a decline in expected sales and revenues on December 8, 1993. Plaintiffs had
asked for compensatory damages (together with interest accrued), unspecified
equitable relief and fees incurred by plaintiffs in litigating the matter.
A settlement agreement was finalized and approved by the court on October
24, 1996, stipulating the Company pay to the plaintiffs $1,825,000 in cash plus
250,000 shares of the Company's common stock. The Company's insurance carrier
contributed $1,000,000 in cash towards the settlement. This settlement is not an
admission on the part of the defendants of any wrongdoing or lack of merit in
the defenses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS' MATTERS
The Company's common stock is traded in the over-the-counter market and
prices are quoted on the Nasdaq National Market under the symbol DWTI. The
following table sets forth, for the periods indicated, the high and low sale
prices for the Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
First Quarter $ 9 1/2 $ 6 1/4
Second Quarter 8 5 3/4
Third Quarter 6 1/8 3 3/4
Fourth Quarter 4 1/8 2 5/8
1995:
First Quarter $16 1/4 $10 1/4
Second Quarter 16 12 1/2
Third Quarter 15 3/4 12
Fourth Quarter 13 8
</TABLE>
11
<PAGE>
On February 28, 1997, there were 225 holders of record of the Common Stock.
No dividends have been paid on the Common Stock to date, and the Company
does not anticipate paying dividends in the foreseeable future.
The Company issued five-year warrants to purchase 30,000 shares of Common
Stock at a purchase price of $4.50 per share, effective as of November 21, 1996
(when the market price for the Common Stock was substantially below that
exercise price). The warrants were issued to a securities firm as consideration
for services performed for the Company. They were issued in a transaction exempt
from registration under (s)4(2) of the Securities Act of 1933 based on the non-
public nature of the issuance and the qualifications of the recipient.
On November 25, 1996, the Company issued 75,000 shares of Common Stock,
pursuant to the litgation settlement described in Part I, Item 3, to counsel for
the plaintiffs. The issuance was exempt from registration under (s)3(a)(10) of
the Securities Act, since the court approved the fairness of the terms and
conditions of the issuance of the shares after (i) holding a hearing, of which
all persons to whom the shares were to be issued were given notice, and (ii)
being advised that, were the settlement approved, registration of the issuance
of the shares would not be required under the Securities Act of 1933 by virtue
of the court's approval.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
Statement of Operations Data: --------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995 1994(1) 1993(1) 1992(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees $ 16,502 $ 19,996 $ 14,334 $ 7,802 $ 5,322
Services 20,957 21,128 19,525 12,231 8,541
----------- ----------- ----------- ----------- -----------
Total revenues 37,459 41,124 33,859 20,033 13,863
Cost of revenues:
Software license fees 3,437 3,125 2,057 1,023 567
Write down of intangible assets 1,926 ---- ---- ---- ----
Services 12,938 11,923 10,799 6,165 4,301
----------- ----------- ----------- ----------- -----------
Total cost of revenues 18,301 15,048 12,856 7,188 4,868
----------- ----------- ----------- ----------- -----------
Gross margin 19,158 26,076 21,003 12,845 8,995
Operating expenses:
Sales and marketing 17,679 13,754 11,118 6,447 4,817
Product development 8,144 5,040 3,954 2,080 1,168
General and administrative 6,603 5,337 4,895 3,198 2,660
Write down of goodwill and
other non-recurring charges 1,889 ----- ----- ----- -----
Merger costs ---- 171 ----- ----- -----
Charge for purchased research and development 1,861 ----- ----- 2,100 -----
----------- ----------- ----------- ----------- -----------
Total operating expenses 36,176 24,302 19,967 13,825 8,645
----------- ----------- ----------- ----------- -----------
Income (loss) from operations (17,018) 1,774 1,036 (980) 350
----------- ----------- ----------- ----------- -----------
Interest income (expense), net 386 586 549 334 (4)
Settlement of litigation (2,823) ----- ----- ----- -----
Other income (expense), net 144 86 (5) (27) (97)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (19,311) 2,446 1,580 (673) 249
----------- ----------- ----------- ----------- -----------
Provision for income taxes ---- 733 369 325 15
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (19,311) $ 1,713 $ 1,211 $ (998) $ 234
=========== =========== =========== =========== ===========
Net income (loss) per common share (2) $ (3.01) $ 0.26 $ 0.19 $ (0.44) $ (0.39)
=========== =========== =========== =========== ===========
Weighted average number of common
and common equivalent shares 6,425 6,511 6,211 3,371 1,428
=========== =========== =========== =========== ===========
Supplementary earnings per share data: (3)
Net income (loss) per common share $ (0.21) $ 0.06
=========== ===========
Weighted average number of common
and common equivalent shares 4,644 3,980
=========== ===========
</TABLE>
13
<PAGE>
Balance Sheet Data
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
(In thousands) 1996 1995 1994(1) 1993(1) 1992(1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 2,649 $ 11,121 $ 10,200 $ 8,867 $ 1,291
Total assets 25,376 41,314 36,456 32,396 7,272
Notes, software license payable, and capital leases, ----- 4 210 448 165
less current portion
Convertible preferred stock ----- ----- ----- ----- 9,781
Stockholders' equity (deficit) 14,418 32,216 28,738 27,600 (5,819)
</TABLE>
(1)Restated to reflect pooling of interests with Ledge
Multimedia, Inc.
(2)Reflects accretion of preferred stock of $480,000
and $789,000 in 1993 and 1992, respectively
(3)Reflects the conversion of all issued and
outstanding shares of
Redeemable Convertible Preferred Stock into
2,313,463 shares of Common Stock
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DOC #2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW:
Dataware's revenues are composed of software license fees and service
revenues. The overall gross margin of the Company fluctuates depending upon the
mix of business among these categories of revenues.
In recent years, recurring revenue has been a significant portion of total
revenues, comprising approximately 51%, 44% and 38% of total revenues for 1996,
1995, and 1994, respectively. Recurring software license revenues result from
annual renewal of retrieval licenses and certain other fees. Recurring service
revenues result from CD-ROM update services, including conversion, indexing,
pre-mastering and mastering services, and software maintenance fees. The dollar
amount of recurring revenue has increased each year as the Dataware customer
base has matured, resulting in part from an increase in the average number of
CD-ROM titles per customer. The increase in recurring revenue as a percentage of
total revenues from 1995 to 1996 was due primarily to an increase in
pre-mastering and mastering services and maintenance contracts.
Acquisitions of related businesses have contributed significantly to the
Company's growth. In 1991 and 1992, the Company acquired its German and English
distributors. In 1992, the Company also completed the acquisition of Reference
Technology, Inc., a CD-ROM software and services company headquartered in
Boulder, Colorado. In 1993, the Company acquired Megalith Technologies, Inc.
("Megalith"), one of its Canadian distributors. In March 1994, the Company
acquired the consolidated software business of BRS Software Products ("BRS"),
its Swedish distributor, PCD Consult AB ("PCD"), and OPTIM Corporation, its
other Canadian distributor. On December 30, 1995, the Company acquired Ledge
Multimedia, Inc. ("Ledge"), a multimedia services and software company, by
merger in exchange for Dataware stock. Additionally, in 1996, the Company
acquired Status/IQ Ltd. ("Status") in the United Kingdom in exchange for cash,
stock and warrants and S Cube srl ("S Cube") of Milan, Italy for cash. Finally,
the Company acquired Ntergaid, Inc. ("Ntergaid") of Milford, CT through the
merger of a wholly owned subsidiary with Ntergaid in exchange for cash and
stock.
Since its inception, Dataware has generated significant revenues outside of
North America. Dataware has international direct sales organizations in Germany,
the United Kingdom, Italy, France, Sweden, Denmark, Australia, Singapore, and
Canada and has distribution agreements covering other European countries, the
Pacific Rim, and South America. The Company's sales from operations outside of
North America accounted for approximately 48%, 42% and 45% of total revenues for
1996, 1995 and 1994, respectively. The Company's foreign subsidiaries are
principally engaged in software sales, service, and distribution activities.
RESULTS OF OPERATIONS:
The Company's results for the twelve month periods ended December 31, 1995
and 1994 have been restated to combine the former systems integration category
with the services category in the revenues and cost of revenues sections in the
statements of operations. Additionally, the Company's results for the twelve
month period ended December 31, 1994 have been restated for the December 31,
1995 merger with Ledge.
1996 as Compared to 1995
Revenues
The Company's total revenues decreased 9% from $41.1 million in 1995 to
$37.5 million in 1996. This decline was due primarily to customer delays during
the early part of 1996, lower spending than anticipated by US government
agencies due in part to the partial shut-down of government functions, and
increased competition.
Software license fees decreased 17% to $16.5 million in 1996 from $20.0
million in 1995, a $3.5 million decrease. Software license fees include revenues
from systems and tools, applications and custom software products. This decrease
reflects customer delays during the first two quarters of 1996, as our customers
reviewed the impact of the Internet on their businesses, as well as increased
competition in the industry.
Service revenues decreased slightly to $21.0 million in 1996 from $21.1
million in 1995, a $171,000 decrease. Service revenues are primarily derived
from project management, custom software development, production services,
15
<PAGE>
DOC #2
software maintenance, and Ledge multimedia development. This minor change in
service revenue reflects the fact that the Company has moved away from the
systems integration business while increasing revenues from service projects.
Cost of Revenues
The total cost of revenues in 1996 was $18.3 million or 22% higher than the
$15.0 million in 1995. As a percent of total revenues, total cost of revenues
was 49% of revenues in 1996, as compared to 37% of revenues in 1995. This
increase is largely due to a $1.9 million one-time charge that was recorded in
the second quarter of 1996 for the write-down of less productive software assets
to their net realizable value. A continuing shift in product mix from software
license fees to higher cost services business due in part to acquisitions, as
well as increased fixed costs, also contributed to the increase.
Excluding the $1.9 million one-time charge referred to above, cost of
software licenses represented 21% of software license revenue in 1996, up from
16% in 1995. Cost of software licenses consists of the amortization of
capitalized software, license fees to third party suppliers, the cost of
software product packaging, media, documentation, and certain employee costs
related to software support. The primary reason for this relative increase in
costs was the decline in software license fees as certain fixed expenses
increased, principally the amortization of capitalized software. The cost of
software licenses as a percentage of software license fees is expected to
fluctuate from period to period, and historical percentages are not necessarily
indicative of future results.
Cost of services represented 62% of service revenue in 1996 and 56% in 1995.
Cost of services consists primarily of personnel, certain overhead costs and the
cost of third party services such as CD-ROM mastering and replication. The
increase primarily reflects higher direct and indirect expenses for services
projects.
Gross Margin
Total gross margin was $19.2 million, down from $26.1 million in 1995,
representing 51% of revenues in 1996 and 63% in 1995. In addition to the
one-time charge mentioned previously, the decrease in total gross margin from
period to period was due to lower total revenue volume, higher costs within each
revenue category, and a shift in product mix from higher margin software
products to relatively lower margin services. 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 continues to shift product mix towards 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 certain competition, 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 29% to $17.7 million in 1996 from
$13.8 million in 1995. The increase in sales and marketing expenses reflects the
Company's continuing investment in the development of new distribution channels,
strengthening the Company's marketing capabilities, and the incremental expense
associated with recent acquisitions. Sales and marketing expenses as a
percentage of total revenues increased from 33% in 1995 to 47% in 1996. This
increase reflects the investments described above, compounded by the decline in
total revenues from 1995 to 1996. It is anticipated that sales and marketing
expenses as a percentage of total revenues will decline in the near and long
term as total revenues increase while the ramp up in expenses decreases.
Product Development Expenses
Product development expenses excluding capitalized software expenditures
increased 62% to $8.1 million in 1996 from $5.0 million in 1995. Product
development expense as a percentage of total revenue increased to 22% in 1996
from 12% in 1995. The increase in product development expenses in real dollars
as well as in relation to total revenues reflects the Company's continuing
investment in publishing and Internet-related products.
The Company focused on several different product development strategies
during 1996. In addition to enhancing its core product offerings, the Company
introduced its Electronic Publishing Management Systems product in the fourth
quarter of 1996. The Company is currently negotiating the disposition of another
of its products under development, for which 1996 expenses were approximately
$2.4 million. If that transaction is not consummated, the Company will either
continue development of that product, for which external financing may be
required, or terminate it. More generally, as the Company's revenue base
increases and investment in the Company's next generation of
16
<PAGE>
DOC #2
products is completed, it is anticipated that the percentage of product
development expenses to total revenues will decline during 1997.
In 1996 the Company capitalized approximately $2.0 million of internally
developed computer software costs as compared with $1.4 million in 1995. This
increase also reflects the Company's continuing investment as described above.
General and Administrative Expenses
General and administrative expenses increased 24% to $6.6 million in 1996
from $5.3 million in 1995. This increase in general and administrative expenses
during 1996 was primarily due to the build-up of the Company's financial and
administrative infrastructure during the second half of 1995. General and
administrative expenses as a percentage of total revenues increased from 13% in
1995 to 18% in 1996, due to increased fixed costs and the decline in revenues
during 1996. Management expects that general and administrative expenses as a
percentage of total revenues will decline during 1997 and over the long term, as
the Company's revenue base increases.
Write Down of Goodwill and Other Non-Recurring Charges
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 cash flows of the acquired entity. During 1996 the
Company recorded a one-time charge, which was included in cost of revenues in
the consolidated statements of operations, in the amount of $1,926,000 for the
write-down to their net realizable value of less productive software assets,
prepaid royalties and inventory. In addition, the Company recorded write downs
of goodwill, facilities consolidations, and smaller amounts for severance and
miscellaneous items amounting to $1,889,000, which was included in operating
expenses in the consolidated statements of operations.
Charge for Acquired Research and Development
In conjunction with the acquisitions of Status/IQ Ltd. in March 1996 and
Ntergaid, Inc. in July 1996, the Company acquired certain technologies under
development that the Company hopes will prove valuable to the future growth of
the Company. Purchased research and development that had not reached
technological feasibility and that had no alternative future use was valued
using a risk adjusted cash flow model, under which, future cash flows were
discounted taking into account risks related to existing and future markets and
an assessment of the life expectancy of the purchased software. Expected future
cash flows associated with in-process research and development were discounted
considering risks and uncertainties related to the viability of and potential
changes in future target markets and to the completion of the products that will
ultimately be marketed by the Company. Such technology, valued at approximately
$1,193,000 for Status/IQ and $668,000 for Ntergaid, was charged to operations
during the first and third quarters of 1996, respectively, as acquired research
and development.
Settlement of Litigation
Pursuant to the settlement with the plaintiffs of a securities class-action
lawsuit pending against the Company and certain of its current and former
directors and officers since November 1994, the Company agreed to distribute
$1.8 million in cash and 250,000 shares of its common stock in exchange for a
full release of all claims against the Company and its current and former
directors and officers. The Company's insurance carrier contributed $1.0 million
in cash towards the settlement and associated legal fees. The Company reported
an expense of $2,823,000 in the consolidated statements of operations for the
year ended December 31, 1996 related to the settlement and has issued 75,000 of
the shares to date.
Provision for Income Taxes
The Company did not record a provision for income taxes for the year ended
December 31, 1996 as compared with a $733,000 provision recorded for the year
ended December 31, 1995. A tax provision was not recorded during 1996 because of
the significant losses incurred during the current year, and the substantial net
operating loss carryforward from prior periods. At December 31, 1996, the
Company had a net operating loss carryforward of $12.4 million. Use of the
Company's net operating loss carryforwards is limited due to changes in
ownership of the Company's stock before its initial public offering of stock in
July 1993.
As required by Statement of Financial Accounting Standard No. 109, management
of the Company has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets, which are comprised principally of net
operating loss and tax credit carryforwards. In the fourth quarter of 1996, the
Company recorded a full valuation allowance of $5,221,000 to offset the entire
17
<PAGE>
DOC #2
net deferred tax assets as a result of the uncertainties surrounding the
realization of the assets due to large cumulative pretax losses during the prior
three years. Accordingly, the deferred tax assets have been fully reserved.
Management re-evaluates the positive and negative evidence on a quarterly basis.
Other
During 1996 the Company earned approximately $405,000 in interest income as
compared with $611,000 in 1995. The decrease in interest income resulted
primarily from the decrease in the average balances of cash and investments
during 1996 as compared to 1995.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, Earnings Per Share (SFAS
128) which will be effective for the Company in 1997. SFAS 128 is designed to
improve the earnings per share information provided in financial statements by
simplifying the existing computational guidelines embodied in Accounting
Principles Board Opinion No. 15, Earnings Per Share, revising the disclosure
requirements, and increasing the comparability of earnings per share data on an
international basis. Management has not yet determined the impact of adopting
SFAS 128.
1995 as Compared to 1994
Revenues
Total revenues increased 21% to $41.1 million in 1995 from $33.9 million in
1994. The increase in revenue was primarily due to increased unit volumes in the
Company's preexisting product lines. In addition, the fact that BRS, PCD, and
OPTIM were acquired at the end of the first quarter in 1994 and therefore, only
three quarters of their annual revenues were included in 1994 consolidated
revenues, also contributed significantly to this increase in revenues.
Software license fees increased 40% to $20.0 million in 1995 from $14.3
million in 1994, a $5.7 million increase. This increase primarily reflected
increased unit volumes in the Company's software product lines.
Service revenues increased 8% to $21.1 million in 1995 from $19.5 million in
1994, a $1.6 million increase. This increase in service revenues was primarily
due to increases in the Company's service business as well as the inclusion of
revenue from the acquisitions for a full year in 1995 as opposed to three
quarters of the year in 1994, as previously discussed. Offsetting these
increases was the decline in the systems integration business during 1995 in
accordance with management's de-emphasis of this lower margin business.
Cost of Revenues
The total cost of revenues in 1995 was $15.0 million or 17% higher than the
$12.9 million in 1994. As a percent of total revenues, total cost of revenues
was slightly lower in 1995 at 37% of revenues, as compared to 38% of revenues in
1994. This slight decrease occurred primarily due to the favorable shift in
revenue mix toward software, and away from lower margin services. The favorable
impact of this shift in product mix was partially offset by increases in cost of
revenues within each revenue category.
Cost of software licenses represented 16% of software license revenue in
1995, up from 14% in 1994. The primary reason for this relative increase in
costs was the increase in certain fixed expenses, principally the amortization
of software costs. Cost of services represented 56% of service revenue in 1995
and 55% in 1994.
Gross Margin
Total gross margin was $26.1 million, up from $21.0 million in 1994,
representing 63% of revenues in 1995 and 62% in 1994. During 1995, there was a
favorable shift in product mix from the lower margin services revenues to the
higher software revenues. However, the favorable effect of this shift was
partially offset by higher costs within each revenue category as described
above.
Sales and Marketing Expenses
Sales and marketing expenses increased 24% to $13.8 million in 1995 from
$11.1 million in 1994. The increase in sales and marketing expenses was due
primarily to the full year effect of the acquisitions in 1995 as compared to
three quarters of a year in 1994, as well as the expansion of the Company's
direct sales and marketing organization. Sales and marketing expenses as a
percentage of total revenues remained constant at 33% for 1995 and 1994.
Product Development Expenses
Product development expenses excluding capitalized software expenditures
increased 27% to $5.0 million in 1995 from $4.0 million in 1994. The increase in
product development expenses was due primarily to the effect of the
acquisitions, as previously discussed. Another contributing factor was the
hiring of additional software and quality assurance engineers to develop and
enhance features and functionality of the Company's software products as well as
to develop new products. Product development expense as a percentage of total
revenue remained constant at 12% in 1995 and 1994.
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DOC #2
In 1995 the Company capitalized approximately $1.4 million of internally
developed computer software costs associated principally with porting the
Company's software to additional computer platforms and operating systems.
Approximately $1.3 million of costs were capitalized in 1994.
General and Administrative Expenses
General and administrative expenses increased 9% to $5.3 million in 1995 from
$4.9 million in 1994. This increase in general and administrative expenses
during 1995 was primarily due to higher legal costs and amortization of
goodwill. General and administrative expenses as a percentage of total revenues
declined from 14% in 1994 to 13% in 1995.
Provision for Income Taxes
The Company's provision for income taxes was $733,000 and $369,000 in 1995
and 1994, respectively. The Company's effective tax rate increased to 30% in
1995 from 23% in 1994. The increase in tax rate from 1994 to 1995 was largely
due to the overall increase in profitability of the Company, including its
foreign subsidiaries.
Other
During 1995 the Company earned approximately $611,000 in interest income as
compared with $584,000 in 1994. The increase in interest income resulted
primarily from the increase in the average balances of cash and investments
during 1995 as compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES:
At December 31, 1996 the Company had cash and cash equivalents aggregating
$2.4 million. During 1996, the Company's operating activities used cash of
approximately $7.1 million, primarily due to operating losses. During 1996, the
Company's days sales outstanding, based on revenues for each calendar quarter,
ranged from 85 days to 75 days. This fluctuation has impacted and may, in the
future, impact the Company's liquidity. Days sales outstanding were 78 days
during the fourth quarter of 1996.
During 1996, the Company's investing activities provided cash of $1.6
million. The conversion of marketable securities to cash equivalents amounting
to $8.9 million was partially offset by investment in property, plant, and
equipment of $3.8 million, acquisitions of businesses of $1.5 million, and $2.0
million in capitalized software.
The Company's financing activities during 1996 provided cash of approximately
$155,000. Cash of $453,000 derived from the issuance of common stock from the
employee stock purchase plan and exercise of employee stock options was
partially offset by principal payments on the Company's debt and short term
borrowings amounting to $298,000.
The Company has incurred losses from continuing operations during 1996,
amounting to $10.8 million before one time charges of $8.5 million. The
Company's 1997 operating plan has been developed to minimize future losses. This
plan includes significant cost reductions, repositioning of product lines and
intensified asset management. In addition, due to the significant cash
requirements as the result of the Company's 1996 operating losses, the
litigation settlement, and increased product development investments, the
Company continues to explore a full range of options for raising capital,
including additional borrowing arrangements, disposal of assets, or possibly the
sale of equity securities. Working capital and other capital requirements may
change because of unanticipated changes in business conditions or delays in
market acceptance of new products, in addition to such other considerations as
expansion of operations or research and development activities, competitive and
technological developments and possible future acquisitions of businesses and/or
product rights. There can be no assurance that the Company may not experience
liquidity problems because of adverse market conditions or other unfavorable
events, or if the Company does not obtain sufficient additional financing on a
timely basis.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors
and Stockholders of Dataware Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
Dataware Technologies, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Dataware Technologies, Inc. as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 13, 1997
20
<PAGE>
Dataware Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,368 $ 7,734
Accounts receivable, less allowance for doubtful
accounts of $934 and $610 at December 31, 1996
and 1995, respectively 9,271 9,411
Prepaid expenses and other current assets 1,968 2,734
Deferred taxes --- 336
-------------- --------------
Total current assets 13,607 20,215
Property and equipment, net 7,298 5,543
Computer software costs, net 2,239 3,002
Marketable securities --- 8,908
Deferred taxes --- 284
Goodwill 2,232 3,362
-------------- --------------
Total assets $ 25,376 $ 41,314
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes, software license payable,
capital leases and credit lines $ 45 $ 189
Demand note payable to related party --- 50
Accounts payable 3,232 1,963
Accrued expenses 1,377 1,396
Accrued litigation and non-recurring charges 982 ---
Accrued compensation 2,046 1,690
Income taxes payable 1,140 1,928
Deferred revenue 2,136 1,878
-------------- --------------
Total current liabilities 10,958 9,094
Notes, software license payable and capital leases --- 4
Commitments (Notes H and J) --- ---
Stockholders' equity:
Preferred stock, $.01 par value, 8,000,000 shares
authorized, none issued --- ---
Common stock, $.01 par value: 14,000,000 shares authorized;
6,640,597 and 6,239,123 shares issued and outstanding
at December 31, 1996 and 1995, respectively 66 62
Additional paid-in capital 38,473 36,782
Accumulated deficit (23,756) (4,445)
Cumulative translation adjustment (365) (209)
Net unrealized gain on marketable securities --- 26
-------------- --------------
Total stockholders' equity 14,418 32,216
-------------- --------------
Total liabilities and stockholders' equity $ 25,376 $ 41,314
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
21
<PAGE>
Dataware Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Software license fees $ 16,502 $ 19,996 $ 14,334
Services 20,957 21,128 19,525
-------------- -------------- --------------
Total revenues 37,459 41,124 33,859
Cost of revenues:
Software license fees 3,437 3,125 2,057
Write down of capitalized software and intangible assets 1,926 --- ---
Services 12,938 11,923 10,799
-------------- -------------- --------------
Total cost of revenues 18,301 15,048 12,856
-------------- -------------- --------------
Gross margin 19,158 26,076 21,003
Operating expenses:
Sales and marketing 17,679 13,754 11,118
Product development 8,144 5,040 3,954
General and administrative 6,603 5,337 4,895
Write down of goodwill and other non-recurring charges 1,889 --- ---
Merger costs --- 171 ---
Charge for purchased in-process research and development 1,861 --- ---
-------------- -------------- --------------
Total operating expenses 36,176 24,302 19,967
-------------- -------------- --------------
Income (loss) from operations (17,018) 1,774 1,036
Interest income 405 611 584
Interest expense (19) (25) (35)
Settlement of litigation (2,823) --- ---
Other income (expenses), net 144 86 (5)
-------------- -------------- --------------
Income (loss) before provision for income taxes (19,311) 2,446 1,580
-------------- -------------- --------------
Provision for income taxes --- 733 369
-------------- -------------- --------------
Net income (loss) $ (19,311) $ 1,713 $ 1,211
============== ============== ==============
Net income (loss) per common share $ (3.01) $ 0.26 $ 0.19
============== ============== ==============
Weighted average number of common
and common equivalent shares 6,425 6,511 6,211
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
22
<PAGE>
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1996, 1995, and 1994 (in thousands)
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 5,805 $ 58 $ 35,082 $ (7,317)
Stock options exercised and shares
issued in conjunction with employee
stock purchase plan 122 1 250
Translation adjustment
Unrealized loss on marketable securities
Distributions to stockholders of
acquired company (52)
Net income 1,211
------------ ------------ ------------ -----------
Balance at December 31, 1994 5,927 59 35,332 (6,158)
------------ ------------ ------------ -----------
Stock options exercised and shares
issued in conjunction with employee
stock purchase plan 312 3 1,450
Translation adjustment
Unrealized gain on marketable securities
Net income 1,713
------------ ------------ ------------ -----------
Balance at December 31, 1995 6,239 62 36,782 (4,445)
------------ ------------ ------------ -----------
Stock options exercised and shares
issued in conjunction with employee
stock purchase plan 202 2 451
Stock options issued in conjunction
with acquisitions 107
Stock options issued to consultants 200
Shares issued in settlement of litigation 75 1 280
Shares issued in connection
with acquisitions 125 1 653
Translation adjustment
Unrealized loss on marketable securities
Net loss (19,311)
------------ ------------ ------------ -----------
Balance at December 31, 1996 $ 6,641 $ 66 $ 38,473 $ (23,756)
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Cumulative Net Unrealized Total
Translation Gain (Loss) on Stockholders'
Adjustment Investments Equity
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ (223) $ $ 27,600
Stock options exercised and shares
issued in conjunction with employee
stock purchase plan 251
Translation adjustment (149) (149)
Unrealized loss on marketable securities (123) (123)
Distributions to stockholders of
acquired company (52)
Net income 1,211
------------ ------------ ------------
Balance at December 31, 1994 (372) (123) 28,738
------------ ------------ ------------
Stock options exercised and shares
issued in conjunction with employee
stock purchase plan 1,453
Translation adjustment 163 163
Unrealized gain on marketable securities 149 149
Net income 1,713
------------ ------------ ------------
Balance at December 31, 1995 (209) 26 32,216
------------ ------------ ------------
Stock options exercised and shares
issued in conjunction with employee
stock purchase plan 453
Stock options issued in conjunction
with acquisitions 107
Stock options issued to consultants 200
Shares issued in settlement of litigation 281
Shares issued in connection
with acquisitions 654
Translation adjustment (156) (156)
Unrealized loss on marketable securities (26) (26)
Net loss (19,311)
------------ ------------ ----------
Balance at December 31, 1996 $ (365) $ -- $ 14,418
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
23
<PAGE>
Dataware Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss) $ (19,311) $ 1,713 $ 1,211
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,788 3,520 2,613
Provision for doubtful accounts 810 467 418
Loss (gain) on foreign currency transactions (122) (61) 18
Deferred taxes 620 (620) ---
Non-cash portion of writedown of intangibles and
litigation settlement 3,461 --- ---
Charge for purchased research and development 1,861 --- ---
Stock options issued to consultants 200 --- ---
Changes in operating assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable 50 (622) (3,290)
Prepaid expenses and other current assets 324 81 (1,229)
Accounts payable 1,099 (114) 853
Accrued expenses and compensation (13) 398 330
Accrued litigation and non-recurring charges 982 --- ---
Income taxes payable (787) 1,238 630
Deferred revenue (97) 55 1,050
------------- ------------ -----------
Net cash provided by (used in) operating activities (7,135) 6,055 2,604
------------- ------------ -----------
Cash flows provided by (used in) investing activities:
Purchase of marketable securities (4,080) (10,516) ---
Proceeds from sales and maturities of marketable securities 12,963 10,738 4,861
Additions to property and equipment (3,758) (2,697) (2,639)
Acquisition of businesses, net of cash acquired (1,520) --- (4,288)
Additions to capitalized software costs (1,956) (1,562) (1,336)
------------- ------------ -----------
Net cash provided by (used in) investing activities 1,649 (4,037) (3,402)
------------- ------------ -----------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and exercise
of stock options 453 1,453 251
Distribution to stockholders by acquired company --- --- (52)
Principal payments on notes, software license payable
and capital leases (340) (394) (928)
Increase (decrease) in short-term borrowings, net 42 50 (125)
------------- ------------ -----------
Net cash provided by (used in) financing activities 155 1,109 (854)
------------- ------------ -----------
Effect of exchange rate changes on cash (35) (35) (269)
------------- ------------ -----------
Net change in cash and cash equivalents (5,366) 3,092 (1,921)
Cash and cash equivalents at beginning of year 7,734 4,642 6,563
------------- ------------ -----------
Cash and cash equivalents at end of year $ 2,368 $ 7,734 $ 4,642
============= ============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 19 $ 25 $ 34
============= ============ ===========
Taxes paid (refunded) $ --- $ 90 $ (425)
============= ============ ===========
Supplemental disclosure of non-cash financing transactions:
Stock issued in connection with acquisitions and settlement
of litigation $ 1,042 $ --- $ ---
============= ============ ===========
Note payable assumed in connection with acquisition $ 101 $ --- $ 720
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
24
<PAGE>
DATAWARE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Description of Business and Summary of Significant Accounting Policies
Description of Business
Dataware Technologies, Inc. (the "Company") was incorporated on March 15,
1988. Significant operations of the Company did not commence until October 1,
1988 upon the purchase of the worldwide rights to certain software developed by
Dataware 2000 GmbH and the acquisition of its United States distributor. The
Company develops, markets and supports a comprehensive line of software products
and provides a broad range of services to customers throughout the world. The
Company competes in four major application areas: CD-ROM software and services,
text management software, software and services for on-line/Internet
applications, and electronic publishing management systems.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All material intercompany
transactions and accounts have been eliminated. The financial statements have
been restated for the December 30, 1995 merger with Ledge Multimedia, Inc.
("Ledge"). The merger has been accounted for as a pooling of interests and the
historical consolidated financial statements of the Company for all periods
prior to the merger presented herein have been restated to include the financial
position, statement of operations, and cash flows of Ledge.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Liquidity and Capital Resources
The Company has incurred losses from continuing operations during 1996,
amounting to $10.8 million before one time charges of $8.5 million. The
Company's 1997 operating plan has been developed to minimize future losses. This
plan includes significant cost reductions, repositioning of product lines and
intensified asset management. In addition, due to the significant cash
requirements as the result of the Company's 1996 operating losses, the
litigation settlement, and increased product development investments, the
Company continues to explore a full range of options for raising capital,
including additional borrowing arrangements, disposal of assets, or possibly the
sale of equity securities.
There can be no assurance that the Company may not experience liquidity
problems because of adverse market conditions or other unfavorable events, or if
the Company does not obtain sufficient additional financing on a timely basis.
Foreign Currency
The accounts of foreign subsidiaries are translated using exchange rates
in effect at period-end for assets and liabilities and at average exchange rates
during the period for results of operations. The local currency for all foreign
subsidiaries is the functional currency. The related translation adjustments are
reported as a separate component of stockholders' equity. Gains and losses
resulting from foreign currency transactions are included in other income
(expense).
25
<PAGE>
Revenue Recognition
Revenues from software license fees are recorded upon execution of the
contract and shipment of the product provided that no significant vendor
obligations remain outstanding and collection of the related receivable is
deemed probable by management. Revenues from services are recognized as the
Company performs the service in accordance with the contract. Revenue from
maintenance contracts, including amounts bundled in initial software licenses,
is recognized ratably over the term of the agreement, generally one year.
Cash Equivalents and Marketable Securities
Cash equivalents consist of highly liquid investments purchased with an
original maturity of three months or less. Those securities with maturities of
three months to twelve months as of the balance sheet date are classified as
short term securities and securities with maturities of greater than twelve
months are classified as long term securities.
At December 31, 1996 and 1995, all securities are classified as available
for sale and are stated at fair value, with unrealized gains (losses) reported
as a separate component of stockholders' equity.
The amortized cost of marketable debt securities is adjusted for the
amortization of premiums and accretion of discounts over the life of the
security. Such amortization and interest as well as realized gains and losses
are included in interest income.
Property and Equipment
Property and equipment are stated at cost, and are depreciated on a
straight-line basis over their estimated useful lives, generally three to five
years. Leasehold improvements are amortized over the lesser of the estimated
useful life of the assets or the lease term.
Major additions and improvements are capitalized, while repairs and
maintenance are charged to expense as incurred. When assets are sold or retired,
the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in net income (loss).
Income Taxes
The Company provides for income taxes using the liability method whereby
deferred tax liabilities and assets are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using current statutory tax rates. A valuation allowance is
established against net deferred tax assets if, based on the weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Inventory
Inventory, included in other current assets, consists principally of
hardware and is valued at the lower of cost or market, with cost being
determined under the first-in, first-out (FIFO) method.
Product Development and Capitalized Software Costs
Expenditures for research and development incurred prior to the
establishment of technological feasibility are charged to operations as
incurred. The Company capitalizes certain computer software development costs
after technological feasibility has been established. Upon shipment, these costs
are amortized over the shorter of the estimated future revenue streams or the
estimated economic lives of the software products, generally two years, and are
included in cost of software license fees. It is reasonably possible that those
estimates of future revenue streams, the remaining economic estimated life of
the product, or both, will be reduced significantly in the near term due to
competitive pressures.
26
<PAGE>
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 cash flows of the acquired
entity. Goodwill is generally amortized over a ten year period.
Reclassification
Certain reclassifications have been made to the prior years' financial
statements to conform to the current presentation.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments, marketable
securities and trade receivables.
The Company invests its cash in deposits with commercial banks and money
market instruments with several financial institutions. These investments
typically mature within 90 days. In addition, for marketable securities with
maturities greater than 90 days, it is the Company's policy to invest in only
investment grade commercial paper and municipal obligations. The Company has not
experienced any significant realized losses on its investments.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base and
their dispersion across many different industries and geographies. The Company
performs ongoing credit evaluations of its customers, but does not require
collateral or other security to support customer receivables, and maintains
reserves for potential credit losses. Such losses to date have been within
management's expectations.
Computation of Net Income (Loss) Per Share
Net income (loss) per common share is computed based upon the weighted
average number of common and common equivalent shares (using the treasury stock
method) outstanding. Common equivalent shares consist of common stock options
and warrants. Common equivalent shares are not included where the effect of
their inclusion would be antidilutive.
Fully diluted net income (loss) per common share is not presented as it did
not differ materially from primary earnings per share.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, Earnings Per Share (SFAS
128) which will be effective for the Company in 1997. SFAS 128 is designed to
improve the earnings per share information provided in financial statements by
simplifying the existing computational guidelines embodied in Accounting
Principles Board Opinion No. 15, Earnings Per Share, revising the disclosure
requirements, and increasing the comparability of earnings per share data on an
international basis. Management has not yet determined the impact of adopting
SFAS 128.
B. Business Combinations
Purchase Method Acquisitions:
On March 14, 1994, the Company completed the acquisition of substantially
all of the assets and assumed certain liabilities of the consolidated software
businesses of Infopro Technologies, Inc. doing business as BRS Software Products
("BRS"), located in various locations around the world, principally Albany, New
York and London, England for approximately $2,701,000 in cash (including direct
acquisition costs). The acquisition has been accounted for as a purchase and,
accordingly, the assets, liabilities, and results of operations are included
from the acquisition date. The purchase price has been allocated to the assets
and liabilities of BRS based on their estimated respective fair values.
27
<PAGE>
Approximately $879,000 of the excess purchase price over fair value of net
tangible assets acquired was allocated to computer software costs. During the
second quarter of 1996, $295,000 of the remaining unamortized balance was
written off as part of the write down of intangible assets and other non-
recurring charges (see Note C). The remaining unamortized balance of $295,000
was fully amortized during the second half of 1996.
On March 14, 1994, the Company completed the acquisition of substantially
all of the assets of PCD-Consult AB, the Company's Swedish distributor ("PCD"),
located in Skovde, Sweden in exchange for the assumption of approximately
$820,000 in net liabilities. In addition, approximately $90,000 in direct
acquisition costs were incurred in completing this acquisition. The acquisition
has been accounted for as a purchase and, accordingly, the assets, liabilities,
and results of operations are included from the acquisition date. The purchase
price has been allocated to the assets and liabilities of PCD based on their
estimated respective fair values. Approximately $910,000 of the excess purchase
price over fair value of net assets acquired was recorded as goodwill. During
the second quarter of 1996, the remaining unamortized balance amounting to
$812,000 was written off as part of the write down of intangible assets and
other non-recurring charges (see Note C).
On March 30, 1994, the Company completed the acquisition of all of the
outstanding shares of its Canadian distributor, OPTIM Corporation ("OPTIM"),
located in Ottawa, Canada, in exchange for approximately $1,229,000 in cash
(including direct acquisition costs). The acquisition has been accounted for as
a purchase and accordingly, the assets, liabilities, and results of operations
are included from the acquisition date. The purchase price has been allocated to
the assets and liabilities of OPTIM based on their estimated respective fair
values. Approximately $1,543,000 of the excess purchase price over fair value of
net assets acquired was recorded as goodwill and is being amortized over a ten
year period.
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.
Purchased research and development that had not reached technological
feasibility and that had no alternative future use was valued using a risk
adjusted cash flow model, under which, future cash flows were discounted taking
into account risks related to existing and future markets and an assessment of
the life expectancy of the purchased software. Expected future cash flows
associated with in-process research and development were discounted considering
risks and uncertainties related to the viability of and potential changes in
future target markets and to the completion of the products that will ultimately
be marketed by the Company. This analysis resulted in an allocation of
$1,193,000 to purchased research and development expense. In addition, $175,000
of the purchase price has been allocated to computer software costs and is being
amortized over a one year period.
On May 15, 1996 the Company completed the acquisition of substantially all
of the assets and assumed the liabilities of S Cube srl ("S Cube") of Milan for
approximately $389,000 in cash (including acquisition expenses). The acquisition
has been accounted for as a purchase and, accordingly, the assets, liabilities,
and results of operations have been included in the financial statements from
the acquisition date. The purchase price has been allocated to the assets and
liabilities of S Cube based on their estimated respective fair values. The
excess purchase price over the fair value of net assets acquired, totaling
$155,000, is included in intangible assets and is being amortized over a five
year period.
On July 31, 1996 the Company acquired Ntergaid, Inc. ("Ntergaid") of
Milford, Connecticut through the merger of a wholly-owned subsidiary with
Ntergaid for a cost of approximately $685,000 (including acquisition expenses),
consisting of cash and common stock of the Company. The acquisition is being
accounted for as a purchase and accordingly, the assets, liabilities, and
results of operations have been included in the financial statements from the
acquisition date. Purchased research and development that had not reached
technological feasibility and that had no alternative future use was valued
using a risk adjusted cash flow model, under which, future cash flows were
discounted taking into account risks related to existing and future markets and
an assessment of the life expectancy of the purchased software. Expected future
cash flows associated with in-process research and development were discounted
considering risks and uncertainties related to the viability of and potential
changes in future target markets and to the completion of the products that will
ultimately be marketed by the Company. This analysis resulted in an allocation
of $668,000 to purchased research and development expense.
Merger-Pooling of Interests:
On December 30, 1995, the Company completed the acquisition of all of the
outstanding shares of Ledge Multimedia, Inc. ("Ledge"), located in Cambridge,
Massachusetts, in exchange for 110,000 shares of Dataware Technologies, Inc.
28
<PAGE>
common stock. The merger has been accounted for as a pooling of interests and
accordingly, the Company's comparative financial statements for all years prior
to the merger have been restated to include the financial position, results of
operations and cash flows of Ledge.
Revenues and net income for the individual entities consist of the
following:
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
Revenues:
Dataware Technologies, Inc. $39,569 $32,403
Ledge Multimedia, Inc. 1,555 1,456
------- -------
Total $41,124 $33,859
======= =======
Net income:
Dataware Technologies, Inc. $ 1,840 $ 1,108
Ledge Multimedia, Inc. (127) 103
------- -------
Total $ 1,713 $ 1,211
======= =======
</TABLE>
Set forth below is the Company's unaudited pro forma condensed statement of
operations for the year ended December 31, 1994 as though the acquisitions had
occurred prior to January 1, 1994:
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Revenues $35,679
Net loss (438)
Net loss per common share $ (0.07)
</TABLE>
The unaudited pro forma information does not purport to be indicative of the
results of operations that could have been obtained if the operations had been
consolidated during the periods presented or of results which may occur in the
future.
C. Write Down of Intangible Assets and Other Non-Recurring Charges
During the second quarter of 1996, the Company wrote down approximately
$3,815,000 (or $.59 per share) in intangible assets and other non-recurring
charges. These charges were the result of the Company's focus on next generation
products, strengthening the Company's sales organizations, and consolidation of
certain facilities. Detail of the items written off are as follows:
<TABLE>
<S> <C>
Charged to Cost of Revenues:
Capitalized software $1,585,000
Product royalties 279,000
Inventory 62,000
----------
Total $1,926,000
==========
Charged to Operating Expenses:
PCD goodwill $ 812,000
Facilities charge 315,000
Severance payments 258,000
Product development royalties 200,000
Fixed assets 149,000
Other incidental charges 155,000
----------
Total $1,889,000
==========
</TABLE>
D. Marketable Securities
The following is a summary of marketable securities at December 31, 1996 and
1995 (in thousands):
29
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------------------ ---------------------------------
Value Based Value Based
on Market on Market
Amortized Quotations Unrealized Amortized Quotations Unrealized
Security Type Cost at Year End Gain/Loss Cost at Year End Gain
- ------------- --------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash equivalents:
State and municipal securities
with maturities of three months
or less $ -- $ -- -- $2,994 $2,999 $ 5
Repurchase agreement 419 419 -- 507 507 --
------ ------ ------ ------ ------
Total cash equivalents $ 419 $ 419 -- $3,501 $3,506 $ 5
====== ====== ====== ====== ======
Long-term:
State and municipal securities
with maturities greater than one year
but no longer than five years -- -- -- $5,885 $5,903 $ 18
State and municipal securities
with maturities greater than five years
but no longer than 10 years -- -- -- 3,002 3,005 3
------ ------ ------
Total long term marketable securities -- -- -- $8,887 $8,908 $ 21
====== ====== ======
</TABLE>
Proceeds from sales of marketable securities during the year ended December
31, 1996 amounted to $7,075,000. There were no sales of marketable securities
during 1995. Proceeds from maturities of marketable securities during the year
ended December 31, 1996 and 1995 amounted to $5,888,000 and $10,738,000,
respectively. During the year ended December 31, 1996, $18,000 in realized gains
were offset by $13,000 in realized losses. No gains or losses were realized
during the year ended December 31, 1995.
E. Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
------- -------
<S> <C> <C>
Computer and office equipment $11,361 $ 8,546
Furniture and fixtures 1,940 1,432
Leasehold improvements 507 134
Computer equipment and computer software
under capital lease arrangement 4 50
------- -------
13,812 10,162
Less: accumulated depreciation
and amortization 6,514 4,619
------- -------
$ 7,298 $ 5,543
======= =======
</TABLE>
Depreciation and amortization expense was $2,106,000, $1,622,000, and
$1,229,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Cumulative amortization related to computer equipment and computer software
under the capital lease arrangement amounted to $46,000 for the year ended
December 31, 1996, $32,000 for the year ended December 31, 1995 and $13,000 for
the year ended December 31, 1994.
During the year ended December 31, 1996 the Company recorded a $149,000
one-time charge for the write-off of the net book value of selected property and
equipment as part of the write down of intangible assets and other non-recurring
charges (see Note C).
30
<PAGE>
F. Computer Software Costs
Amortization of computer software costs was $814,000, $969,000, and
$467,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
The cost of computer software purchased is capitalized and is being
amortized on a straight-line basis over its estimated useful life, generally
five years. During the year ended December 31, 1996 the Company capitalized
approximately $175,000 of purchased software costs related to the acquisition of
Status/IQ, Ltd. Amortization expense was $495,000, $311,000, and $192,000 for
the years ended December 31, 1996, 1995, and 1994, respectively.
During the year ended December 31, 1996 the Company recorded a one-time
charge for the write-down of $1,585,000 in less productive capitalized software
assets to their net realizable value as part of the write down of intangible
assets and other non-recurring charges (see Note C).
G. Goodwill
Goodwill consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Goodwill $3,392 $4,420
Less: accumulated amortization 1,160 1,058
------ ------
$2,232 $3,362
====== ======
</TABLE>
H. Debt
Lines of Credits:
The Company has a line of credit agreement with a German bank for 1,500,000
Deutsche marks (approximately $1 million). During 1996, the Company increased
its line of credit with a Canadian bank from 200,000 Canadian dollars to 400,000
Canadian dollars (approximately $290,000). In addition, during December, 1996,
the Company entered into a line of credit agreement with a UK bank for 200,000
pounds sterling (approximately $314,000). There were no borrowings against any
of these credit lines during 1996 and 1995.
The Company has a line of credit agreement with a Swedish bank for 1,000,000
Swedish Kroner (approximately $150,000) assumed in connection with the
acquisition of PCD. Maximum borrowings during 1996 were 981,000 Swedish Kroner
(approximately $147,000) and at December, 31, 1996, 277,000 Swedish Kroner
(approximately $41,000) was outstanding against this line of credit. There were
no borrowings against the credit line during 1995.
The average outstanding borrowings of the combined lines of credit were
$50,000 in 1996, $0 in 1995, and $17,000 in 1994 and the average interest rates
were 12.3% in 1996 and 10.5% in 1994.
In conjunction with the acquisition of PCD, the Company assumed 3,200,000
Swedish Kroner (approximately $430,000) in notes payable. Subsequent to the
acquisition, the entire debt was repaid. In addition, 250,000 Canadian dollars
(approximately $180,000) in debt obligations were assumed in connection with the
acquisition of OPTIM along with a 150,000 Canadian dollar (approximately
$110,000) outstanding balance against a bank line of credit. The OPTIM debt
obligations and bank line of credit were repaid during 1994, subsequent to the
acquisition.
In conjunction with the acquisition of Ledge, the Company assumed a $100,000
line of credit agreement dated February 28, 1994. The credit agreement is an
arrangement between Ledge and an immediate family member of an officer of Ledge.
Borrowings under the line are accessible in increments of $50,000 and accrue a
.5% commitment fee on delivery of funds. Amounts outstanding under the line of
credit bear interest at the prime rate plus 1%. The term of the agreement is
indefinite, however, either party may terminate the arrangement at their
discretion. As of December 31, 1995, there was an outstanding balance against
31
<PAGE>
this line of credit of $50,000. The average interest rate against this line of
credit during 1995 was 9.85%. The principal balance of $50,000 plus accrued
interest was paid to the lender February 12, 1996.
Long-Term Commitments
The Company's long-term commitments consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Capital lease obligations $ 4 $ 18
Software license payable -- 175
---- ----
4 193
Amounts due within one year 4 189
---- ----
Long-term portion $ -- $ 4
==== ====
</TABLE>
During May 1992, the Company entered into an agreement with a software
developer to license certain software and to sublicense the software to third
parties. The Company agreed to pay a minimum royalty commitment of $300,000
payable in various amounts on a quarterly basis. Additional payments were
required if the actual royalty fee exceeds the required quarterly payment. In
December 1993, the Company amended this agreement by establishing a new minimum
commitment of $625,000 payable in twelve equal installments of $43,750 on a
quarterly basis beginning in March 1994. Also, in accordance with the agreement,
a non-refundable $100,000 was paid in March 1994 against future royalty
commitments. As of December 31, 1996 there were no outstanding commitments.
Factoring Agreement
In December, 1996 the Company entered into a factoring agreement with full
recourse, to a maximum of $1,250,000 of its account receivable balances. The
factoring charge amounts to .5% of the face amount of the factored receivable
balances. Interest is charged at 1.5% per month on the average daily account
balance outstanding. The Company is permitted to receive up to 80% of the
receivable balances factored. The Company is obligated to pay to the buyer the
full face amount, or any unpaid portion of any factored receivable balance which
remains unpaid ninety calendar days after the invoice date. As of December 31,
1996, factored receivable balances amounted to $940,000 for which the Company
received $752,000 or 80% of the face value of the account receivable balances.
I. Stockholders' Equity
Preferred Stock
The Company has authorized a total of 8,000,000 shares of Preferred Stock
with a par value of $.01 per share, of which 300,000 shares are designated
Series A Junior Participating Preferred Stock and the balance of which are not
currently designated in any series. Prior to the initial public offering in July
1993, the Preferred Stock was designated into several series with differing
terms, including 7,038,805 shares of Redeemable Convertible Preferred Stock,
369,767 shares of Preferred Stock and 591,428 shares of Series D Preferred
Stock. The Board of Directors may, without further action of the stockholders of
the Company, issue Preferred Stock in one or more series and fix the rights and
preferences thereof, including the dividend rights, dividend rate, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption prices and liquidation preferences.
Shareholder Rights Plan
On June 28, 1996, the Board of Directors of the Company adopted a
Shareholder Rights Plan and declared a dividend distribution of one share
purchase right (a "Right") for each outstanding share of common stock of the
Company to stockholders of record at the close of business on July 8, 1996. Each
share of common stock newly issued after that date also carries with it one
Right. Each Right entitles the record holder to purchase from the Company one
one-hundredth of a share (a "Unit") of the Company's Series A Junior
Participating Preferred Stock at a price of $30 per Unit subject to adjustment.
The Rights are not exercisable apart from the common stock until 10 days after a
person or group has acquired beneficial ownership (as defined in the Rights
Plan) of a number of shares equal to 15% or more, or makes a tender offer of 15%
or more of the Company's outstanding common stock. In the event that, after the
Distribution Date, any person or group becomes the beneficial owner of 15% or
more of the outstanding common stock (an "Acquiring Person"), then each holder
of a Right other than the acquiring person will thereafter have the right to
receive, upon exercise, common stock (or, in certain circumstances, cash,
property, or other securities of the Company) having a value equal to two times
the purchase price of the Right. In addition, if after the acquisition of
beneficial ownership of 15% or more of the Company's outstanding Common Stock,
the Company is acquired in certain specified mergers or other business
combination transactions or if 50% or more of the assets or earning power of the
Company and its subsidiaries are sold, each holder of a Right (except Rights
held by an acquiring person which previously have been voided) shall thereafter
have the right to receive, upon exercise, shares of the common stock of the
32
<PAGE>
company having a value equal to two times the Purchase Price of the Right. The
Rights expire on July 8, 2006 and are redeemable prior to the time an acquiring
person or group acquires beneficial ownership of 15% or more of the Company's
common stock at one cent per Right.
Equity Incentive Plan
The Company adopted the 1988 Stock Option Plan during 1988. On May 19,
1993, the stockholders of the Company approved the 1993 Equity Incentive Plan
("the Plan") as successor to the 1988 Stock Option Plan. The Plan provides for
options and other awards to purchase up to an aggregate of 2,500,000 shares of
common stock. The Plan provides for the grant of nonqualified and incentive
stock options to employees. Incentive stock options are granted at a price set
by the Board of Directors not to be less than 100% of the fair value of the
stock on the date of the grant. Nonqualified stock options are granted at prices
determined by the Board of Directors. All stock options granted to date have
been granted at not less than the fair market value of the common stock at the
date of grant. The term of the outstanding options is ten years. The options
granted to date vest at various rates over periods up to five years.
Director Stock Option Plan
On May 19, 1993, the stockholders of the Company approved the 1993
Director Stock Option Plan ("the Plan"). On May 23, 1996, stockholders of the
Company approved an amendment of the Plan, increasing the number of
shares issuable under the Plan to 130,000 shares of common stock from 60,000
shares. The Plan provides for the grant of nonqualified stock options to
directors. These option grants are granted at fair market value on the date of
the grant. The term of the outstanding options is ten years. All options granted
under the Plan become exercisable ratably over a twelve month period.
Ledge Stock Option Plan
In January, 1996 the Company established the Ledge Stock Option Plan ("the
Plan"), providing for the issuance of up to 175,000 shares of common stock. The
Plan provides for the issuance of nonqualified stock options to former employees
of Ledge who became employees of the Company upon the merger. These options are
granted at fair market value on the date of the grant. The term of the
outstanding options is ten years. All options granted under the Plan become
exercisable at various rates, beginning in the initial year of grant.
Consultant Stock Option Plan
In December 1995 the Company established the Consultant Stock Option Plan
("the Plan"), providing for the issuance of up to 250,000 shares of common
stock. The Plan provides for the issuance of nonqualified stock options to
outside consultants of the Company. These option grants are granted at fair
market value on the date of the grant. The term of the outstanding options is
ten years. Options granted under the Plan become exercisable ratably during the
term of the respective consultant's contract with the Company.
Supplemental Disclosures for Stock-Based Compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plans. Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), effective for fiscal
years beginning after December 15, 1995, defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. The Company elected to continue to apply the accounting
provisions of APB Opinion No. 25 for stock options. The required disclosures
under SFAS 123 as if the Company had applied the new method of accounting are
made below:
33
<PAGE>
<TABLE>
<CAPTION>
Weighted
Weighted Average Value
Average of Options
Shares Exercise Price Granted
-------------- ----------------- -----------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 1,211,783 $ 6.62
Granted 587,754 10.20
Exercised (108,565) .69
Cancelled (59,363) 6.80
-----------
Outstanding at December 31, 1994 1,631,609 8.22
Granted 418,470 12.12 $6.51
Exercised (284,373) 4.28
Cancelled (116,227) 11.86
-----------
Outstanding at December 31, 1995 1,649,479 9.61
Granted 1,778,329 6.51 $2.77
Exercised (112,862) .75
Cancelled (1,440,931) 11.39
-----------
Outstanding at December 31, 1996 1,874,015 5.83
===========
</TABLE>
Information related to the options outstanding as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Exercisable
---------------------------
Weighted
Avg. Weighted Weighted
Number Remaining Avg. Number Avg.
of Options Contractual Exercise of Options Exercise
<S> <C> <C> <C> <C> <C>
$ .30 - 1.80 242,956 4.21 $ .6299 241,675 $ .6237
3.141 - 3.141 195,700 9.94 3.1410 51,210 3.1410
3.50 - 6.50 248,141 9.04 5.9141 17,372 5.1642
6.969 - 6.969 1,023,733 8.01 6.9690 710,747 6.9690
7.25 - 20.50 163,485 8.44 9.5087 100,332 10.4738
---------- ----------
Total 1,874,015 1,121,336
========== ==========
</TABLE>
In conjunction with the grant of incentive stock options to certain key
employees during 1990, the Company entered into an agreement to repurchase from
certain stockholders up to 86,391 shares of common stock at a per share price of
$.33 if and when the stock options are exercised. At December 31, 1996, no
shares had been repurchased.
The fair value of each option granted during 1996 and 1995 is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Dividend yield None None
Expected volatility .70 .70
Risk-free interest rate 6.00% 6.00%
Expected life 4.00 4.00
</TABLE>
Had compensation cost for the Company's 1996 and 1995 stock option grants
been determined consistent with SFAS 123, the Company's net income (loss) and
net income (loss) per share would approximate the pro forma amounts below:
34
<PAGE>
<TABLE>
<CAPTION>
Net income (loss) per
Net income (loss) common share
----------------- ----------------------
<S> <C> <C>
As reported:
1996 $(19,311) $ (3.01)
1995 1,713 .26
Pro forma:
1996 $(21,692) $ (3.38)
1995 1,172 .18
</TABLE>
The effects of applying SFAS 123 in this disclosure are not indicative of
future amounts. SFAS 123 does not apply to awards prior to 1995, and additional
awards in future years are anticipated.
Re-pricing "Underwater" Stock Options
On May 23, 1996 the Board of Directors of the Company approved a plan
("re-pricing plan") to re-price all employee stock options under the 1993 Equity
Incentive Plan and the Ledge Stock Option Plan. In accordance with the
re-pricing plan, all stock options with exercise prices above the May 22, 1996
price of $6.969 and approved by the individual optionholder, were cancelled and
replaced by options for a number of shares equal to 90% of those subject to the
cancelled options, exercisable at $6.969 per share. This plan did not include
outside directors or consultants of the Company. Executive officers of the
Company were restricted from exercise of any re-priced options for six months
from the re-pricing date. The re-pricing plan resulted in the cancellation of
1,033,363 stock options and issuance of 930,027 new options.
Employee Stock Purchase Plan
The Company established an employee stock purchase plan in 1993 entitling
employees to purchase up to 250,000 shares of the Company's stock at 85% of fair
market value. During 1996 and 1995, 86,145 and 27,529 shares were issued to
employees. The weighted average fair values of shares issued under the 1993 plan
during 1996 and 1995 were $4.26 and $7.98, respectively.
J. Commitments
The Company occupies office facilities in the United States, Canada,
Australia, Singapore, and various locations in Europe under certain long-term
lease agreements. These leases require the Company to pay utilities, contain
escalation clauses for increases in taxes and operating expenses or require the
Company to pay for its proportionate share of certain operating expenses. Future
minimum rental payments under these operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1997 $2,194
1998 2,082
1999 1,683
2000 1,010
2001 and thereafter 2,647
------
Total future minimum lease payments $9,616
======
</TABLE>
Total rent expense was approximately $2,012,000, $1,574,000 and $1,121,000
for the years ended December 31, 1996, 1995, and 1994, respectively.
K. Benefit Plan
In 1991, the Board of Directors approved the establishment of the Dataware
Technologies, Inc. 401(k) Plan (the "401(k) Plan") effective January 1, 1991.
Employees are eligible to participate in the 401(k) Plan by meeting certain
35
<PAGE>
requirements, including length of service and minimum age. The Company may make
a discretionary contribution to the 401(k) Plan but no Company contributions
have been made through December 31, 1996.
L. Income Taxes
The components of the provision for income taxes are as follows (thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal $(775) $ 1,058 $ 143
State (75) 75 88
Foreign 230 220 138
----- ------- -------
$(620) $ 1,353 $ 369
===== ======= =======
Deferred:
Federal $ 695 $ (695) $ --
State (75) 75 --
Foreign -- -- --
----- ------- -------
$ 620 $ (620) $ --
===== ======= =======
</TABLE>
Income (loss) before income taxes for domestic and foreign operations are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995 1994
<S> <C> <C> <C>
Domestic $(20,170) $ 1,788 $ 1,280
Foreign 859 658 300
-------- -------- --------
$(19,311) $ 2,446 $ 1,580
======== ======== ========
</TABLE>
The following is a reconciliation between the U.S. Federal statutory rate and
the effective tax rate:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. federal statutory rate ( 34.0)% 34.0% 34.0%
State taxes, net of federal tax benefit (.6) 5.0 5.0
Foreign operations 1.2 2.5 4.0
Utilization of net operating loss carryforward -- (17.0) (12.0)
Tax exempt interest (.6) -- ( 8.0)
Nondeductible acquisition costs -- 7.3 ( 2.0)
Goodwill 4.5 4.3 --
In-process research and development 6.2 -- --
Other non-deductible items -- 26.9 --
Change in valuation allowance 27.0 (36.3) --
Other, net (3.7) 3.3 2.0
------ ------ ------
Effective tax rate 0.0% 30.0% 23.0%
====== ====== ======
</TABLE>
36
<PAGE>
Deferred taxes result from temporary differences in the recognition of revenues
and expenses for tax and financial reporting purposes. The components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---------- ---------
<S> <C> <C>
Deferred tax assets:
Bad debts $ 153 $ 86
Compensation 266 285
Other 588 24
Net operating loss carryforwards 4,971 1,100
Research tax credits 582 319
------- -------
Total assets 6,560 1,814
Valuation allowance (5,221) --
------- -------
Net deferred tax assets 1,339 1,814
------- -------
Deferred tax liabilities:
Capitalized software costs 881 884
Depreciation 421 251
Other 37 59
------- -------
Total liabilities 1,339 1,194
------- -------
Net deferred tax asset $ -- $ 620
======= =======
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $12.4 million which expire at
various dates through 2011. Under the Tax Reform Act of 1986, certain
substantial changes in the Company's ownership would result in an annual
limitation on the amount of net operating loss carryforwards which could be
utilized.
As required by Statement of Financial Accounting Standard No. 109,
management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets, which are comprised
principally of net operating loss and tax credit carryforwards. In the fourth
quarter of 1996, the Company recorded a full valuation allowance of $5,221,000
to offset the entire net deferred tax assets as a result of the uncertainties
surrounding the realization of the assets due to large cumulative pretax losses
during the prior three years. Management evaluates the positive and negative
evidence impacting the realizability of the Company's deferred tax assets on a
quarterly basis. The Company reduced its valuation allowance by $889,000 in 1995
based upon management's estimate of the amount of deferred tax assets that were
more likely than not to be realized.
M. Litigation
On November 14, 1994, two class action suits were filed against the
Company, several officers of the Company, and the underwriters of the Company's
1993 initial public offering. The complaints alleged violation of securities
laws and fraud. A settlement agreement was finalized and approved by the court
on October 24, 1996, stipulating the Company pay to the plaintiffs $1,825,000 in
cash plus 250,000 shares of the Company's common stock. In the second quarter of
1996, the Company recorded a charge of $4,073,000 to reflect the maximum
possible litigation expense at that time, in accordance with the settlement
agreement. In the fourth quarter of 1996, this charge was reduced by $1,250,000,
to reflect the stock price at November 14, 1996 (settlement date) per the final
settlement agreement. The Company's insurance carrier contributed $1,000,000 in
cash towards the settlement. The Company's total expenses related to settlement
of the litigation amounted to $2,823,000, consisting of cash and stock payable
to the plaintiffs, and legal bills. As of December 31, 1996, $888,000 (including
$656,000 in stock) of this total expense still remains unpaid. This settlement
is not an admission on the part of the defendants of any wrongdoing or lack of
merit in the defenses.
37
<PAGE>
N. Geographic Data
The Company has subsidiaries in various foreign countries, which sell
the Company's products and services in their respective geographic areas.
Revenues are reflected in the geographic areas from which the sales are made.
Financial information, summarized by geographic area, is as follows (in
thousands):
<TABLE>
<CAPTION>
North Rest of
America Europe World Eliminations Consolidated
------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Total revenues:
Unaffiliated customers $ 19,477 $ 14,743 $ 3,239 -- $ 37,459
Inter-company transfers 3,627 --- --- $ (3,627) ---
-------- -------- -------- -------- --------
Total $ 23,104 $ 14,743 $ 3,239 $ (3,627) $ 37,459
======== ======== ======== ======== ========
Segment operating income $ 1,062 $ 621 $ 1,044 $ -- $ 2,727
======== ======== ======== ========
Product development and corporate
sales, general and administrative expenses 14,069
Write down of intangible assets and
other non-recurring charges 3,815
Charge for purchased research and
development 1,861
--------
Loss from operations $ (17,018)
========
Identifiable assets $ 16,726 $ 6,943 $ 1,707 $ -- $ 25,376
======== ======== ======== ======== ========
Year ended December 31, 1995:
Total revenues:
Unaffiliated customers $ 23,698 $ 14,174 $ 3,252 -- $ 41,124
Inter-company transfers 3,020 8 -- $ (3,028) --
-------- -------- -------- -------- --------
Total $ 26,718 $ 14,182 $ 3,252 $ (3,028) $ 41,124
======== ======== ======== ======== ========
Segment operating income $ 6,297 $ 3,018 $ 1,768 $ -- $ 11,083
======== ======== ======== ========
Product development and corporate
sales, general and administrative expenses 9,309
--------
Income from operations $ 1,774
========
Identifiable assets $ 33,218 $ 7,071 $ 1,025 $ -- $ 41,314
======== ======== ======== ======== ========
Year ended December 31, 1994:
Total revenues:
Unaffiliated customers $ 19,145 $ 12,882 $ 1,832 -- $ 33,859
Inter-company transfers 3,813 430 -- $ (4,243) --
-------- -------- -------- -------- --------
Total $ 22,958 $ 13,312 $ 1,832 $ (4,243) $ 33,859
======== ======== ======== ======== ========
Segment operating income $ 3,450 $ 3,577 $ 894 $ -- $ 7,921
======== ======== ======== ========
Product development and corporate
sales, general and administrative expenses 6,885
--------
Income from operations $ 1,036
========
Identifiable assets $ 28,208 $ 7,401 $ 847 $ -- $ 36,456
======== ======== ======== ======== ========
</TABLE>
38
<PAGE>
Inter-company transfers primarily represent shipments of software to
international subsidiaries and are eliminated from consolidated revenues.
Segment operating income excludes product development and corporate sales,
general and administrative expenses.
Export sales to unaffiliated customers were approximately $994,000,
$1,841,000 and $862,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
O. Sale of Product Under Development
The Company is currently negotiating the sale of one of its products under
development. The product is in development and has not generated any revenues
to date. The Company incurred approximately $2.4 million of expense in 1996
related to this product.
39
<PAGE>
DATAWARE TECHNOLOGIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------
Balance at Charged to Charged Balance
beginning Costs and to Other at end
Description of period Expenses Accounts Deductions of Period
- --------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
<S> <C> <C> <C> <C>
1996 $ 610 $ 810 $ 486 $ 934
1995 503 467 360 610
1994 377 418 292 503
</TABLE>
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kurt Mueller 40 Chief Executive Officer and Chairman of the Board
Jeffrey O. Nyweide 41 President and Chief Operating Officer, Director
Wolfgang P. Ruth 46 Senior Vice President of Eurasian Operations
Daniel M. Clarke 50 Vice President of Finance and Administration and
Chief Financial Officer
Sherwood J. Palasek 49 Vice President, American Operations
Charles E. Rabie 45 Vice President, Software Products
Stephen H. Beach 81 Director, Secretary
David Dominik (1)(2) 41 Director
Barton L. Faber (1)(2) 49 Director
William R. Lonergan (1)(2) 72 Director
Jochen Tschunke 52 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
In addition to the foregoing executive officers, Christopher E. Lorch
serves as Treasurer and Corporate Controller.
Mr. Mueller has served as Chief Executive Officer and Chairman of the Board
of Directors since the inception of the Company in 1988 and was President of the
Company until 1993. He previously founded and served as General Manager of
Dataware 2000 GmbH from 1986 to 1988. From 1984 to 1986 he started up and served
as General Manager of Lotus Development GmbH and before that was a consultant
with Bain & Company in the United States and Europe.
Mr. Nyweide has served as President and Chief Operating Officer of the
Company since 1993. He was Vice President of Operations of the Company from its
inception until 1989 and Executive Vice President of the Company from 1989 to
1993. Mr. Nyweide has also served as a member of the Board of Directors since
the inception of the Company. From 1987 to 1988 Mr. Nyweide was President of
Dataware, Inc., a CD-ROM distribution company, and from 1978 to 1987 he served
in various sales, marketing and management positions with The Service Bureau
Company, a subsidiary of Control Data Corporation.
Mr. Ruth has served as Senior Vice President of Eurasian Operations of the
Company since 1995. Previously, Mr. Ruth was Senior Vice President of European
Operations from 1993 to 1995 and Vice President of European Operations from 1991
to 1993. Before joining the Company, he was Sales Manager and then Managing
41
<PAGE>
Director of Dataware 2000 GmbH from 1986 to 1991. From 1985 to 1986, Mr. Ruth
was Sales Manager for Bertelsmann Datenbankdienste GmbH and from 1983 to 1984 he
was the Sales Director for Vereinigte Wirtschaftsdienste GmbH.
Mr. Clarke has served as Vice President, Finance and Administration and
Chief Financial Officer since 1996. Before joining the Company, Mr. Clarke was
with Xyvision, Inc. a software and services company that develops and markets
advanced software for document management, publishing and prepress. Mr. Clarke
joined Xyvision in February 1990 as Vice President and Chief Financial Officer
and was elected President and Chief Operating Officer in February of 1994. Prior
to Xyvision, Mr. Clarke served in senior management positions at BBN
Corporation, IDEA Corporation, The Freudenburg Group, and Ealing Corporation.
Mr. Lorch has served as Treasurer and Corporate Controller of the Company
since 1996. Previously, Mr. Lorch was Corporate Controller of the Company from
1993 to 1996. Before joining the Company, he was Divisional Controller for
Genzyme Corporation, a biotechnological company from 1991 to 1993 and prior to
that he was Financial Controller from 1989 to 1991.
Mr. Palasek has served as Vice President, American Operations since April
of 1996. Previously, he had served as Regional Manager and Vice President of
Sales for the Western U.S. since 1992. From 1984 to 1992, Mr. Palasek was Vice
President of Sales for Reference Technology. From 1971 through 1984, he held
positions in Sales, Marketing and Product Development at IBM Corp and Storage
Technology.
Mr. Rabie has served as Vice President, Software Products since April of
1996. From 1994 to 1996, he served as General Manager, Canadian operations. From
1986 to 1993, Mr. Rabie was the founder and CEO of Megalith Technologies, a
Canadian CD-ROM and text retrieval software and service company acquired by
Dataware in 1993. Prior to 1986, Mr. Rabie held various management and technical
positions with Monenco, an international engineering consulting organization.
Mr. Beach has been a director and Secretary of the Company since its
inception. Since 1985, Mr. Beach has practiced law in Connecticut, specializing
in, among other fields, computer, software and software licensing law. Mr. Beach
also served in several capacities for Control Data Corporation from 1973 to
1985, most recently as Senior Vice President and Secretary.
Mr. Dominik has been a director of the Company since 1990. Also since 1990,
Mr. Dominik has been a General Partner of Information Partners, a venture and
buyout fund focused on information companies. Since 1993, Mr Dominik has also
been a Managing Director of Bain Capital, Inc. From 1986 to 1992, he was a
general partner of funds managed by Zero Stage Capital, Inc., a venture capital
firm that concentrates on early stage investments.
Mr. Faber has been a director of the Company since 1991. From 1985 to the
present, Mr. Faber has been with R.R. Donnelley & Sons Company, a commercial
printer, serving since 1994 as Business Unit President of Information Services
and from 1989 to 1994 as Group President of Information Services. Also, since
June 1996, he has been Chairman of Metromail Corporation. Prior to joining R.R.
Donnelley, Mr. Faber was a Vice President at Continental Bank from 1978 to 1985.
Mr. Faber also is a director of Geosystems, AlphaGraphics, Inc., Hands-On
Technologies, Xeikon, and Document Sciences Corp.
Mr. Lonergan has been a director of the Company since 1988. From 1983 to
1994, Mr. Lonergan has been a general partner of Oxford Partners, a venture
capital firm, where he continues as a consultant. Prior to joining Oxford
Partners, Mr. Lonergan was Vice President of Business Development at Xerox
Corporation. Mr. Lonergan is also a director of Zitel Corporation, Kurzweil
Applied Intelligence, and Medical Sterilization, Inc..
Mr. Tschunke became a director of the Company in 1995. Since 1993, Mr.
Tschunke has been the Supervisory Board Chairman of Computer 2000, a distributor
of hardware peripherals and software for personal computers, that he founded in
1983. From 1983 to 1993, Mr. Tschunke was the Chairman and Chief Executive
Officer of Computer 2000. Prior to founding Computer 2000, Mr. Tschunke was the
General Manager of Central Europe for Rockwell International from 1979 to 1983
and from 1971 to 1979 held various management positions with Texas Instruments.
Mr. Tschunke is a member or chairman of a number of boards, including Computer-
Elektronik Dresden GmbH, MagnaMedia Verlag AG, SPEA Software AG, Adolf Wurth
GmbH & Co. KG, and FC Bayern Munchen.
42
<PAGE>
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve at the discretion of the Board of Directors.
Information contained in the section entitled "Section 16(a) Beneficial
Ownership Reporting Compliance" in the 1997 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors - Director Compensation" and
"Executive Compensation" in the 1997 Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Share Ownership" in the 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Relevant information from the section entitled "Election of Directors" in
the 1997 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits
The financial statements, schedules, and exhibits listed below are included
in or incorporated by reference as part of this Report:
1. Financial statements:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
2. Schedules:
Report of Independent Accountants
II. Valuation and Qualifying Accounts
43
<PAGE>
Schedules not listed above are omitted because they are not applicable or
because the required information is included in the consolidated financial
statements or notes submitted.
3. Exhibits:
The exhibits are listed below under Part IV, Item 14 (c) of this report.
(b) Reports on Form 8-K
None
(c) Exhibits
The Company hereby files as part of this Annual Report on Form 10-K the
Exhibits listed in the attached Exhibit Index.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Cambridge,
Massachusetts on the 28th day of March 1997.
DATAWARE TECHNOLOGIES, INC.
/s/ Kurt Mueller
-----------------------------------
Kurt Mueller, Chairman of the Board
and Chief Executive Officer
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ KURT MUELLER Chairman of the Board, Director March 28, 1997
- -----------------------
KURT MUELLER (Principal Executive Officer)
/s/ JEFFREY O. NYWEIDE President, Director March 28, 1997
- -----------------------
JEFFREY O. NYWEIDE
/s/ DANIEL M. CLARKE Vice President, Finance and Administration March 28, 1997
- -----------------------
DANIEL M. CLARKE (Principal Financial and Accounting Officer)
/s/ STEPHEN H. BEACH Director March 28, 1997
- -----------------------
STEPHEN H. BEACH
/s/ DAVID DOMINIK Director March 28, 1997
- -----------------------
DAVID DOMINIK
/s/ BARTON FABER Director March 28, 1997
- -----------------------
BARTON L. FABER
/s/ WILLIAM R. LONERGAN Director March 28, 1997
- -----------------------
WILLIAM R. LONERGAN
/s/ JOCHEN TSCHUNKE Director March 28, 1997
- -----------------------
JOCHEN TSCHUNKE
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
<S> <C>
2.1 Agreement and Plan of Merger dated December 30, 1995 among the
Registrant, Ledge Multimedia, Inc. and the shareholders of Ledge
Multimedia, Inc. (Exhibit to Form 8-K dated January 10, 1996)*
2.2 Agreement - Sale of Shares dated March 28, 1996 among the
Registrant, Entrust Nominees Limited "D" Account, and Status/IQ
Limited. (Exhibit to 1995 Form 10-K)*
3.1 Restated Certificate of Incorporation, as amended through July 2,
1996. (Exhibit to June 30, 1996 Form 10-Q)*
3.2 By-Laws of the Registrant, as amended through February 17, 1995
(Exhibit to March 31, 1995 Form 10-Q)*
10.1 1993 Equity Incentive Plan, as amended through December 9, 1996.#
10.2 1993 Employee Stock Purchase Plan. (Registration Statement No.
33-63308)*#
10.3 1993 Stock Option Plan for Directors, as amended through December
9, 1996.#
10.4 Form of stock option agreement terms (executive officers).
(Exhibit to June 30, 1996 Form 10-Q)*#
10.5 Form of stock option agreement terms (Kurt Mueller, Jeffrey O.
Nyweide). (Exhibit to June 30, 1996 Form 10-Q)*#
10.6 Employment Agreement between the Registrant and Kurt Mueller dated
October 28, 1988, as amended. (Registration Statement No. 33-
63308)*#
10.7 Employment Agreement between the Registrant and Jeffrey O. Nyweide
dated October 28, 1988, as amended. (Registration Statement No.
33-63308)*#
10.8 Lease dated November 1994, between the Registrant and American
Twine Realty Trust for lease of premises at 222 Third Street,
Cambridge, Massachusetts, and First Amendment thereto. (Exhibit to
1994 Form 10-K)*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
99.1 Important Factors Regarding Future Results. (Exhibit to
September 30, 1996 Form 10-Q)*
</TABLE>
* Incorporated by reference to the filing indicated in parentheses.
# Denotes management contracts and compensation plans.
46
<PAGE>
As amended through May 25, 1994
Exhibit 10.1
------------
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 two members of the
Board appointed by the Board to administer the Plan, each of whom is a "Non-
Employee Director" 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 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.
<PAGE>
"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.
Section 3. Administration
--------------
The Plan shall be administered by the Committee, provided that the
Board may in any instance perform any of the functions of 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
- 2 -
<PAGE>
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, are eligible to be
Participants in the Plan. Incentive Stock Options may be granted 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 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 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.
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) Limitations on Grants of Options and SARs. Subject to adjustment
under Section 5(b), the number of shares subject to Options and SARs granted to
any one individual during any fiscal year may not exceed 250,000 shares of
Common Stock.
(b) Transferability. An Award under this Plan may be transferred only
to the extent expressly permitted by the Committee and subject to such
conditions as the Committee may in its discretion impose.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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
<PAGE>
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").
(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
- 7 -
<PAGE>
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
(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."
- 8 -
<PAGE>
(i) 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.
(j) 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 extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant.
(k) 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.
(l) 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.
- 9 -
<PAGE>
(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 and approved by
the Shareholders May 23, 1996.
. Amendments adopted by the Board of Directors December 9, 1996.
- 11 -
<PAGE>
Exhibit 10.3
------------
As amended through December 9, 1996.
DATAWARE TECHNOLOGIES, INC.
1993 Director Stock Option Plan
-------------------------------
The purpose of this 1993 Director Stock Option Plan (the "Plan") of
Dataware Technologies, Inc. (the "Company") is to attract and retain highly
qualified non-employee directors of the Company and to encourage ownership of
stock of the Company by such Directors so as to provide additional incentives to
promote the success of the Company.
1. Administration of the Plan.
Grants of stock options under the Plan shall be automatic as provided
in Section 6. However, all questions of interpretation with respect to the Plan
and options granted under it shall be determined by the Board of Directors of
the Company (the "Board") or by a committee consisting of one or more directors
appointed by the Board, and such determination shall be final and binding upon
all persons having an interest in the Plan.
2. Persons Eligible to Participate in the Plan.
All directors of the Company who are not employees of the Company or
of any subsidiary of the Company shall be eligible to participate in the Plan,
unless such director irrevocably elects not to participate.
3. Shares Subject to the Plan.
(a) The aggregate number of shares of the Company's Common Stock,
$.01 par value (the "Common Stock"), that may be optioned under this Plan is
130,000 shares. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Company's Common Stock, the maximum aggregate number and kind of
shares or securities of the Company as to which options may be granted under
this Plan and as to which options then outstanding shall be exercisable, and the
option price of such options shall be appropriately adjusted so that the
proportionate number of shares or other securities as to which options may be
granted and the proportionate interest of holders of outstanding options shall
be maintained as before the occurrence of such event.
(c) In the event of a consolidation or merger of the Company with
another corporation following which the Company's stockholders do not own a
majority in interest of the surviving or resulting corporation, or the sale or
exchange of all or substantially all of the assets of the Company, or a
reorganization or liquidation of the Company, any deferred exercise period shall
be automatically accelerated and each holder of an outstanding option shall be
entitled to receive upon exercise and payment in accordance with the terms of
the option the same shares, securities or property as he would have been
entitled to receive upon the occurrence of such event if he had been,
immediately prior to such event, the holder of the number of shares of Common
Stock purchasable under his or her option; provided, however, that in lieu of
the
<PAGE>
foregoing the Board may upon written notice to each holder of an outstanding
option or right under the Plan, provide that such option or right shall
terminate on a date not less than 20 days after the date of such notice unless
theretofore exercised.
(d) Whenever options under this Plan lapse or terminate or otherwise
become unexercisable the shares of Common Stock that were subject to such
options shall again be subjected to options under this Plan. The Company shall
at all times while this Plan is in force reserve such number of shares of Common
Stock as will be sufficient to satisfy the requirements of this Plan.
4. Non-Statutory Stock Options.
All options granted under this Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
5. Form of Options.
Options granted hereunder shall be in substantially the form of the
attached Exhibit A or in such other form as the Board or any committee appointed
---------
pursuant to Section 1 above may from time to time determine.
6. Grant of Options and Option Terms.
(a) Automatic Grant of Options. (i) Immediately following the annual
meeting of stockholders each year, each non-employee director of the Company
newly elected at or continuing in office after such meeting shall automatically
be granted options to purchase 6,000 shares of Common Stock. (ii) Immediately
following his or her election, each non-employee director of the Company newly
elected to the Board of Directors at any point during the year between annual
meetings of stockholders shall automatically be granted options to purchase
1,500 shares of Common Stock for each calendar quarter beginning before the date
of the next annual meeting of stockholders (for which purpose the next annual
meeting shall be deemed to be held on the same calendar date as the preceding
annual meeting). No options shall be granted hereunder after ten years from the
date on which this Plan was initially approved and adopted by the Board.
(b) Date of Grant. The "Date of Grant" for options granted under this
Plan shall be (i) the date of the respective annual meeting of stockholders, for
each grant pursuant to clause (i) of subsection (a) and (ii) the date of the
respective director's election, for each grant pursuant to clause (ii) of
subsection (a).
(c) Option Price. The option price for each option granted under this
Plan shall be the current fair market value of a share of Common Stock of the
Company, which, for this purpose, shall be (i) the initial public offering price
of the Common Stock to be sold pursuant to the Registration Statement, for the
initial grants, and (ii) the last sale price for the Company's Common Stock as
reported by the National Association of Securities Dealers Automated Quotations
National Market System, or the principal exchange on which the Common Stock is
then traded, as the case may be, for the business day immediately preceding the
Date of Grant, for each subsequent grant.
(d) Term of Option. The term of each option granted under this Plan
shall be ten years from the Date of Grant.
- 2 -
<PAGE>
(e) Exercisability of Options. Options granted under this Plan shall
become exercisable, during the optionholder's term in office, with respect to
1,500 shares at the beginning of each calendar quarter following the Date of
Grant.
(f) General Exercise Terms. Directors holding exercisable options
under this Plan who cease to serve as members of the Board may, during their
lifetime, exercise the rights they had under such options at the time they
ceased being a director for the full unexpired term of such option. Any rights
that have not yet become exercisable shall terminate upon cessation of
membership on the Board. Upon the death of a director, those entitled to do so
shall have the right, at any time within twelve months after the date of death,
to exercise in whole or in part any rights that were available to the director
at the time of his or her death. The rights of the option holder may be
exercised by the holder's guardian or legal representative in the case of
disability and by the beneficiary designated by the holder in writing delivered
to the Company or, if none has been designated, by the holder's estate or his or
her transferee on death in accordance with this Plan, in the case of death.
Options granted under the Plan shall terminate, and no rights thereunder may be
exercised, after the expiration of the applicable exercise period.
Notwithstanding the foregoing provisions of this section, no rights under any
options may be exercised after the expiration of ten years from their Date of
Grant.
(g) Method of Exercise and Payment. Options may be exercised only by
written notice to the Company at its head office accompanied by payment of the
full option price for the shares of Common Stock as to which they are exercised.
The option price shall be paid in cash or by check or in shares of Common Stock
of the Company surrendered or withheld from the shares otherwise issuable upon
exercise, or in any combination thereof. Outstanding shares of Common Stock
surrendered in payment of the option price shall have been held by the person
exercising the option for at least six months, unless otherwise permitted by the
Board. The value of shares surrendered or withheld in payment of the option
price shall be their fair market value, as determined in accordance with Section
6(c) above, as of the date of exercise. Upon receipt of such notice and
payment, the Company shall promptly issue and deliver to the optionee (or other
person entitled to exercise the option) a certificate or certificates for the
number of shares as to which the exercise is made.
(h) Transferability. An Option under this Plan may be transferred
only to the extent expressly permitted by the Board and subject to such
conditions as the Board may in its discretion impose.
7. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option or any other action taken pursuant to the Plan, shall
constitute an agreement or understanding, express or implied, that the Company
will retain an option holder as a director for any period of time or at any
particular rate of compensation.
(b) No Stockholders' Rights for Options. A director shall have no
rights as a stockholder with respect to the shares covered by options until the
date the director exercises such options and pays the option price to the
Company, and no adjustment will be made for dividends or other rights for which
the record date is prior to the date such option is exercised and paid for.
8. Amendment or Termination.
- 3 -
<PAGE>
The Board may amend or terminate this Plan at any time, provided that,
to the extent necessary to comply with Rule 16b-3, this Plan shall not be
amended more than once every six months, other than to comport with changes in
the Code, ERISA or the rules thereunder.
9. Stockholder Approval.
This Plan is subject to approval by the stockholders of the Company by
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Company present, or represented and entitled to vote, at a meeting duly
held in accordance with the laws of the State of Delaware. In the event such
approval is not obtained, all options granted under this Plan shall be void and
without effect.
10. Governing Law.
This Plan shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
________________________
. Initially adopted by Board of Directors May 19, 1993.
. Initially approved by Shareholders May 19, 1993.
. Amendments adopted by the Board of Directors April 3, 1995 and approved by
the Shareholders May 17, 1995.
. Amendments adopted by the Board of Directors April 15, 1996 and approved by
the Shareholders May 23, 1996.
. Amendments adopted by the Board of Directors December 9, 1996.
- 4 -
<PAGE>
EXHIBIT A
---------
1993 DSO-_________ _________ Shares
DATAWARE TECHNOLOGIES, INC.
1993 Director Stock Option Plan
Nonstatutory Stock Option Certificate
Dataware Technologies, Inc. (the "Company"), a Delaware corporation,
hereby grants to the person named below an option to purchase shares of Common
Stock, $0.01 par value, of the Company (the "Option") under and subject to the
Company's 1993 Director Stock Option Plan (the "Plan") exercisable on the
following terms and conditions and those set forth on the reverse side of this
Certificate:
Name of Optionholder: ________________________________
Address: _________________________________
________________________________
Social Security No. ________________________________
Number of Shares: ______________
Option Price: ______________
Date of Grant: ______________
Exercisability Schedule: After , 19 , as to ______ shares,
after , 19 , as to ______ additional shares,
after , 19 , as to ______ additional shares,
after , 19 , as to ______ additional shares,
provided that this Option may not be exercised as to any shares after the
expiration of ten years from the Date of Grant.
This Option shall not be treated as an Incentive Stock Option under
section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By signing this Stock Option Certificate and returning one signed copy
to the Company, the Optionholder accepts the Option described herein on the
terms and conditions set forth herein.
DATAWARE TECHNOLOGIES, INC. Accepted and agreed to:
By: ____________________________ __________________________
Optionholder
- --------------------------------------------------------------------------------
I, [optionholder], hereby elect to exercise this Option as to ________ shares
------------
and, in accordance with the terms of this Plan, I tender to the Company this
certificate accompanied by full payment of the option price as allowed by the
terms of the Plan, for said number of shares.
Date: _____________ ______________________________
Optionholder
- --------------------------------------------------------------------------------
<PAGE>
DATAWARE TECHNOLOGIES, INC. 1993 DIRECTOR STOCK OPTION PLAN
Stock Option Terms And Conditions
---------------------------------
1. This Option may be exercised at any time and from time to time up to the
aggregate number of shares specified herein, but in no event for the purchase of
other than full shares, provided, however, that this Option may not be exercised
as to any shares after the expiration of ten years from the date of grant.
Options may be exercised only by written notice to the Company at its head
office accompanied by payment of the full option price for the shares of Common
Stock as to which they are exercised. The option price shall be paid in cash or
by check or in shares of Common Stock of the Company, or in any combination
thereof. Outstanding shares of Common Stock surrendered in payment of the
option price shall have been held by the person exercising the option for at
least six months, unless otherwise permitted by the Board. The value of shares
delivered or withheld in payment of the option price shall be their fair market
value, as determined in accordance with Section 6(c) of the Plan, as of the date
of exercise. Upon receipt of such notice and payment, the Company shall
promptly issue and deliver to the optionholder (or other person entitled to
exercise the option) a certificate or certificates for the number of shares as
to which the exercise is made.
2. The Optionholder shall not be deemed, for any purpose, to have any
rights whatever in respect of shares to which the Option shall not have been
exercised and payment made as aforesaid. The Optionholder shall not be deemed
to have any rights to continued service as director by virtue of the grant of
this Option.
3. In the event of stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Common Stock, the maximum aggregate number and kind of shares of
securities of the Company subject to this Option and the exercise price of this
Option shall be appropriately adjusted by the Board (whose determination shall
be conclusive) so that the proportionate number of shares or other securities
subject to this Option and the proportionate interest of the Optionholder shall
be maintained as before the occurrence of such event.
4. In the event of a consolidation or merger of the Company with another
corporation where the Company's stockholders do not own a majority in interest
of the surviving or resulting corporation, or the sale or exchange of all or
substantially all of the assets of the Company, or a reorganization or
liquidation of the Company, any deferred exercise period shall be automatically
accelerated and each holder of an outstanding option shall be entitled to
receive upon exercise and payment in accordance with the term of the option the
same shares, securities or property as he would have been entitled to receive
upon the occurrence of such event if he had been, immediately prior to such
event, the holder of the number of shares of Common Stock purchasable under his
or her option or, if another corporation shall be the survivor, such corporation
shall substitute therefor substantially equivalent shares, securities or
property of such other corporation; provided, however, that in lieu of the
foregoing the Board may upon written notice to each holder of an outstanding
option or right provide that such option or right shall terminate on a date not
less than 20 days after the date of such notice unless theretofore exercised.
5. This Option is not transferable by the Optionholder otherwise than by
will or the laws of descent and distribution or as permitted by Rule 16b-3 (or
any successor provision) under the Securities Exchange Act of 1934, as amended.
This Option is exercisable during the Optionholder's lifetime only by the
Optionholder, provided that this Option may be exercised by the Optionholder's
guardian or legal representative in the case of disability and by the
beneficiary designated by the Optionholder in writing delivered to the Company,
or, if none has been designated, by the Optionholder's estate or his or her
transferee on death in accordance with this Section, in the case of death.
6. If the Optionholder ceases to serve as a member of the Board for any
reason, the Optionholder may, during his lifetime, exercise the rights which the
Optionholder had hereunder at the time the Optionholder ceased being a director
for the full unexpired term of the Option. Upon the death of the Optionholder,
those entitled to do so shall have the right, at any time within twelve months
after the date of death, to exercise in whole or in part any rights which were
available to the Optionholder at the time of the Optionholder's death. This
Option shall terminate after the expiration of the applicable exercise period.
Notwithstanding the foregoing provisions of this Section 6, no rights under this
Option may be exercised after the expiration of ten years from the date of
grant.
7. It shall be a condition to the Optionholder's right to purchase shares
of Common Stock hereunder that the Company may, in its discretion, require (a)
that the shares of Common Stock reserved for issue upon the exercise of this
Option shall have been duly listed, upon official notice of issuance, upon any
national securities exchange on which the Company's Common Stock may then be
listed, (b) that either (i) a Registration Statement under the Securities Act of
1933, as amended, with respect to said shares shall be in effect, or (ii) in the
opinion of counsel for the Company the proposed purchase shall be exempt from
registration under said Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
deem necessary to comply with any law, rule or regulation applicable to the
issue of such shares by the Company shall have been taken by the Company or the
Optionholder, or both. The certificates representing the shares purchased under
this Option may contain such legends as counsel for the Company shall deem
necessary to comply with any applicable law, rule or regulation.
8. Any exercise of this Option is conditioned upon the payment, if the
Company so requests, by the Optionholder or such other person who may be
entitled to exercise this Option in accordance with the terms hereof, of all
state and federal taxes imposed upon the exercise of this Option and the issue
to the Optionholder of the shares covered hereby.
9. This Option shall not be treated as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended.
10. This Option is issued pursuant to the terms of the Plan. This
Certificate does not set forth all of the terms and conditions of the Plan,
which are incorporated herein by reference. Capitalized terms used and not
otherwise defined herein have the meanings given to them in the Plan. Copies of
the Plan may be obtained upon written request without charge from the Vice
President of Finance and Administration of the Company.
5-19-93
- 6 -
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Organization
- ---------- ----------------------------
<S> <C>
Megalith Technologies, Inc. Ontario, Canada
Dataware Technologies GmbH Germany
Dataware Technologies (UK) Ltd. England
Dataware Technologies S.r.l. Italy
Dataware Technologies AB Sweden
Dataware Technologies France s.a.r.l. France
Dataware Technologies Pte Ltd. Singapore
Dataware Technologies Pty Ltd. Australia
Dataware Technologies A/S Denmark
Northern Light Technology Corporation Delaware
Dataware Securities Corporation Massachusetts
Ntergaid, Inc. Connecticut
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Dataware Technologies, Inc. on Form S-8 (File Nos. 33-740496, 33-70498,
33-70500, 333-594, 333-596 and 333-04487) of our reports dated February 13,
1997, on our audits of the consolidated financial statements and financial
statement schedule of Dataware Technologies, Inc. as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
which reports are included in or incorporated by reference in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,368
<SECURITIES> 0
<RECEIVABLES> 10,205
<ALLOWANCES> 934
<INVENTORY> 112
<CURRENT-ASSETS> 1,856
<PP&E> 13,812
<DEPRECIATION> 6,514
<TOTAL-ASSETS> 25,376
<CURRENT-LIABILITIES> 10,958
<BONDS> 0
0
0
<COMMON> 38,539
<OTHER-SE> (24,121)
<TOTAL-LIABILITY-AND-EQUITY> 25,376
<SALES> 37,459
<TOTAL-REVENUES> 37,459
<CGS> 18,301
<TOTAL-COSTS> 18,301
<OTHER-EXPENSES> 38,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (19,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,311)
<EPS-PRIMARY> (3.01)
<EPS-DILUTED> (3.01)
</TABLE>
