<PAGE>
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, 1998
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 incorporation (I.R.S Employer
or organization) identification No.)
One Canal Park
Cambridge, MA 02141
(Address of principal executive offices) (Zip Code)
(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
Junior Participating Preferred Stock Purchase Rights
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, 1999: $24,972,675
Shares of Common Stock outstanding as of February 28, 1999: 9,506,536
___________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1999 Annual Meeting of
Shareholders to be held on May 27, 1999 (the "1999 Proxy Statement") are
incorporated by reference into Part III of this Report.
Exhibits Index at Page 47
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PART I
ITEM 1. BUSINESS
OVERVIEW
Dataware Technologies, Inc. develops software for enterprise information access
("knowledge management") and professional electronic publishing applications.
The Company also provides multimedia services for Web-based and CD-ROM
publishing through its Ledge Multimedia division ("Ledge"). Direct sales and
service organizations and a growing number of indirect channels maintain
relationships with more than 2,000 customers serving over 1,000,000 end users.
Dataware's innovative software products and multimedia services address the most
important needs of organizations that view knowledge as a valuable asset:
identifying, capturing, managing, sharing, and distributing that knowledge.
Dataware helps knowledge-driven enterprises design, create, and implement
information retrieval, knowledge mining, and publishing solutions in a Web-
centric environment. The Company's offerings permit information to be
integrated from a wide variety of sources. They enable access and publishing via
the latest information technologies, such as the Internet, intranets, enterprise
networks, CD-ROM, commercial on-line services, and print-on-demand. Dataware
derives recurring revenues from software licenses, software maintenance and
service revenues from updating existing customers' applications. Dataware was
incorporated in Delaware on March 15, 1988. Significant operations began with
the 1988 purchase of the worldwide rights to certain software developed by
Dataware 2000 GmbH and the acquisition of its United States distributor.
Subsequent acquisitions have contributed significantly to the Company's growth.
Among the most recent have been the 1998 acquisitions of software developers
Green Book International Corporation and Sovereign Hill Software, Inc. In 1997,
Dataware sold a portion of its data services business to Information Handling
Services Group, Inc. ("IHS"), together with five foreign subsidiaries that had
been primarily engaged in distributing the Company's software and providing
services to customers. As a result, IHS became a significant international
value-added reseller ("VAR"). Additional information about the development of
the Company's business during the past year and about some of the risks the
Company faces is contained in Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INDUSTRY DEVELOPMENT AND DATAWARE'S RESPONSE
The roots of Dataware's knowledge management and electronic publishing products
and high-end multimedia services lie in the four major application areas in
which it has historically competed: CD-ROM software and services, text
management software, software and services for on-line/Internet applications,
and electronic publishing management systems.
Knowledge management
The growing knowledge management market seeks products that address the broad
process of identifying, capturing, managing, sharing, and distributing
information within an organization. Dataware believes that a good knowledge
management system must provide users with a single point of access to contribute
to and tap into all knowledge assets within an organization. Knowledge assets
include human assets as well as documents and data stored in files. Information
and expertise that has historically been created and maintained in isolated
systems targeted at specific workgroups must be integrated, accessed and
manipulated on a company-wide basis through an intranet. Accordingly, knowledge
management must integrate and go beyond the capabilities of any of the following
used alone: document management systems, information retrieval engines,
databases and data mining tools, electronic publishing systems, groupware and
workflow systems, push technologies and help-desk applications.
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. Dataware II Knowledge Management Suite
The Dataware II Knowledge Management Suite ("KMS") meets these requirements by
identifying and connecting users to experts within the organization, as well
as to files and URLs. Introduced in 1997, KMS enables enterprise-wide access
to all types of digital information with cartridges that translate over 200
source information types, including Web pages, server file systems, relational
databases and groupware applications. KMS allows users to contribute
information either directly to a knowledge warehouse or through an existing
knowledge silo, such as a groupware or document management system, from which
it can be shared and managed by others. It contains features such as content
analysis with knowledge maps of the organization and sophisticated searching
techniques that help users quickly locate desired information. Dataware
anticipates that KMS will be enhanced by the arrival of the Sovereign Hill
development team, which had developed a new generation of advanced
retrieval/categorization platforms for multi-source knowledge mining and
integration.
. BRS/Search
Dataware's Knowledge Management products evolved from the classic text
management product line, BRS/Search. Text management and retrieval software
(which is different from that used for structured database management, but can
be integrated with it) enables updating and retrieval of large collections of
text and other unstructured information. Dataware 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 that can be integrated with other
systems through the use of add-on products such as WordPlus. It 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 conforming 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.
Electronic publishing and distribution
Dataware has developed and continues to market several innovative software
products to meet the needs of corporations, government agencies and publishers
for electronic publishing systems and physical electronic media distribution.
. Electronic publishing systems
A broad variety of organizations need to provide timely and accurate
information to knowledge workers internally or to customers, contractors and
other external end-users. Although organizations have historically used
widely differing methods to distribute their information, state of the art
electronic publishing systems bring under one roof the distribution of
information on-line, on the Internet and on corporate intranets. Dataware
sells two main products to make these publishing processes run efficiently and
effectively.
Dataware II Publisher enables broad electronic publishing capabilities.
Organizations use it to create 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 II Publisher contains
many of the same sophisticated searching capabilities that are features of
Dataware's other products, allowing end users to find information quickly.
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NetAnswer is a comprehensive, off-the-shelf, Internet software offering. A
robust information management, query and retrieval system, NetAnswer software
enables information providers to distribute large volumes of data, text, and
multimedia content via the Internet or intranets. Based on BRS/Search,
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. It includes sophisticated capabilities such
as multi-fielded searches, thesauri and concept searching, relevance ranking,
and user-customized search and display formats.
. Physical electronic media distribution
Many organizations distribute large amounts of information to multiple
locations in a compact, cost-effective format using CD-ROM or diskettes. For
example:
. magazine and newspaper publishers distribute historical information on CD-
ROM for purchase by libraries, industry analysts and other professionals;
. manufacturers improve 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 distribute the equivalent of warehouses full of policy
and procedure manuals, regulations and forms with CD-ROM based information
products;
. financial services companies selling insurance and mutual fund products,
health care organizations and others are beginning to realize significant
cost savings by distributing prospectuses and other disclosure documents on
diskette.
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. The major CD-ROM
software products are CD Author Development System, CD Answer retrieval
software and CD Author Advanced Design Library.
Dataware's Gbook product enables electronic publishing of financial
prospectuses and other regulated financial information. A company or
financial printer uses the Gbook software to digitize and duplicate prospectus
information onto a diskette at costs that may be significantly lower than for
paper production. A Gbook prospectus diskette contains a full-featured
browser in a small, one-megabyte package and uses a secure file format to
ensure the integrity of the content. The Company has established distributor
relationships with leading financial printers and also is selling Gbook to a
growing array of financial, insurance, and health care companies to create
their own disclosure documents.
Ancillary services
Dataware has always provided an extensive range of one-time and recurring data
capture and data preparation services to support customers' use of Dataware
software products, and revenues have historically been somewhat more heavily
oriented toward services. A large portion of this business was transferred to
IHS in 1997. The Company also provides database hosting, software
support, training, software maintenance and custom software development
services. In particular, customers purchasing KMS to date have required a high
level of customization. In response, the Company has deployed a specialized
unit, "Team Dataware," to provide these services.
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Multimedia services
Dataware's Ledge division provides a complete array of multimedia application
development services to corporations, publishers and professional firms. One of
the largest high-end multimedia services companies in the United States, with
more than 100 professional applications developed to date, Ledge focuses on
three key application/market areas: financial services, marketing communications
and professional publishing. Ledge helps these customers combine media and
information types in new and innovative ways. For example, Ledge works with
customers to create Internet/CD-ROM hybrids to take advantage of both the
immediacy of the Internet and the storage capacity of CD-ROM. Ledge also manages
the distribution of Gbook, in some cases creating the electronic prospectus for
the customer.
DATAWARE'S CORPORATE STRATEGY
The Company's key objectives are to address the evolving needs of its customers
and create high levels of customer satisfaction, deliver superior long-term
returns for shareholders, and foster a challenging and enjoyable work
environment for employees. To achieve these objectives, Dataware is pursuing a
strategy that includes the following key elements: a focus on areas of core
competency; close relationships with customers; developing and maintaining
recurring business; product and technology leadership; and a diversified revenue
base.
. Dataware focuses on market areas that demand its core competencies. For
example, the historical text management, publishing and retrieval products
support the pathbreaking entry into knowledge management.
. Dataware views working directly in long-term partnerships with its customers
as a critical element in the Company's historical and future success.
. The Company's marketing, pricing and support strategies focus on the
generation of both one-time and recurring revenues. Customers often acquire
annual maintenance contracts for the updating and support of licensed software
products. Many of the Company's customers also develop applications with
information content that, by its nature, needs to be updated on a regular
basis, thus providing Dataware with recurring software licenses or update
service revenues. In 1998, recurring revenues represented approximately 29%
of total revenues.
. Dataware strives to develop and market the technologically leading products in
its field through a combination of internal development, as well as through
licensing and selected acquisitions.
. 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. The Company 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.
In addition, the Company's strategy includes making selective acquisitions to
broaden its customer base, allow the development of more direct customer
relationships, or provide important new products and services for customers.
The Company adheres to a policy of not commenting publicly on the status of any
potential acquisition activity until documents have been signed. This is
intended to help prevent disruption to the business and employees of any firm
with whom the Company may be in discussions and to protect stockholders from
unwarranted or premature speculation in the market.
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SALES AND MARKETING
The Company's sales and marketing organization, consisting of 53 persons,
operates from the Company's headquarters in Cambridge, Massachusetts and its
Eurasian headquarters in Denham, England. The Company also maintains sales
offices in five other cities in the United States, and in Denmark and Singapore.
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 and new
product marketing.
The Company's direct sales force helps Dataware 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's direct sales and marketing organization is complemented by its
network of authorized distributors and VARs throughout the world. This network
was significantly increased with the 1997 sale to IHS of the five foreign
subsidiaries that had previously been included in the Company's direct
distribution network. Dataware continually evaluates new potential distribution
partners who may provide improved access to selected vertical or geographic
markets.
CUSTOMERS
More than 500 customers did business with Dataware in 1998, and its software has
been deployed by more than 2,000 customers worldwide. Dataware software has now
been used to produce approximately 1,300 CD-ROM titles. There are more than
1,000,000 end users of Dataware software products. Dataware's customer base is
broad and diverse. Sales from operations outside North America comprised about
27% of Dataware revenues in 1998, 40% in 1997, and 48% in 1996. An estimated 29%
of total 1998 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. The Company's various distribution, license and
services agreements with IHS accounted for 28% of the Company's total revenues
during 1998 and 13% in 1997, but this portion is expected to decrease.
PRODUCT DEVELOPMENT
The Company's small to medium sized software development teams typically consist
of a product marketing specialist, product manager, development manager,
software architect, software engineers, QA and documentation specialists.
Acquiring Sovereign Hill at the end of 1998 brought a team of 13 new developers,
giving the Company a critical mass working on advanced information retrieval,
categorization, filtering, and profiling software for knowledge management
applications. The Sovereign Hill engineering team is located adjacent to the
Center for Intelligent Information Retrieval, part of the University of
Massachusetts, and Dataware anticipates continuing Sovereign Hill's productive
relationship with CIIR.
Dataware's development projects are primarily 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 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,
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faster indexing, and improved compression. In addition to internal development,
the Company also may license or acquire appropriate third party technology to
achieve its goals.
During 1998, 1997, and 1996, the Company's expenditures in research and
development, including capitalized internally developed software costs, were
$7.9 million, $8.6 million, and $10.1 million, representing 24%, 23%, and 27% of
revenues, respectively. As of December 31, 1998, the Company had 71 full-time
employees engaged in product development activities.
COMPETITION
Dataware's markets are intensely competitive. Competition in Dataware's
historical 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 (DOCSF), Verity (VRTY), Excalibur (EXCA) and
IDI (OTEXF). In Europe and Asia, competitors include MPW Lasec, TRIP (Fulcrum)
and IDI. Dataware believes that it is differentiated from its competitors by its
more complete set of products and services and attention to customization. Some
of the competitors sell only software with few supporting services, and some are
search engine companies without Dataware's broader focus on complete
applications. Competition for knowledge management offerings includes several of
these traditional competitors, as well as very significant potential players
such as Lotus (IBM), Netscape and Microsoft, along with new specialist
competitors such as Autonomy and Intraspect -- all of whom approach knowledge
management system development from a different product base.
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, which could result in price reductions and loss of
market share for the Company. The Company must continue to enhance its existing
products and services and introduce 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
take a different approach, selling lower priced, less sophisticated products
that require less customization. There can be no assurance that the Company
will be able to compete successfully or 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
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sell or transfer title to its software products to customers. 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, 1998 the Company had 225 full-time employees, including 71 in
product development, 53 in sales and marketing, 71 in customer services and 30
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
leased facilities consisting of approximately 31,000 square feet of office space
occupied under leases expiring in November 1999 and May 2001. The Company leases
additional facilities and offices, including locations in Denham, UK;
Copenhagen, Denmark; Singapore; Bethesda, Maryland; Albany, New York; Portland,
Oregon; and Hadley, Massachusetts. The Company believes that its existing
facilities and offices and additional space available to it are adequate to meet
its near-term requirements, 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
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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.
HIGH LOW
-------- -------
1998:
First Quarter $4 1/16 $2 3/8
Second Quarter 4 3/4 2 3/4
Third Quarter 3 7/8 2 1/8
Fourth Quarter 3 3/4 1 1/2
1997:
First Quarter $ 6 5/8 $2 7/8
Second Quarter 4 3/8 2 5/8
Third Quarter 5 3/8 2 1/4
Fourth Quarter 4 7/8 2 1/4
On March 10, 1999, there were 498 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.
On December 31, 1998, the Company issued 200,000 shares of Common Stock and
warrants to purchase an additional 40,000 shares with an exercise price of $6.00
per share to Sovereign Hill Software, Inc. as consideration for the purchase of
certain assets of Sovereign Hill. The issuance was exempt from registration
under Section 4(2) of the Securities Act of 1933, based on the nonpublic nature
of the transaction and the qualifications of the recipient.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Statement of Operations Data: Year ended December 31,
------------------------------------------------------------------
(In thousands, except per share data) 1998 1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Revenues:
Software license fees $ 19,258 $ 19,534 $ 16,502 $ 19,996 $ 14,334
Services 13,732 17,785 20,957 21,128 19,525
--------- --------- --------- --------- ---------
Total revenues 32,990 37,319 37,459 41,124 33,859
Cost of revenues:
Software license fees 2,026 2,544 3,437 3,125 2,057
Write down of intangible assets 885 -- 1,926 -- --
Services 7,288 10,966 12,938 11,923 10,799
--------- --------- --------- --------- ---------
Total cost of revenues 10,199 13,510 18,301 15,048 12,856
--------- --------- --------- --------- ---------
Gross profit 22,791 23,809 19,158 26,076 21,003
Operating expenses:
Sales and marketing 10,953 16,603 17,679 13,754 11,118
Product development 5,956 6,721 8,144 5,040 3,954
General and administrative 5,229 5,884 6,603 5,337 4,895
Write down of goodwill and other
non-recurring charges 759 -- 1,889 -- --
Merger costs -- -- -- 171 --
Charge for purchased research and
development 450 -- 1,861 -- --
--------- --------- --------- --------- ---------
Total operating expenses 23,347 29,208 36,176 24,302 19,967
--------- --------- --------- --------- ---------
Income (loss) from operations (556) (5,399) (17,018) 1,774 1,036
--------- --------- --------- --------- ---------
Interest income (expense), net 476 (160) 386 586 549
Settlement of litigation -- -- (2,823) -- --
Other income (expense), net (22) (149) 144 86 (5)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (102) (5,708) (19,311) 2,446 1,580
--------- --------- --------- --------- ---------
Provision for income taxes 105 80 -- 733 369
--------- --------- --------- --------- ---------
Net income (loss) (207) (5,788) (19,311) 1,713 1,211
--------- --------- --------- --------- ---------
Accretion of preferred stock -- 677 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) to common stockholders $ (207) $ (6,465) $ (19,311) $ 1,713 $ 1,211
========= ========= ========= ========= =========
Net income (loss) per common share--basic $ (0.02) $ (0.85) $ (3.01) $ 0.28 $ 0.22
========= ========= ========= ========= =========
Net income (loss) per common share--diluted $ (0.02) $ (0.85) $ (3.01) $ 0.26 $ 0.19
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding--basic 9,265 7,632 6,425 6,121 5,610
========= ========= ========= ========= =========
Weighted average number of common shares
outstanding--diluted 9,265 7,632 6,425 6,511 6,211
========= ========= ========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
Balance Sheet Data December 31,
------------------------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994(1)
- --------------------------------------------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Working capital $ 5,675 $ 9,273 $ 2,649 $ 11,121 $ 10,200
Total assets 28,749 29,053 25,376 41,314 36,456
Notes, software license payable, and
capital leases, less current portion -- -- -- 4 210
Stockholders' equity 16,353 16,466 14,418 32,216 28,738
</TABLE>
(1) Restated to reflect pooling of interests with Ledge Multimedia, Inc.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statements concerning the Company's anticipated performance including future
revenues, costs, and profits, or about the development of the Company's markets,
made throughout this Annual Report, may be deemed forward-looking statements.
Such statements are based on the current assumptions of Dataware management,
which are believed to be reasonable. However, they are subject to significant
risks and uncertainties, including but not limited to the important factors
described under "Certain Factors That May Affect Future Results" below and in
Exhibit 99.1 to this Annual Report (which is incorporated herein by reference)
that could cause actual results to differ materially from those described in the
forward-looking statements.
OVERVIEW:
In General
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. Since its inception, Dataware has
generated significant revenues outside of North America. Until the 1997 IHS
transaction described below, Dataware had international direct sales
organizations in Germany, the United Kingdom, Italy, France, Sweden, Denmark,
Australia, Singapore, and Canada. As of December 31, 1998, the Company has
direct sales organizations in the United Kingdom, Denmark and Singapore 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 27%, 40% and 48% of total revenues for 1998, 1997
and 1996, respectively. The Company's foreign subsidiaries are principally
engaged in software sales, customer service and distribution activities.
Relationship with IHS
On September 30, 1997, Dataware sold a portion of its data services business to
Information Handling Services Group, Inc. ("IHS") in exchange for cash and the
stock of IHS's subsidiary, Creative Multimedia Corporation. The portion of the
business sold included certain contracts and other assets of Dataware, as well
as the stock of the Company's Australian, Canadian, German, Italian and Swedish
subsidiaries. The activities of the data services business sold consisted of
processing customer text and data and using it to create information-
distribution products.
The Company also entered into a distribution agreement with IHS on September 30,
1997, under which IHS took over the software distribution activities formerly
performed by the five divested foreign subsidiaries (primarily involving the
Company's legacy products). In addition, the Company has entered into
agreements with IHS under which it provides software and multimedia services for
use by IHS internally and in its publishing activities, and IHS provides
software that the Company incorporates into certain of its products. These
agreements may be periodically reviewed and revised according to the
circumstances of the parties. Since the 1997 IHS transaction, the Company has
focused more on its software and multimedia businesses and less on providing
services.
As Dataware's largest distributor, IHS accounted for 47% of software license
revenues (28% of total revenues) during 1998. The Company's plan is that, as
revenues from the existing IHS arrangements diminish during 1999 and thereafter
due to the winding down of the current agreements, they will be replaced by
increasing revenues from sales of the Company's newer products through IHS and
other channels. However, the current IHS relationship will remain important for
the near term and any unexpected disruption would likely have a material adverse
effect on Dataware.
RESULTS OF OPERATIONS:
1998 AS COMPARED TO 1997
Revenues
The Company's total revenues decreased 12% from $37.3 million in 1997 to
$33.0 million in 1998. This decline was primarily due to the reduction in
services revenues following the sale of a portion of the services business
to IHS in 1997.
Software license fees remained relatively flat at $19.3 million in 1998 and
$19.5 million in 1997. Software license fees include revenues from systems and
tools, applications and custom software products. The mix within the software
revenues continued to favor the Company's legacy products in 1998, although the
newer Knowledge Management Suite and Dataware II Publisher products gained
momentum. Management anticipates that revenues from the legacy products will
continue to diminish through 1999, both in absolute terms and compared with
total software license revenue.
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Software license revenue in 1998 included $9.1 million related to agreements
with IHS. As part of the ongoing relationship, the Company and IHS amended
existing agreements during the third quarter of 1998 to provide for IHS to make
guaranteed minimum payments called for by those agreements, at the discretion of
the Company, on an accelerated, discounted basis. Software revenues in the
second half of 1998 include $1.4 million of such discounted payments accelerated
from the years 1999 and 2000.
Service revenues decreased 23% to $13.7 million in 1998 from $17.8 million in
1997, a $4.1 million decrease. Service revenues are primarily derived from
Ledge multimedia development, production services, software maintenance, custom
software development and project management. The decrease in service revenue
reflects the impact of the 1997 IHS transaction.
In the past, recurring revenue has been a significant portion of total revenues,
comprising approximately 29%, 45% and 51% of total revenues for 1998, 1997 and
1996, respectively. Recurring software license revenues result from annual
renewal of retrieval licenses and certain other fees. Recurring service
revenues have historically resulted from data services to support customers in
their use of Dataware software products, database hosting and software
maintenance fees. The decrease in recurring revenue as a percentage of total
revenues from 1996 to 1998 was primarily due to the impact of the 1997 IHS
transaction.
Although the Company has not yet experienced a material reduction in orders as
a result of the economic turmoil in Asia or, more recently, Brazil, persistent
weakness in capital spending in those regions may have a negative impact on
revenues.
Cost of Revenues
The total cost of revenues in 1998 was $10.2 million or 25% lower than costs of
$13.5 million in 1997. As a percent of total revenues, total cost of revenues
was 31% of revenues in 1998, as compared to 36% of revenues in 1997. This
decrease is primarily caused by the sale of a portion of the lower-margin
services business to IHS in 1997.
The Company recorded a $.9 million one-time charge in the fourth quarter of 1998
for the write down of abandoned software assets to their estimated net
realizable value. Excluding the effect of this one-time charge, cost of
software licenses represented 11% of software license revenue in 1998, down from
13% in 1997. This decrease is a result of reduced fixed costs due to a lower
portion of third-party software sales in the mix (and, thus, lower third-party
license fee payments).
Cost of services decreased to 53% of service revenue in 1998 from 62% in 1997.
Cost of services consists primarily of personnel expenses, certain overhead
costs and the cost of third party services. The decrease is caused by the 1997
transfer of a portion of the lower-margin services business to IHS as well as
increases in services fees charged by the Company's remaining services business.
Gross Profit
Total gross profit was $22.8 million, down from $23.8 million in 1997,
representing 69% of total revenues in 1998 and 64% in 1997. Excluding the one-
time charge mentioned previously, total gross profit was relatively flat in
absolute terms from year to year and represented 72% of revenues in 1998
compared with 64% in 1997.
The increase in gross margins is primarily due to the 1997 transfer of a portion
of the lower-margin services business to IHS.
Gross margins may continue to improve in the long run if the Company continues
to increase the percentage of software revenues in the product mix, and attains
additional improvements in services margins. However, 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 strong
competition for the Company's products and services, including the introduction
of new products from competitors, the timing of which cannot be foreseen by the
Company; the inherent risks of new product introductions, including uncertainty
of customer acceptance; the impact of higher levels of services that the Company
provides to support its new software products; unanticipated costs of
integrating acquired companies; increased employment costs stemming from the
high level of competition for qualified personnel in the software industry; and
the Company's reliance on third parties for supply of certain product
components.
Sales and Marketing Expenses
Sales and marketing expenses decreased 34% to $11.0 million in 1998 from $16.6
million in 1997. Sales and marketing expenses as a percentage of total revenues
decreased to 33% in 1998 from 44% in 1997. The decrease in sales and marketing
expenses was primarily caused by the 1997 IHS transaction, which divested the
Company of certain business activities in the U.S. and U.K., as well as five
foreign subsidiaries that had been principally involved in distributing Dataware
products. This
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decrease in costs was partially offset by the Company's increased marketing
activities during 1998 related to the rollout of new products.
Product Development Expenses
Product development expenses excluding capitalized software expenditures
decreased 11% to $6.0 million in 1998 from $6.7 million in 1997. Product
development expense as a percentage of total revenue remained flat at 18% in
1998 and 1997. The decrease in product development expenses in terms of dollars
is due to expenses related to Northern Light Technology Corporation, a
subsidiary whose assets were sold on April 7, 1997. These expenses amounted to
$0.7 million in 1997. Product development expenses other than those related to
Northern Light Technology Corporation remained flat at $6.0 million in 1998 and
1997.
In 1998 the Company capitalized approximately $1.9 million of internally
developed software costs as compared with $1.8 million in 1997. The Company
also capitalized approximately $1.8 million of application development tool
software that was purchased during 1998.
The Company's expenditures in research and development, including capitalized
internally developed software costs, were $7.9 million and $8.6 million for the
years ended December 31, 1998 and 1997, representing 24% and 23% of revenues,
respectively.
General and Administrative Expenses
General and administrative expenses decreased 11% to $5.2 million in 1998 from
$5.9 million in 1997. General and administrative expenses as a percentage of
total revenue remained flat at 16% in 1998 and 1997. The decrease in general
and administrative expense in absolute terms is primarily due to the IHS
transaction.
Non-Recurring Charges
During 1998 the Company recorded a $.2 million write down of fixed assets to
reduce the assets to their estimated net realizable value. The Company also
recorded a one-time charge related to the separation of the former CEO and the
waiver of a call on certain shares amounting to $.6 million, which were included
in operating expenses in the consolidated statement of operations. There were
no such non-recurring charges recorded in 1997.
Purchased In-Process Research and Development
On January 23, 1998, the Company completed the acquisition of all of the
outstanding shares of Green Book International Corporation ("Gbook"), in
exchange for approximately $300,000 in cash, which is being paid over a one-year
period. The Company incurred direct expenses of $150,000 related to the
transaction. Prior to the acquisition, Gbook was the developer of a software
package for the electronic publishing of financial prospectuses. The
acquisition was accounted for as a purchase and, accordingly, the assets,
liabilities and results of operations of Gbook are included in the financial
statements from the acquisition date. The results of the continuing operations
of Gbook are immaterial in the context of the results of the Company.
Although the Company acquired 100% of the stock of Gbook, its intention was not
to carry on the operations of Gbook as a going concern. Rather, the Company's
objective in the transaction was to acquire control over the technology
underlying Gbook's electronic file compression and viewing software ("Viewer
Technology") and its object oriented electronic authoring system ("Authoring
Technology"). The Company's intention was to use the acquired Viewer Technology
to sell services and software to the Company's existing and future clients for
distributing relatively large, secure and searchable electronic publications
that are, by nature of their small size, uniquely able to be distributed on a
single floppy diskette or over the internet with commercially viable download
times. During 1998, the Company incorporated the Authoring Technology into a
product that allows customers to author publications in-house, rather than
relying on the Company as a service provider.
Because the technology acquired was incomplete and substantial additional
development effort by the Company was required before the Viewing and Authoring
Technology could be incorporated into future products and services, the Company
recorded a charge of $450,000 for purchased in-process R&D in the first quarter
of 1998.
The purchased technology was incomplete because the Company needed to make
substantial modifications to change user interfaces, fix software bugs, enhance
features and integrate the software into the Company's future products and
services. The underlying technology had no alternative future use, inasmuch as
the Company did not plan to commercialize the technology in its existing form,
had no other product, service or research and development project in which the
technology could be utilized, and did not intend to market the technology as a
stand-alone product without significant further development.
The Company successfully completed the further development necessary to complete
the required technology during 1998. The cost of completing the development
effort was in line with management's estimates at the time that the technology
was purchased. The product began shipping in June of 1998.
Other Income (Expense), Net
During 1998 the Company reported approximately $476,000 of net interest income
as compared with approximately $160,000 in net interest expense in 1997. The
change resulted from increases in the average balances of cash and investments
beginning
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with the IHS transaction in September of 1997 as well as the decrease in
interest expense related to the Company's lines of credit that was incurred
during 1997. Other expense, net, amounting to $22,000 in 1998 and $149,000 in
1997 consists primarily of foreign exchange losses caused by the effect of
changes in exchange rates on intercompany balances with the Company's foreign
subsidiaries.
Provision for Income Taxes
The Company recorded a provision for income taxes of $105,000 and $80,000 for
the years ended December 31, 1998 and 1997, respectively, related to profitable
foreign operations. At December 31, 1998, the Company had a net operating loss
carryforward of approximately $13.2 million. Use of the Company's net operating
loss carryforwards is limited due to changes in ownership of the Company's
stock.
As required by Statement of Financial Accounting Standard No. 109, management of
the Company has evaluated its ability to realize 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
$5.2 million to offset the entire net deferred tax assets because it was
unlikely whether it would be able to realize 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 issue on a
quarterly basis and determined that no net adjustment was necessary in 1998 or
1997.
1997 AS COMPARED TO 1996
Revenues
The Company's total revenues decreased slightly to $37.3 million in 1997 from
$37.5 million in 1996.
Software license fees increased 18% to $19.5 million in 1997 from $16.5 million
in 1996, a $3.0 million increase. Software license revenue growth in 1997 was
primarily due to $3.1 million in software revenues under the new agreements with
IHS.
Service revenues decreased 15% to $17.8 million in 1997 from $21.0 million in
1996, a $3.2 million decrease. The decrease in service revenue reflected the
Company's continuing shift away from the provision of services, and towards
increased sales of software products. This shift was furthered by the agreement
with IHS, under which a portion of the data services business was sold.
Cost of Revenues
The total cost of revenues in 1997 was $13.5 million or 26% lower than costs of
$18.3 million in 1996. As a percent of total revenues, total cost of revenues
was 36% of revenues in 1997, as compared to 49% of revenues in 1996. This
decrease was 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 away from the higher cost
services business also contributed to the decrease.
Excluding the effect of the $1.9 million one-time charge referred to above, cost
of software licenses represented 13% of software license revenue in 1997, down
from 21% in 1996. The primary reason for this decrease in costs was the increase
in software license fees as fixed expenses decreased. The decrease in fixed
costs was in large part related to the completion of a contractual royalty
commitment with a third party in the second quarter of 1996.
Cost of services represented 62% of service revenue in both 1997 and 1996.
Gross Profit
Total gross profit was $23.8 million, up from $19.2 million in 1996,
representing 64% of total revenues in 1997 and 51% in 1996. In addition to the
one-time charge mentioned previously, the increase in total gross profit from
year to year was due to lower costs within each revenue category and a shift in
product mix to higher margin software products from relatively lower margin
services.
Sales and Marketing Expenses
Sales and marketing expenses decreased 6% to $16.6 million in 1997 from $17.7
million in 1996. The decrease in sales and marketing expenses was primarily
caused by the IHS transaction, which divested the Company of certain business
activities in the U.S. and U.K., as well as five foreign subsidiaries that had
been principally involved in distributing Dataware products. Sales and
marketing expenses as a percentage of total revenues decreased from 47% in 1996
to 44% in 1997.
Product Development Expenses
Product development expenses excluding capitalized software expenditures
decreased 17% to $6.7 million in 1997 from $8.1 million in 1996. Product
development expense as a percentage of total revenue decreased to 18% in 1997
from 22% in 1996.
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The decrease in product development expenses in real dollars, as well as in
relation to total revenues, was due in part to expenses related to Northern
Light Technology Corporation, a subsidiary whose assets were sold on April 7,
1997. These expenses amounted to $2.2 million in 1996 as compared to $0.7
million in 1997. Product development expenses other than those related to
Northern Light Technology Corporation remained relatively flat at $5.9 million
in 1996 and $6.0 million in 1997.
In 1997 the Company capitalized approximately $1.8 million of internally
developed computer software costs as compared with $2.0 million in 1996.
The Company's expenditures in research and development, including capitalized
software costs, were $8.6 million and $10.1 million for the years ended December
31, 1997 and 1996, representing 23% and 27% of revenues, respectively.
General and Administrative Expenses
General and administrative expenses decreased 11% to $5.9 million in 1997 from
$6.6 million in 1996. This decrease was primarily caused by the IHS transaction,
which offset certain increased costs in the second half of 1997, such as the
cost of closing a foreign sales office and a provision for bad debts related to
foreign accounts receivable. General and administrative expenses as a
percentage of total revenues decreased from 18% in 1996 to 16% in 1997, due to
decreased costs while revenues remained flat.
Write Down of Goodwill and Other Non-Recurring Charges
During 1996, the Company recorded a one-time charge, which was included in cost
of revenues in the consolidated statement of operations, in the amount of $1.9
million for the write down of less productive software assets to their net
realizable value, prepaid royalties and inventory. In addition, in 1996 the
Company recorded write downs of goodwill, facilities consolidations, and smaller
amounts for severance and miscellaneous items amounting to $1.9 million, which
was included in operating expenses in the consolidated statement of operations.
There were no such non-recurring charges recorded in 1997.
Charge for Purchased In-Process 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 hoped would prove valuable to the future growth of
the Company. Purchased research and development that had not reached
technological feasibility and 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
would ultimately be marketed by the Company. Such technology, valued at
approximately $1.2 million for Status/IQ and $.7 million for Ntergaid, was
charged to operations during the first and third quarters of 1996, respectively,
as purchased in-process research and development. There were no charges for
purchased research and development in 1997.
Settlement of Litigation
Pursuant to the settlement with the plaintiffs of a securities class-action
lawsuit pending since November 1994 against the Company and certain of its
current and former directors and officers, the Company agreed in 1996 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 $2.8 million in the consolidated statements of
operations for the year ended December 31, 1996 related to the settlement and
issued 75,000 of the shares in 1996. The remaining 175,000 shares were issued
in December 1997.
Other Income (Expense), Net
During 1997 the Company reported approximately $160,000 of net interest expense
as compared with approximately $386,000 in net interest income in 1996. The
change resulted from decreases in the average balances of cash and investments
during 1997 as compared to 1996 as well as interest expense related to the
Company's lines of credit during 1997. Other expense, net, amounting to
$149,000 in 1997 and other income, net, of $144,000 in 1996 consisted primarily
of foreign exchange gains and losses caused by the effect of changes in exchange
rates on intercompany balances with the Company's foreign subsidiaries.
Provision for Income Taxes
The Company recorded a provision for income taxes of $80,000, related to
profitable foreign operations, for the year ended December 31, 1997, and no
provision for the year ended December 31, 1996, because of the losses incurred
and net operating loss carryforwards from prior periods. At December 31, 1997,
the Company had a net operating loss carryforward of $16.7 million.
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LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1998, the Company had cash and cash equivalents of $12.5
million and working capital of $5.7 million. Operating activities provided $5.3
million of the Company's cash during 1998. Days sales outstanding, based on
revenues for each calendar quarter, ranged from 63 days to 41 days during 1998.
Days sales outstanding were 44 days during the fourth quarter of 1998. The
significant reduction in days sales outstanding during 1998 was primarily due to
the collection of large amounts due from certain customers, as well as payments
made under the distribution and licensing agreements with IHS, in the quarter
ended December 31, 1998. Although the Company has been focusing on decreasing
its days sales outstanding, it anticipates that these levels of days sales
outstanding will increase going forward.
The Company's investing activities used cash of $5.4 million during 1998,
consisting of $1.3 million for additions to property and equipment, $.3 million
for the acquisition of Gbook, $.1 million for the acquisition of Sovereign Hill
and $3.7 million for a third party license for internally developed capitalized
software as well as software that will be included in the Company's products and
used to develop custom applications for customers.
The Company's financing activities used cash of $679,000 during 1998, which
consisted of proceeds from the issuance of common stock under the Company's
Employee Stock Purchase Plan in the amount of $390,000, offset against $117,000
in payments related to a capital lease and $952,000 used to repurchase 274,000
shares of Dataware common stock in accordance with the Company's stock
repurchase program. The Company did not make any purchases during the fourth
quarter of 1998; however, it may make further repurchases from time to time in
the open market or in private transactions, as market conditions warrant.
The Company believes that its cash and cash equivalents, together with
anticipated cash from operations, will be sufficient to meet its liquidity needs
for the foreseeable future. However, working capital and other capital
requirements may change because of unanticipated changes in business conditions
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, costs of remediation of
Year 2000 computer problems, 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.
The Company has experienced slowdowns in collection of receivables from certain
Asian and Brazilian distributors, apparently as a result of the regions' general
economic problems. While the Company cannot predict the long-term effect, it is
reasonable to assume that there will be an adverse impact on the Company's
business as long as the general economic problems persist.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," which addresses software
revenue recognition as it applies to certain multiple-element arrangements. SOP
98-9 also amends SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2," to extend the deferral of application of certain passages of SOP 97-2
through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company will comply with the
requirements of this SOP as they become effective and does not expect that its
revenues and earnings will be materially affected.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS:
Year 2000
The "Year 2000 problem" refers to the operational failures that are expected to
arise in computer systems, microprocessors, and software that are not able to
properly interpret and sort dates beyond the year 1999. The Company recognizes
that the Year 2000 problem may have a material adverse effect on its results of
operations if its products and systems are not Year 2000 compliant or if those
of its principal suppliers and/or customers are not Year 2000 compliant. The
Company has initiated a comprehensive program to try to assess this potential
effect and to remediate it where possible. There can be no assurance, however,
that the program will be successful. The extent of the impact on the Company if
such problems cannot be assessed or remediated is not fully known. The Company
intends to minimize this uncertainty through the efforts described below.
The Company's current, updated product offerings were developed to accurately
store, sort, display, process, provide, and/or receive data including 20th and
21st century dates when used properly and in conformity with the product
information furnished by the Company; provided that there was no hard-coding of
dates to force a prefix of "19" during the production process and that all other
technology used in combination with the Dataware product properly exchanges date
data with the Dataware product. Although the Company does intend to do further
testing on these products (including third party software incorporated in the
products), it does not expect to undertake significant further research and
development efforts in this regard.
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The Company has not reevaluated all prior versions of the Company's products.
However, customers currently on maintenance will have been upgraded to a Year
2000 compliant product by the year 2000. The Company does not believe that it
has any warranty obligation to users of older products that may be non-compliant
with respect to any possible failure of such products to be Year 2000 compliant
or that it is legally responsible for costs incurred by such customers in
ensuring their compliance.
The Company provides services through a variety of computer systems, including
servers for web hosting. The Company has begun a review of the Year 2000
compliance of these systems and expects that it will be completed by mid-1999.
To the extent the untested systems are not Year 2000 compliant, the Company
expects to undertake to correct the problems, which may require acquiring new
equipment. However, there may be a material adverse impact on the Company's
service revenues if these efforts cannot be completed in time.
The Company is using internal resources as well as third parties to test,
reprogram or replace its internal use systems. Internal use systems include
those for information, communication, accounting, and payroll functions, as well
as those used for product development and customer service. They include both
information technology systems that rely on software, as well as those that
contain embedded microprocessors.
Because the evaluation of its products, services and internal systems is not
complete, the Company does not yet know the total cost of this effort.
Accordingly, it is possible that the cost could have a material effect on the
Company's results of operations or financial condition. Any such costs will be
funded through operating cash flows and will be expensed as incurred. There can
be no assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes. Furthermore, this does not
include potential costs related to any customer or other claims, nor the cost of
internal hardware or software replaced in the ordinary course of business and
not accelerated for Year 2000 compliance purposes.
Because the Company has not yet identified any significant Year 2000 issues in
its systems, it has not formed a contingency plan to address any such issues.
The failure to develop and implement a contingency plan, if in fact needed,
could have a material adverse impact on the Company.
The Company is reviewing all major suppliers to determine the status and
schedule for their Year 2000 compliance, since their noncompliance may have a
material adverse impact on the Company's business. The review may include, where
feasible, obtaining warranties of compliance for products and services and will
include testing where appropriate. The Company's review of major suppliers is
anticipated to be complete by mid-1999. To the extent that its review shows that
a particular supplier's situation poses unacceptable risks to the Company, the
Company plans to identify an alternate source by September 30, 1999.
The Company plans to request information on the Year 2000 compliance of its
principal customers. The potential for an adverse impact on Dataware from
customers' Year 2000 problems ranges from the failure of Dataware products when
used in conjunction with other customer systems to the possibility that a
customer will itself be so severely impacted by the Year 2000 problem that it
will be unable to provide the Company the level of revenues as in the past. It
should be noted that the Company's customers are in many cases publishers and
distributors, so the level of business they do with Dataware may depend in large
part on the situation with their respective customers. Since the Company is
continuously marketing to new customers, its customer review cannot be complete
as of any particular date.
To the extent that the foregoing statements involve predictions, estimates,
contingencies, or assumptions, they are forward-looking statements and there are
various important factors, including but not limited to those described above
and in this paragraph, that could cause actual circumstances and results to
differ materially from those described in these statements. With respect to the
Company's own products and services, the statements are subject to the adequacy
of the Company's review of its products and warranties. Unanticipated factors,
including but not limited to problems with customer systems other than those
tested for and adverse legal interpretations, could cause actual results and
circumstances to differ materially from these statements. With respect to
systems for internal use or delivering services, the statements are subject
among other things to the adequacy of the Company's testing procedures and
assurances of third parties. In evaluating such systems, as well as the Year
2000 readiness of suppliers and customers, the Company must rely on information
provided to it by third parties about such parties' Year 2000 readiness. It is
impossible for the Company to verify the testing or other bases for such
information. It should also be noted that systems in use by governmental and
private entities in the national infrastructure in the United States and each
other country in which the Company does business (including but not limited to
power, communications, and transportation systems), over which the Company has
no control and as to which it cannot practically obtain reassurance, may suffer
Year 2000 problems that materially affect the Company's business and results of
operations.
Other Factors
Exhibit 99.1 hereto contains additional information about important factors that
may cause the Company's actual results to differ from those contemplated by any
forward-looking statements in this Annual Report. That information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that exposure to market risk related to changes in foreign
currency exchange rates and trade accounts receivable is immaterial.
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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.:
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 44 present fairly, in all material
respects, the financial position of Dataware Technologies, Inc. (the "Company")
and its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 44 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 11, 1999
19
<PAGE>
Dataware Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,468 $ 13,231
Accounts receivable, less allowance for doubtful
accounts of $846 and $750 at December 31, 1998
and 1997, respectively 4,248 6,678
Receivable related to sale of services business --- 490
Prepaid expenses and other current assets 1,355 1,461
---------- ----------
Total current assets 18,071 21,860
Property and equipment, net 3,394 4,198
Computer software costs, net 3,540 2,483
Investment in Northern Light, LLC 512 512
Goodwill 3,232 ---
---------- ----------
Total assets $ 28,749 $ 29,053
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 1,350 $ ---
Accounts payable 2,538 2,677
Payable related to sale of services business --- 2,466
Accrued acquisition-related costs 578 972
Accrued non-recurring charges 559 ---
Accrued expenses 2,345 1,306
Accrued compensation 1,976 1,786
Income taxes payable 720 830
Deferred revenue 2,330 2,550
---------- ----------
Total current liabilities 12,396 12,587
Commitments and Contingencies (Notes G and I) --- ---
Stockholders' equity:
Preferred stock, $.01 par value, 8,000,000 shares
authorized, none issued and outstanding --- ---
Common stock, $.01 par value, 14,000,000 shares authorized;
9,465,305 shares issued and 9,391,305 shares outstanding at
December 31, 1998;
9,267,217 shares issued and outstanding at December 31, 1997 95 93
Additional paid-in capital 47,323 46,800
Accumulated deficit (30,625) (30,221)
Accumulated other comprehensive loss (182) (206)
Treasury stock, 74,000 shares at cost (258) ---
---------- ----------
Total stockholders' equity 16,353 16,466
---------- ----------
Total liabilities and stockholders' equity $ 28,749 $ 29,053
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
Dataware Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Revenues:
Software license fees $ 19,258 $ 19,534 $ 16,502
Services 13,732 17,785 20,957
--------- --------- ----------
Total revenues 32,990 37,319 37,459
Cost of revenues:
Software license fees 2,026 2,544 3,437
Write down of capitalized software and intangible assets 885 --- 1,926
Services 7,288 10,966 12,938
--------- --------- ----------
Total cost of revenues 10,199 13,510 18,301
--------- --------- ----------
Gross profit 22,791 23,809 19,158
Operating expenses:
Sales and marketing 10,953 16,603 17,679
Product development 5,956 6,721 8,144
General and administrative 5,229 5,884 6,603
Write down of goodwill and other non-recurring charges 759 --- 1,889
Charge for purchased in-process research and development 450 --- 1,861
--------- --------- ----------
Total operating expenses 23,347 29,208 36,176
--------- --------- ----------
Loss from operations (556) (5,399) (17,018)
Interest income 482 116 405
Interest expense (6) (276) (19)
Settlement of litigation --- --- (2,823)
Other income (expense), net (22) (149) 144
--------- -------- ---------
Loss before provision for income taxes (102) (5,708) (19,311)
--------- --------- ----------
Provision for income taxes 105 80 ---
--------- --------- ----------
Net loss (207) (5,788) (19,311)
Accretion of preferred stock --- 677 ---
--------- --------- ----------
Net loss to common stockholders $ (207) $ (6,465) $ (19,311)
========= ========= ==========
Net loss per common share - basic and diluted $ (0.02) $ (0.85) $ (3.01)
========= ========= ==========
Weighted average number of common shares outstanding - basic and diluted 9,265 7,632 6,425
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
21
<PAGE>
Dataware Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $ (207) $(5,788) $(19,311)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,717 3,780 3,415
Amortization of goodwill --- 263 373
Provision for doubtful accounts 596 778 810
Loss (gain) on foreign currency transactions 24 230 (122)
Deferred taxes --- --- 620
Non-cash portion of write down of intangibles and litigation settlement 759 --- 1,876
Purchased in-process research and development 450 --- 1,861
Write down of abandoned capitalized software 885 1,585
Stock options and warrants issued to consultants and bank 88 157 200
Changes in operating assets and liabilities, net
of effects from acquisitions and dispositions of businesses:
Accounts receivable 2,070 (2,174) 50
Prepaid expenses and other current assets 645 (533) 324
Accounts payable (719) (1,007) 1,099
Accrued expenses and compensation (2,031) 2,292 (13)
Accrued litigation and non-recurring charges (559) (326) 982
Income taxes payable (112) (284) (787)
Deferred revenue (261) 1,054 (97)
------- ------- --------
Net cash provided by (used in) operating activities 5,345 (1,558) (7,135)
------- ------- --------
Cash flows provided by (used in) investing activities:
Purchase of marketable securities --- --- (4,080)
Proceeds from sales and maturities of marketable securities --- --- 12,963
Additions to property and equipment (1,313) (1,411) (3,758)
Proceeds from sale of portion of services business, net of cash acquired (disposed) --- 8,546 ---
Acquisition of businesses (400) --- (1,520)
Additions to capitalized software costs (3,693) (1,788) (1,956)
------- ------- --------
Net cash provided by (used in) investing activities (5,406) 5,347 1,649
------- ------- --------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and exercise
of stock options 390 4,130 453
Purchase of treasury stock (952) --- ---
Principal payments on notes and capital leases (117) --- (340)
Proceeds from issuance of preferred stock --- 3,000 ---
Dividends and issuance costs related to preferred stock --- (267) ---
Increase in short-term borrowings, net --- 403 42
------- ------- --------
Net cash provided by (used in) financing activities (679) 7,266 155
------- ------- --------
Effect of exchange rate changes on cash (23) (192) (35)
------- ------- ---------
Net change in cash and cash equivalents (763) 10,863 (5,366)
Cash and cash equivalents at beginning of year 13,231 2,368 7,734
------- ------- --------
Cash and cash equivalents at end of year $12,468 $13,231 $ 2,368
======= ======= ========
Supplemental disclosure of cash flow information:
Interest paid $ --- $ 276 $ 19
======= ======= ========
Supplemental disclosure of non-cash investing and financing transactions:
Conversion of preferred stock into common stock $ --- $ 3,343 $ ---
======= ======= ========
Accretion of preferred stock $ --- $ 677 $ ---
======= ======= ========
Warrants issued in connection with issuance of preferred stock and acquisition $ 45 $ 83 $ ---
======= ======= ========
Investment in Northern Light LLC in exchange for assets $ --- $ 512 $ ---
======= ======= ========
Stock issued in connection with acquisitions and settlement of litigation $ 497 $ 656 $ 1,042
======= ======= ========
Note payable assumed in connection with acquisition $ 1,350 $ --- $ 101
======= ======= ========
Capitalized lease in connection with equipment $ 287 $ --- $ ---
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
22
<PAGE>
Dataware Technologies, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN ACCUMULATED COMPREHENSIVE TREASURY STOCK
---------------- ------------------
(In thousands) SHARES AMOUNT CAPITAL DEFICIT LOSS SHARES AMOUNT
------ ------ ---------- ----------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 6,239 $ 62 $ 36,782 $ (4,445) $ (183)
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
Comprehensive loss:
Net loss (19,311)
Translation adjustment (156)
Unrealized loss on marketable securities (26)
Comprehensive loss
------ ------ ---------- ----------- ------------- ------ ------
Balance at December 31, 1996 6,641 66 38,473 (23,756) (365)
------ ------ ---------- ----------- ------------- ------ ------
Stock options exercised and shares issued
in conjunction with employee stock
purchase plan 148 2 292
Change in translation adjustment due to disposal
of foreign subsidiaries 413
Shares issued in settlement of litigation 175 2 654
Stock options issued in conjunction with
sale of portion of services business 68
Stock options and warrants issued to consultants
and bank 157
Shares issued in connection with private
placements 1,085 11 3,825
Conversion of preferred stock to common stock 1,218 12 3,331
Accretion of preferred stock (677)
Comprehensive loss:
Net loss (5,788)
Translation adjustment (254)
Comprehensive loss
------ ------ ---------- ----------- ------------- ------ ------
Balance at December 31, 1997 9,267 93 46,800 (30,221) (206)
------ ------ ---------- ----------- ------------- ------ ------
Stock options exercised and shares issued
in conjunction with employee stock
purchase plan 198 2 390
Stock options and warrants issued to consultants
and bank 88
Warrants issued in connection with acquisition 45
Treasury shares purchased 274 $ (952)
Treasury shares issued in connection with
acquisition (197) (200) 694
Comprehensive loss:
Net loss (207)
Translation adjustment 24
Comprehensive loss
------ ------ ---------- ----------- ------------- ------ ------
Balance at December 31, 1998 9,465 $ 95 $ 47,323 $ (30,625) $ (182) 74 $ (258)
====== ====== ========== =========== ============= ====== ======
<CAPTION>
TOTAL
COMPREHENSIVE STOCKHOLDERS'
LOSS EQUITY
------------- -------------
<S> <C> <C>
Balance at December 31, 1995 $ 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
Comprehensive loss:
Net loss $ (19,311) (19,311)
Translation adjustment (156) (156)
Unrealized loss on marketable securities (26) (26)
-------------
Comprehensive loss $ (19,493)
============= -------------
Balance at December 31, 1996 14,418
-------------
Stock options exercised and shares issued
in conjunction with employee stock
purchase plan 294
Change in translation adjustment due to disposal
of foreign subsidiaries 413
Shares issued in settlement of litigation 656
Stock options issued in conjunction with
sale of portion of services business 68
Stock options and warrants issued to consultants
and bank 157
Shares issued in connection with private
placements 3,836
Conversion of preferred stock to common stock 3,343
Accretion of preferred stock (677)
Comprehensive loss:
Net loss $ (5,788) (5,788)
Translation adjustment (254) (254)
-------------
Comprehensive loss $ (6,042)
============= -------------
Balance at December 31, 1997 16,466
-------------
Stock options exercised and shares issued
in conjunction with employee stock
purchase plan 392
Stock options and warrants issued to consultants
and bank 88
Warrants issued in connection with acquisition 45
Treasury shares purchased (952)
Treasury shares issued in connection with
acquisition 497
Comprehensive loss:
Net loss $ (207) (207)
Translation adjustment 24 24
-------------
Comprehensive loss $ (183)
============= -------------
Balance at December 31, 1998 $ 16,353
=============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
23
<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 provides software for enterprise information access ("knowledge
management") and professional electronic publishing applications, as well as
multimedia services for CD-ROM and web-based publishing.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries from the date of their acquisition. All material
intercompany transactions and accounts have been eliminated.
Use of Estimates
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.
Foreign Currency
The accounts of foreign subsidiaries are translated into U.S. dollars 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 in Accumulated Comprehensive Loss, a separate component
of stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in other income (expense), net.
Reclassification
Certain reclassifications have been made to the prior years' financial
statements to conform to the current presentation.
Revenue Recognition
The Company recognizes software revenues in accordance with the provisions of
Statement of Position 97-2, "Software Revenue Recognition." Revenue from
software license fees are recorded upon execution of the contract provided that
all shipment obligations have been met, fees are fixed or determinable, and
collection is deemed probable. Revenue from maintenance contracts, including
amounts bundled in initial software licenses, is deferred and recognized ratably
over the term of the agreement, generally one year. Revenues from services are
recognized as the Company performs the service in accordance with the contract.
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments purchased with an
original maturity of three months or less. Cash and cash equivalents are stated
at cost, which approximates fair value because of the short maturity of these
investments.
24
<PAGE>
Property and Equipment
Property and equipment is stated at cost, and is depreciated on a straight-line
basis over the estimated useful life of the assets, 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).
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
revenues for software license fees.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk at December 31, 1998, consist of temporary cash investments and
trade receivables.
The Company invests its cash in deposits and money market instruments with
several financial institutions. These investments typically mature within 90
days.
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.
Long-Lived Assets
The Company periodically evaluates the net realizable value of long-lived
assets, including capitalized software, goodwill and property and equipment,
relying on a number of factors including operating results, business plans,
economic projections and anticipated future cash flows. An impairment in the
carrying value of an asset is recognized when the expected future operating cash
flows derived from the asset are less than its carrying value. In addition, the
Company's evaluation considers nonfinancial data such as market trends, product
and development cycles, and changes in management's market emphasis.
Computation of Net Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS
128"), which became effective for the Company in 1997.
SFAS 128 requires the calculation of basic and diluted net income per share.
Basic net income per share excludes any dilutive effect of options, warrants and
convertible securities. Diluted net income per share uses the treasury stock
method, which considers the effect of all dilutive equity instruments using the
average market price for the period in determining the dilutive effect of
options.
New Pronouncements
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," which addresses software
revenue recognition as it applies to certain multiple-element arrangements. SOP
98-9 also amends SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2," to extend the deferral of application of certain passages of SOP 97-2
through fiscal years beginning on or before March 15, 1999. All other provisions
of SOP 98-9 are effective for transactions entered into in
25
<PAGE>
fiscal years beginning after March 15, 1999. The Company will comply with the
requirements of this SOP as they become effective and does not expect that their
revenues and earnings will be materially affected.
B. BUSINESS COMBINATIONS AND DISPOSALS
Information Handling Services Group, Inc.
- -----------------------------------------
On September 30, 1997, the Company sold a portion of its data services business,
consisting of the stock of five foreign subsidiaries in Australia, Canada,
Germany, Italy and Sweden and certain other assets of the Company, to
Information Handling Services Group, Inc. ("IHS") in exchange for cash and the
stock of IHS's subsidiary, Creative Multimedia Corporation ("CMC").
Creative Multimedia Corporation
- -------------------------------
The acquisition of CMC was accounted for as a purchase and, accordingly, the
assets, liabilities and results of operations were included from the acquisition
date. The results of the continuing operations of CMC for the years ended
December 31, 1997, and December 31, 1996, were immaterial to the results of the
Company. As a result, proforma financial information has not been presented.
Sovereign Hill
- ---------------
On December 31, 1998, the Company acquired substantially all of the assets and
assumed selected liabilities of Sovereign Hill Software, Inc. ("Sovereign Hill")
for approximately $1,181,000. Sovereign Hill developed, marketed and distributed
advanced information retrieval and information processing products designed to
access and analyze large-scale heterogeneous, distributed multimedia document
databases.
The purchase of Sovereign Hill's net liabilities of $2,051,000 was funded as
follows: (i) 200,000 shares of Dataware Common Stock with a fair value of
approximately $497,000 at the date of acquisition, (ii) 5-year warrants to
purchase 40,000 additional shares of Dataware Common Stock at an exercise price
of $6.00 per share valued at $45,000, and (iii) $100,000 in cash. Dataware
expects to incur approximately $539,000 of direct acquisition expenses related
to the transaction.
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Sovereign Hill have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net liabilities
assumed of approximately $3,232,000 was recognized as goodwill and is being
amortized over 5 years.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1998 and 1997 assume the Sovereign Hill acquisition
occurred as of January 1, 1997:
<TABLE>
<CAPTION>
-----------------------------------------------------
Year Ended December 31
(in thousands, except per share data)
1998 1997
-----------------------------------------------------
<S> <C> <C>
Net sales $34,039 $ 38,684
Net loss available to
common stockholders (2,444) (10,782)
Earnings per share:
Basic (0.26) (1.38)
Diluted (0.26) (1.38)
-----------------------------------------------------
</TABLE>
The pro forma data is for informational purposes only and does not purport to be
indicative of what would have occurred had the acquisition occurred at the
beginning of 1997, or the results that may occur in the future.
Green Book
- -----------
On January 23, 1998, the Company completed the acquisition of all of the
outstanding shares of Green Book International Corporation ("Gbook"), in
exchange for approximately $300,000 in cash. Prior to the acquisition, Gbook was
the developer of a software package for the electronic publishing of financial
prospectuses. The acquisition has been accounted for as a purchase and,
accordingly, the assets, liabilities and results of operations of Gbook are
included in the financial statements from the acquisition date. The results of
the continuing operations of Gbook are immaterial in the context of the results
of the Company. As a result, pro-forma financial information has not been
presented.
26
<PAGE>
The purchase price, including direct expenses of approximately $150,000, was
allocated to the tangible net assets acquired and to purchased in-process
research and development ("R&D") based on the fair market values of those assets
using a risk adjusted discounted cash flow approach. Specifically, the purchased
technology underlying Gbook's electronic file compression and viewing software
and its object oriented electronic authoring system was evaluated through
extensive interviews and analysis of data concerning the state of the technology
and additional development work required to incorporate it into a product and
service offering by the Company's Ledge division to its financial, health care
and technology customers. The evaluation of the underlying technology acquired
considered the inherent difficulties and uncertainties in completing the
development, and thereby achieving technological feasibility, and the risks
related to the viability of, and potential changes in, future target markets.
The purchased technology was incomplete inasmuch as the Company needed to make
substantial modifications to change user interfaces, fix software bugs, enhance
features and integrate the software into the Company's future products and
services. The underlying technology had no alternative future use in its
purchased state, in other research and development projects or otherwise, since
it was acquired for the purpose of significantly improving and integrating such
technology into a product and service offering by the Company's Ledge division
to its financial, health care and technology customers, and was not to be
marketed as a stand-alone product without significant further development.
Accordingly, the Company recognized a charge of $450,000 for purchased in-
process R&D in the first quarter of 1998.
The Company successfully completed the further development necessary to complete
the required technology during 1998. The cost of completing the development
effort was in line with management's estimates at the time that the technology
was purchased. The product began shipping in June of 1998.
Status/IQ
- ---------
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 was accounted for as a
purchase and, accordingly, the assets, liabilities and results of operations
were 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 would ultimately be marketed by the
Company. This analysis resulted in an allocation of $1,193,000 to purchased in-
process research and development expense. In addition, $175,000 of the purchase
price was allocated to computer software costs and amortized over a one year
period.
S Cube
- ------
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
was accounted for as a purchase and, accordingly, the assets, liabilities, and
results of operations were included in the financial statements from the
acquisition date. The purchase price was 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, was
included in intangible assets and amortized using a five-year life. As a result
of the sale of the stock of the Company's Italian subsidiary to IHS as noted
above, the unamortized portion of the intangible asset was removed from the
Company's books as of September 30, 1997.
Ntergaid
- ---------
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 was 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 would
ultimately
27
<PAGE>
be marketed by the Company. This analysis resulted in an allocation of $668,000
to purchased in-process research and development expense in 1996.
C. WRITE DOWN OF ASSETS AND OTHER NON-RECURRING CHARGES
During the fourth quarter of 1998, the Company recorded non-recurring charges of
approximately $1,644,000 (or $.18 per share) in capitalized software and other
non-recurring charges. These charges were the result of the Company's focus on
next generation products, internal systems and certain management changes.
During the second quarter of 1996, the Company wrote down approximately
$3,815,000 (or $.59 per share) in capitalized software 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. There were no write downs of assets or non-recurring charges
recorded in 1997.
Detail of the items written off in 1998 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1996
<S> <C> <C>
Charged to Cost of Revenues:
Capitalized software $ 885 (A) $1,585
Product royalties --- 279
Inventory --- 62
---------- ---------
Total $ 885 $1,926
========== =========
Charged to Operating Expenses:
Severance payments $ 358 (B) $ 258
Fixed assets 201 (C) 149
Other charges 200 (D) 155
Goodwill --- 812
Facilities charge --- 315
Product development
royalties --- 200
---------- ---------
Total $ 759 $1,889
========== =========
</TABLE>
A. During the fourth quarter of 1998, the Company abandoned a portion of
purchased capitalized software, resulting in a charge of $885,000. In
connection with the acquisition of Sovereign Hill, a portion of the
purchased capitalized software that was to be implemented was replaced with
Sovereign Hill technology and the purchase capitalized software was written
down to net realizable value. The Company also determined that the portion
of purchase capitalized software that was replaced with Sovereign Hill
technology had no alternative future uses.
B. Severance charge of $358,000 relates to the voluntary separation of the
Chief Executive Officer on December 31, 1998. Severance will be paid over a
one-year period from July 1999 to June 2000.
C. During the fourth quarter of 1998, the Company abandoned a portion of its
internally developed computer software system, resulting in a charge of
$201,000. The system was not year 2000 compliant and management has begun
using alternative applications in its place. The Company determined that
this computer software was obsolete and there was no alternative
future use.
D. The Company waived the right to call for the redemption of 86,391 shares,
owned by three of the Company's founders, resulting in a charge of
approximately $200,000. In early 1990, software developers had requested
equity compensation, which had not yet been formalized in the grant of
stock or options. The three shareholders agreed to make the shares
available out of their own holdings. The Company granted stock options to
the developers and three of the founding shareholders were to sell back to
the Company the 86,391 shares if the Company called for redemption. The
Company did not call for redemption and the call was waived.
28
<PAGE>
D. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------------
<S> <C> <C>
Computer and office equipment and software $ 9,860 $8,530
Furniture and fixtures 894 807
Leasehold improvements --- 327
Computer equipment and computer software
under capital lease arrangement 287 50
------------------------------
11,041 9,714
Less: accumulated depreciation
and amortization 7,647 5,516
------------------------------
$ 3,394 $4,198
==============================
</TABLE>
Depreciation and amortization expense was $1,966,000, $2,255,000 and $2,106,000
for the years ended December 31, 1998, 1997 and 1996, respectively, including
amortization related to computer equipment and computer software under capital
lease arrangements amounting to $41,000 and $50,000 for the years ended December
31, 1998 and 1997, respectively.
During the fourth quarter of 1998, the Company abandoned a portion of its
internally developed computer software system, resulting in a charge of
$201,000. The system was not year 2000 compliant and management has begun using
alternative applications in its place. The Company determined that this computer
software was obsolete and there was no alternative future use (see Note C).
E. PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE COSTS
Capitalized purchased and internally developed software costs at December 31,
1998 and 1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------
<S> <C> <C>
Capitalized software development costs $9,555 $6,747
Less: accumulated amortization 6,015 4,264
-------------------------
$3,540 $2,483
=========================
</TABLE>
During 1998, 1997 and 1996, the Company capitalized $1,898,000, $1,788,000 and
$1,956,000, respectively, of internally developed software costs. These costs,
net of accumulated amortization, amounted to $2,630,000 at December 31, 1998,
and $2,483,000 at December 31, 1997. Amortization of internally developed
capitalized software costs was $1,751,000, $1,544,000, and $814,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
The cost of purchased computer software is capitalized and amortized on a
straight-line basis over its estimated useful life, generally two to five years.
The Company capitalized $1,795,000, of which $885,000 was written off as a one-
time charge, of purchased development software during 1998. Amortization will
commence when the asset is placed in service in January 1999. 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. All
purchased software costs were fully amortized as of December 31, 1996.
Amortization expense related to purchased software was $495,000 for the year
ended December 31, 1996. There was no capitalization or amortization of
purchased software during 1997.
During the years ended December 31, 1998, 1997 and 1996 the Company recorded
one-time charges for the write down of $885,000, $0, and $1,585,000,
respectively, in abandoned capitalized software assets to their net realizable
value as part of the write down of certain assets and other non-recurring
charges (see Note C).
29
<PAGE>
F. GOODWILL
Goodwill consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------
<S> <C> <C>
Goodwill $3,232 ---
Less: accumulated amortization --- ---
--------------------------
$3,232 ---
==========================
</TABLE>
The goodwill balance as of December 31, 1998, is related to the acquisition of
Sovereign Hill Software, Inc. on that date (see Note B). The balance will be
amortized over a five-year period beginning in January of 1999.
G. DEBT
Lines of Credit
On June 23, 1997, the Company entered into a secured, one-year line of credit
agreement in the amount of $2,000,000 with a major U.S. bank. Interest was
payable at 1% over the prime rate of interest, or 9 1/2% during the period ended
September 30, 1997. On September 10, 1997, the agreement was amended to include
an overadvance facility in the amount of $750,000. Interest during the
overadvance period was payable at 3% over the prime rate of interest, or 11 1/2%
during the third quarter of 1997. As of September 30, 1997, the Company had paid
down all amounts borrowed against this line of credit and had terminated the
line. In connection with the line of credit, on June 23, 1997, the Company
issued a seven-year warrant to purchase shares of the Company's common stock at
$3.42 per share. Based on the amount of the Company's borrowings under the line
of credit, this warrant is now exercisable for 46,783 shares. An additional
seven-year warrant, for the purchase of 24,767 shares of common stock at $3.23
per share, was issued to the bank on September 10, 1997, in connection with the
overadvance facility. Under the warrants, the bank has had the right since
December 31, 1998 to put the unexercised warrants and any shares issued upon
exercise back to the Company for $4.50 per share, less any unpaid warrant
exercise price.
Short-term Debt
On December 31, 1998 the Company assumed $1,350,000 in short-term borrowings
from a financial institution as part of the purchase of Sovereign Hill Software,
Inc. The full amount was repaid by the Company in January of 1999.
Capital Lease
The Company entered into a capital lease agreement for equipment in August of
1998. The original lease obligation was $287,000 payable monthly over a 12 month
period. As of December 31, 1998, the Company 's commitment related to the
capital lease was as follows (in thousands):
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Capital lease obligations $ 170
Amounts due within one year 170
-----
Long-term portion $ ---
=====
</TABLE>
H. STOCKHOLDERS' EQUITY
Common Stock
On September 30, 1997, the Company issued 1,085,000 shares of common stock to
two investors in a private placement for gross proceeds of $3,770,375. A
financial investor purchased 865,000 of these shares and the remaining 220,000
shares were issued to an affiliate of IHS in connection with the sale and
exchange of services businesses transaction described in Note B above.
30
<PAGE>
On December 31, 1998, the Company issued 200,000 shares of common stock and
warrants to purchase an additional 40,000 shares to Sovereign Hill Software,
Inc. in consideration for the acquisition of Sovereign Hill's assets (see Note
B).
As of December 31, 1998, the Company had outstanding warrants to purchase
276,550 shares of its common stock at purchase prices ranging between $3.23 and
$10.00 per share and expiring between March 28, 1999 and September 10, 2004.
Common Stock Repurchase Program
In the third quarter of 1998, the Company's Board of Directors authorized a
common stock repurchase program allowing that up to an aggregate of 1,000,000
shares of its common stock, $0.01 par value, subject to an aggregate cap of
$3,000,000, may be purchased in the form of open market purchases and privately
negotiated transactions.
During 1998, the Company repurchased 274,000 shares of Dataware common stock in
accordance with the stock repurchase program for $952,000 ($3.47 per share). The
Company may make further repurchases from time to time in the open market or in
private transactions, as market conditions warrant.
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, 3,000 shares are designated Series B
Convertible 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. There
were no shares of preferred stock issued and outstanding at December 31, 1998
and 1997.
On April 14, 1997, the Company closed $3,000,000 of new financing through the
private placement of 3,000 shares of Series B Convertible Preferred Stock. As of
September 30, 1997, all such shares of preferred stock had been converted into
common 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 acquiring 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
31
<PAGE>
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. Through May 1998, stockholders of
the Company had approved amendments of the Plan providing for a cumulative
aggregate number of shares issuable under the plan of 3,500,000. 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"). As amended by the stockholders to date, the
cumulative aggregate number of shares issuable under the Plan is 130,000. The
Plan provides for annual grants of nonqualified stock options to directors 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 Options
On December 30, 1995 the Company acquired Ledge Multimedia, Inc. ("Ledge"). In
January 1996 the Company granted nonqualified stock options providing for the
issuance of up to 175,000 shares to former employees of Ledge who became
employees of the Company upon the merger. These options were 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 typically become exercisable ratably during the
term of the respective consultant's contract with the Company.
Options Issued in Connection with Employment Agreement
In January 1999, in order to induce the Company's new President and Chief
Executive Officer to enter into an employment agreement, the Company granted him
nonqualified stock options to purchase 352,750 shares of common stock outside
the 1993 Equity Incentive Plan, all at fair market value on the date of grant.
The options vest 22% on December 31, 1999, and the balance vest ratably at the
end of the following three years.
Supplemental Disclosures for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which is effective for periods beginning after December 15, 1995.
SFAS No. 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosures of net income and earnings per share in
the notes to the financial statements. The Company adopted SFAS No. 123 in 1996
and elected the disclosure-only alternative provisions. The Company has chosen
to continue to account for stock-based compensation granted to employees and
directors using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock issued to Employees", and related
interpretations. Accordingly, compensation cost for stock options granted to
employees and directors is measured as the excess, if any, of the fair value of
the Company's stock at the date of the grant over the amount that must be paid
to acquire the stock. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for the awards under these plans consistent with the methodology prescribed
under SFAS No. 123, the Company's net loss and loss per common share would have
been reduced to the pro forma amounts indicated below:
32
<PAGE>
<TABLE>
<CAPTION>
Net Loss to Net Loss per Net Loss per
Common Stockholders Share - Basic Share - Diluted
-------------------- ----------------- ----------------
<S> <C> <C> <C>
As reported:
1998 $ (207) $ (0.02) $ (0.02)
1997 (6,465) (0.85) (0.85)
1996 (19,311) (3.01) (3.01)
Pro forma:
1998 $ (1,211) $ (.13) $ (.13)
1997 (8,909) (1.17) (1.17)
1996 (23,918) (3.72) (3.72)
</TABLE>
The fair value of each option granted during 1998, 1997 and 1996 is estimated on
the date of grant using the Black-Scholes option-pricing model utilizing the
following weighted-average assumptions: (1) expected risk-free interest rate of
5% in 1998 and 6% in 1997 and 1996 (2) expected option life of 5 years in 1998
and 1997 and 4 years in 1996, (3) expected stock volatility of 75% in 1998, 65%
in 1997 and 70% in 1996, and (4) expected dividend yield of 0%. The amount of
compensation expense, net of income taxes, included in the pro forma net loss
and net loss per share detailed in the table above, is approximately $885,000,
$2,318,000 and $4,519,000 for 1998, 1997 and 1996, respectively.
The effects of applying SFAS No. 123 for the purposes of pro forma disclosures
may not be indicative of the effects on reported net income (loss) and earnings
per share for future years, as the pro forma disclosures include the effects of
only those awards granted after January 1, 1995.
Information with respect to stock options granted under all stock option plans
is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average Fair
Average Value of
Shares Exercise Price Options Granted
----------- -------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 1,649,479 9.61
Granted 1,778,329 6.51 $2.77
Exercised (112,862) 0.75
Cancelled (1,440,931) 11.39
----------
Outstanding at December 31, 1996 1,874,015 5.83
Granted 1,486,994 3.26 $3.23
Exercised ( 46,017) 0.50
Cancelled (1,318,006) 6.58
----------
Outstanding at December 31, 1997 1,996,986 3.39
Granted 567,175 3.41 $3.02
Exercised ( 91,229) 1.71
Cancelled (309,988) 3.41
----------
Outstanding at December 31, 1998 2,162,944 3.39
==========
</TABLE>
33
<PAGE>
The following table summarizes option information about stock options
outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------------- -------------- ------------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0.3000-$2.7500 223,826 5.46 $ 1.4117 163,303 $ 1.0283
$ 2.9380-$3.0000 234,938 8.29 $ 2.9549 149,820 $ 2.9645
$ 3.1250-$3.1250 1,027,250 7.22 $ 3.1250 738,792 $ 3.1250
$ 3.1410-$3.2500 218,575 8.17 $ 3.1672 142,411 $ 3.1544
$ 3.3750-$4.0000 239,125 8.68 $ 3.6408 119,191 $ 3.5958
$ 4.5000-$10.5000 216,030 6.99 $ 6.2757 47,838 $ 6.1444
$11.0000-$11.0000 300 6.80 $11.0000 300 $11.0000
$12.7500-$12.7500 700 5.71 $12.7500 700 $12.7500
$13.0000-$13.0000 2,000 4.55 $13.0000 2,000 $13.0000
$15.2500-$15.2500 200 6.29 $15.2500 200 $15.2500
-------------- ---------------
$ 0.3000-$15.2500 2,162,944 7.39 $ 3.3197 1,364,555 $ 3.0294
============== =================== =================== =============== =================
</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 were exercised. At December 31, 1998, no
shares had been repurchased. On January 1, 1999, the Company formally waived its
right to repurchase these shares. During the year ended December 31, 1998, the
Company recorded a $200,000 one-time charge for this waiver (see Note C).
There were 1,209,677 and 1,123,561 stock options exercisable at December 31,
1997 and 1996, respectively, with weighted average exercise prices of $2.97 and
$5.31, respectively. There were 1,339,012, 859,154 and 1,028,142 options
available for future grant as of December 31, 1998, 1997 and 1996, respectively.
Repricing Stock Options
On May 23, 1996, the Board of Directors of the Company approved a plan
("repricing plan") to reprice all employee stock options under the 1993 Equity
Incentive Plan and the Ledge Stock Option Plan. In accordance with the repricing
plan, all stock options held by current employees with exercise prices above the
May 22, 1996 price of $6.969, and approved by the individual optionholders, 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. Vesting
provisions were not changed. This plan did not include outside directors or
consultants of the Company. Executive officers of the Company were restricted
from exercise of any repriced options for six months from the repricing date.
The repricing plan resulted in the cancellation of 1,033,363 stock options and
issuance of 930,027 new options.
On September 18, 1997, the Board of Directors of the Company approved a plan
("repricing plan") to reprice all employee stock options under the 1993 Equity
Incentive Plan and the Ledge Stock Option Plan. In accordance with the
repricing plan, all stock options held by current employees with exercise prices
above the September 17, 1997 price of $3.125, 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 $3.125
per share. Vesting provisions were not changed. This plan did not include
outside directors or consultants of the Company. The repricing plan resulted
in the cancellation of 974,213 stock options and issuance of 875,917 new
options.
In addition, on May 23, 1997, the Company's shareholders approved an amendment
to the 1993 Director Stock Option Plan permitting the amendment of outstanding
options and implementing a repricing of the outstanding Director Plan options
that had been approved by the Board of Directors in December 1996. As a result,
all outstanding nonqualified stock options were cancelled and replaced with the
same number having an exercise price of $3.00 per share, the fair market value
of the common stock on the date the directors took such action. Vesting
provisions were not changed.
34
<PAGE>
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. On May 21, 1998, the shareholders approved an amendment increasing
the number of shares issuable under the Plan by 600,000. During 1998 and 1997,
102,626 and 113,083 shares were issued to employees. The weighted average fair
values of shares issued under the 1993 plan during 1998, 1997 and 1996 were
$2.89, $3.83 and $4.26, respectively.
The fair value of the options granted under the employee stock purchase plan
during 1998, 1997 and 1996 is estimated on the date of grant using the Black-
Scholes option pricing model utilizing the following weighted-average
assumptions: (1) expected risk-free interest rate of 5.68%, 5.39% and 5.14%,
respectively, (2) expected life of 11.8, 6.3 and 5.5 months, respectively, (3)
expected stock volatility of 75% in 1998, 65% in 1997 and 70% in 1996, and (4)
expected dividend yield of 0%. The amount of compensation expense, net of income
taxes, is $119,217, $126,403 and $88,024 for 1998, 1997 and 1996, respectively.
I. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company occupies office facilities in the United States, Singapore, and
various locations in Europe under certain 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>
<CAPTION>
<S> <C>
1999 $1,520
2000 874
2001 518
2002 333
2003 and thereafter 194
------
Future minimum lease payments $3,439
======
</TABLE>
The Company has entered into sublease agreements with a related party which
offset the future minimum lease payments by $247,000. Rent expense, net
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Basic expense $1,504 $1,634 $2,012
Sublease income ( 86) (144) ---
------ ------ ------
Rent expense, net $1,418 $1,490 $2,012
====== ====== ======
</TABLE>
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 fees. As of December 31, 1997, all
related expenses had been paid and all stock issued. This settlement was not an
admission on the part of the defendants of any wrongdoing or lack of merit in
the defenses.
35
<PAGE>
J. DEFINED CONTRIBUTION 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
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, 1998.
K. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
December 31,
-----------------------
1998 1997 1996
----- ----- ------
Current:
Federal $ --- $ --- $(775)
State 8 --- (75)
Foreign 97 80 230
---- ----- -----
$ 105 $ 80 $(620)
====== ===== =====
Deferred:
Federal $ --- $ --- $ 695
State --- --- (75)
Foreign --- --- ---
----- ----- -----
$ --- $ --- $ 620
====== ===== =====
Income (loss) before income taxes for domestic and foreign operations are as
follows (in thousands):
December 31,
1998 1997 1996
---- ---- ----
Domestic $ (51) $(5,568) $(20,170)
Foreign (51) (140) 859
-------- -------- ---------
$ 102 $(5,708) $(19,311)
======== ======== =========
The following is a reconciliation between the U.S. Federal statutory rate and
the effective tax rate:
December 31,
----------------------------
1998 1997 1996
--------- -------- -------
U.S. federal statutory rate ( 34.0)% (34.0)% (34.0)%
State taxes, net of federal tax benefit 5.0 --- (.6)
Foreign operations 4.9 2.2 1.2
Utilization of net operating loss carryforward (169.0) --- ---
Tax exempt interest --- --- (.6)
Non-deductible acquisition costs --- 4.3 ---
Goodwill --- 0.4 4.5
In-process research and development 150.1 --- 6.2
Other non-deductible items 38.4 0.7 ---
Change in valuation allowance 107.2 27.8 27.0
Other, net --- --- (3.7)
-------- ------- ------
Effective tax rate 102.6% 1.4% 0.0%
======== ======= ======
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:
36
<PAGE>
December 31,
1998 1997
------- --------
Deferred tax assets:
Bad debts $ 587 $ 315
Compensation 510 247
Other 1,577 310
Net operating loss carryforwards 5,283 6,698
Research tax credits 1,216 896
------ -------
Total assets 9,173 8,466
Valuation allowance (7,733) (7,059)
------ -------
Net deferred tax asset 1,440 1,407
------ -------
Deferred tax liabilities:
Capitalized software costs 1,052 993
Depreciation 388 414
Other --- ---
------ -------
Total liabilities 1,440 1,407
------ -------
Net deferred tax asset $ --- $ ---
====== =======
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $13.2 million which expire at
various dates through 2012. 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. The Company also has research and development tax credits for federal
income tax purposes of approximately $1.2 million which expire at various dates
through 2013.
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. Management evaluates the positive
and negative evidence impacting the realizability of the Company's deferred tax
assets on a quarterly basis. The Company increased its valuation allowance
by $674,000 in 1998 and $1,838,000 in 1997, based upon management's estimate of
the amount of deferred tax assets that were more likely than not to be realized.
L. SEGMENT INFORMATION
On December 31, 1998 the Company adopted Statement of Financial Accounting
Standard No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). The new rules establish revised standards for public
companies relating to the reporting of financial information about operating
segments.
Upon adoption of SFAS 131, the Company began to present segment financial
information for its three reportable operating segments: USLA (a unit focusing
on the sale of software and services for enterprise information access
("knowledge management") and professional electronic publishing applications in
the United States and Latin America); Eurasia (a unit focusing on the sale of
software and services for enterprise information access ("knowledge management")
and professional electronic publishing applications in Europe and the Pacific
Rim); and Multimedia (providing a complete array of multimedia application
development services to corporations, publishers and professional firms, mostly
in the United States).
The Company's executive management team reviews and evaluates performance based
on several factors, of which the primary financial measure is business segment
profit or loss from operations. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
Although the Company prepares full balance sheets for the Eurasian business
unit, it reports to management only certain assets for the USLA and Multimedia
segments. These segments are not considered capital-intensive and, thus, other
balance sheet information is not considered meaningful on a segment basis.
A summary of the segment financial information reported is as follows:
37
<PAGE>
<TABLE>
<CAPTION>
CORPORATE AND
TWELVE MONTHS ENDED DECEMBER 31, 1998 USLA EURASIA MULTIMEDIA ELIMINATIONS TOTAL
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 16,770 $ 8,773 $ 7,447 $ - $ 32,990
Operating income (loss) (1) 10,891 2,268 2,766 (14,387) 1,538
Depreciation and amortization 109 295 112 3,201 3,717
Property and equipment additions 76 341 280 616 1,313
Total assets 2,057 4,552 896 21,244 28,749
<CAPTION>
CORPORATE AND
TWELVE MONTHS ENDED DECEMBER 31, 1997 USLA EURASIA MULTIMEDIA ELIMINATIONS TOTAL
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 19,374 $ 14,743 $ 3,202 $ - $ 37,319
Operating income (loss) (1) 3,634 2,053 (209) (10,877) (5,399)
Depreciation and amortization 112 475 150 3,043 3,780
Property and equipment additions 82 705 74 550 1,411
Total assets 2,079 5,286 905 20,783 29,053
<CAPTION>
CORPORATE AND
TWELVE MONTHS ENDED DECEMBER 31, 1996 USLA EURASIA MULTIMEDIA ELIMINATIONS TOTAL
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $ 17,733 $ 17,972 $ 1,754 $ - $ 37,459
Operating income (loss) (1) 470 1,429 (516) (12,725) (11,342)
Depreciation and amortization 100 600 105 2,610 3,415
Property and equipment additions 150 1,800 144 1,664 3,758
Total assets 1,816 9,326 791 13,443 25,376
</TABLE>
(1) before non-recurring charges
Geographically, revenues are reflected in the geographic areas from which the
sales are made. Information related to the Company's revenues to unaffiliated
customers in different geographical areas is as follows (in thousands):
<TABLE>
<CAPTION>
REVENUES: 1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
United States $ 24,217 $ 20,621 $ 17,099
United Kingdom 6,256 7,252 5,521
Other 2,517 9,446 14,839
---------------- ----------------- ----------------
$ 32,990 $ 37,319 $ 37,459
================ ================= ================
</TABLE>
38
<PAGE>
Information related to the Company's long-lived assets by geographical area is
as follows (in thousands):
LONG-LIVED ASSETS: 1998 1997 1996
------------ ----------- -----------
United States $ 10,338 $ 6,647 $ 7,898
United Kingdom 258 404 720
Other 82 142 3,151
------------ ----------- -----------
$ 10,678 $ 7,193 $ 11,769
============ =========== ===========
M. DISPOSAL OF PRODUCT DEVELOPMENT PROJECT
On April 7, 1997 the Company completed a funding arrangement involving its
subsidiary, Northern Light Technology Corporation, which had been developing the
next-generation Internet search and guide service for consumers. In the
transaction, Northern Light Technology Corporation dissolved, sold substantially
all of its assets to a newly formed limited liability company, and terminated
operations. The Company received, as a liquidating distribution from Northern
Light Technology Corporation, an equity interest in the buyer representing
approximately 34% of the buyer in the form of preferred units and a secured
note. The Company's equity interest has since been reduced as a result of the
buyer obtaining additional equity financing. The Company has maintained a 15% or
less voting interest in the buyer and is accounting for its $512,000 investment
in the buyer using the cost method. Northern Light Technology Corporation
accounted for $1,000,000 of the Company's operating expenses in the twelve
months ended December 31, 1997 and there were no Northern Light Technology
Corporation expenses in the twelve months ended December 31, 1998.
N. MAJOR CUSTOMER
On September 30, 1997, Dataware sold a portion of its data services business to
IHS. The Company entered into a distribution agreement with IHS on September 30,
1997, under which IHS took over the software distribution activities formerly
performed by five divested foreign subsidiaries (primarily involving the
Company's legacy products). In addition, the Company has entered into agreements
with IHS under which it provides software and multimedia services for use by IHS
internally and in its publishing activities, and IHS provides software that the
Company incorporates into certain of its products. These agreements may be
periodically reviewed and revised according to the circumstances of the parties.
Revenues in 1998 included approximately $9,100,000, or 28% of total revenues,
related to agreements with IHS. As part of the ongoing relationship with IHS,
the Company and IHS amended existing agreements during the third quarter of 1998
to provide for IHS to make guaranteed minimum payments called for by those
agreements, at the discretion of the Company, on an accelerated, discounted
basis. Software revenues in the second half of 1998 include approximately
$1,400,000 of such discounted payments accelerated from the years 1999 and 2000.
39
<PAGE>
O. NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted earnings per share in accordance with
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share", which
the Company adopted as of December 31, 1997. The following table reconciles the
numerator and denominator of the basic and diluted earnings per share
computations shown on the Consolidated Statements of Operations:
<TABLE>
<CAPTION>
For the Years Ended December 31,
(In thousands, except per share data) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic EPS
Numerator:
Net loss to common stockholders $ (207) $(6,465) $(19,311)
Denominator:
Common shares outstanding 9,265 7,632 6,425
Basic EPS $(0.02) $ (0.85) $ (3.01)
=========================================
Diluted EPS
Numerator:
Net loss to common stockholders $ (207) $(6,465) $(19,311)
Denominator:
Common shares outstanding 9,265 7,632 6,425
Common stock equivalents --- --- ---
---------- ----------- -------------
9,265 7,632 6,425
Diluted EPS $(0.02) $ (0.85) $ (3.01)
============================================
</TABLE>
Options to purchase 2,162,944, 1,996,986 and 1,874,015 shares of common stock
outstanding as of December 31, 1998, 1997 and 1996, respectively, were excluded
from the year-to-date calculation of diluted net loss per share as the effect of
their inclusion would have been anti-dilutive.
Earnings per share data has been restated for all periods presented to reflect
the adoption of SFAS 128.
40
<PAGE>
DATAWARE TECHNOLOGIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(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> <C>
1998 $ 750 $ 596 $ 500 $ 846
1997 934 778 962 750
1996 610 810 486 934
</TABLE>
41
<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 42 Chairman of the Board
David Mahoney 54 Chief Executive Officer, President, Director
Jeffrey O. Nyweide 43 Vice Chairman of the Board and Senior EVP Business Development
Michael Gonnerman 56 Chief Financial Officer, Treasurer, Vice President of Finance and Administration
Charles E. Rabie 47 Vice President, Software Products
Howard A. York 51 Vice President, Software Solutions
James Tuck 51 Vice President, European and Asian Operations
Fredric Gluck 43 Vice President, Marketing
Gregg Bauer 45 Vice President, Americas Sales
Stephen Sillari 32 Vice President, Knowledge Management Solutions
Stephen H. Beach (1)(2) 83 Director, Secretary
William R. Lonergan (1)(2) 74 Director
Jochen Tschunke 54 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Mueller has served as Chairman of the Board of Directors since the
inception of the Company in 1988 and he was Chief Executive Officer from
inception to December 31, 1998. He also served as President of the Company from
1988 through 1993 and from April 1997 to December 31, 1998. 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. Mahoney has served as President and Chief Executive Officer since January
1999 and has been a Director of the Company since February 1999. Prior to
joining the Company he served as President and CEO of Sovereign Hill Software,
Inc., a leading supplier of advanced information retrieval software products
that was acquired by Dataware on December 31, 1998. From 1983 to 1998, Mr.
Mahoney was the founder, Chairman and CEO of Banyan Systems Incorporated, a
leading provider of Enterprise Networking Software and services and a leader in
Internet directory services through its subsidiary, Switchboard. Mr. Mahoney is
a director of Banyan Systems Incorporated, its Switchboard subsidiary, Applix
Incorporated and several smaller early stage software companies. From 1976 to
1985, he held engineering management roles at Data General Corporation.
Mr. Nyweide has served as Vice Chairman of the Board of Directors and Senior
Executive Vice President, Business Development since April 1997 and was
President and Chief Operating Officer from 1993 to April 1997. 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,
42
<PAGE>
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. Gonnerman has served as Chief Financial Officer and Vice President,
Finance and Administration since June 1998, and was Acting Chief Financial
Officer from August 1997 to June 1998. Mr. Gonnerman was the founder and has
been President of Corporate Financial Group, a financial consulting firm, since
1990. Mr. Gonnerman was the Chief Financial Officer of Cortex Corporation from
1983 until 1990, Mindware in 1981 and 1982, and GRI Computer Corp. from 1978
until 1980. From 1968 until 1978 Mr. Gonnerman was an auditor with Arthur
Andersen & Co. Mr. Gonnerman is also a Director of Eprise Corporation, Agranat
Systems, and Gold Wire 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. York has served as Vice President, Software Solutions since December
1996. The Software Solutions group includes the Ledge Multimedia, Internet
Hosting and BRS Services Divisions. From June of 1995 to December of 1996, he
was Director of Software Solutions with responsibility for the BRS and CD Author
product lines. Prior to joining Dataware, Mr. York served in various managerial
positions with NYNEX Information Resources (Yellow Pages) and New York Telephone
from 1966 to 1995.
Mr. Tuck has served as Vice President for Europe and Asia since October 1997.
He previously managed the UK operation for Dataware. Prior to this he was
General Manager and Director of Status/IQ Ltd., a software company, which was
acquired by Dataware in March 1996. Mr. Tuck worked for Digital Equipment
Corporation from 1977 to 1994, managing their UK Customer/Employee Training
organizations and a Service Center for technical and management consultants.
Mr. Gluck has served as Vice President of Marketing since September 1997. He
previously held positions with CrossComm/Olicom Enterprise Networks, a
networking and communications company, as Director of Corporate Communications
and Channel Marketing Manager from 1995 to 1997. From 1989 to 1995, Mr. Gluck
held Product Marketing and Channel Marketing positions at Datamedia/Axent
Technologies, a manufacturer and provider of PC and network security software
and Racal Interlan, a maker of PC network interface cards.
Mr. Bauer has served as Vice President of Sales, Americas since June 1998. He
came to the Company from Active Control Experts (ACX, Inc.), a high technology
product design and manufacturing startup, where he was Vice President of
Worldwide Sales. Prior to ACX, Mr. Bauer was with Rockwell Automation-Reliance
Electric Company, an industrial automation company, where he held Regional
Sales Manager and Director of Global marketing positions from 1975 to 1996.
Mr. Sillari has served as Vice President of Knowledge Management Solutions
since August 1998. Prior to joining Dataware, he spent 5 years at Software
Spectrum, a systems consulting business, where he held the positions of Lotus
Notes Product Manager and Total Cost of Ownership Business Development Manager.
Mr. Sillari previously held business analysis, consulting, business development,
sales and software development positions at The Registry, which is now known as
Renaissance Worldwide, Cicada Systems and General Development Corporation.
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. Lonergan has been a director of the Company since 1988. From 1983 to
1994, Mr. Lonergan was 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.
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, which 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.
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 1999 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Election of Directors - Director Compensation" and
"Executive Compensation" in the 1999 Proxy Statement are incorporated herein by
reference.
43
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Share Ownership" in the 1999 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The section entitled "Executive Compensation - Executive Employment and
Severance Agreements" in the 1999 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, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Schedules:
II. Valuation and Qualifying Accounts
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
44
<PAGE>
The Company hereby files as part of this Annual Report on Form 10-K the
Exhibits listed in the attached Exhibit Index.
45
<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 12th day of March 1999.
DATAWARE TECHNOLOGIES, INC.
/s/ David Mahoney
----------------------------------------------------
David Mahoney, President and Chief Executive Officer
Signatures Title Date
---------- ----- ----
/s/ Kurt Mueller Chairman of the Board March 12, 1999
- ----------------------
KURT MUELLER
/s/ David Mahoney Chief Executive Officer, March 12, 1999
- ----------------------
DAVID MAHONEY President, Director
/s/ Jeffrey O. Nyweide Vice-Chairman of the Board, March 12, 1999
- ----------------------
JEFFREY O. NYWEIDE Senior EVP Business Development
/s/ Michael Gonnerman Chief Financial Officer, Treasurer March 12, 1999
- ----------------------
MICHAEL GONNERMAN (Principal Financial and Accounting
Officer)
/s/ Stephen H. Beach Director March 12, 1999
- ----------------------
STEPHEN H. BEACH
Director March 12, 1999
- ----------------------
WILLIAM R. LONERGAN
/s/ Jochen Tschunke Director March 12, 1999
- ----------------------
JOCHEN TSCHUNKE
46
<PAGE>
EXHIBIT INDEX
2.1 Agreement dated September 26, 1997 between Dataware Technologies, Inc. and
Information Handling Services Group, Inc. (Exhibit 2 to Form 8-K dated
October 10, 1997).*
2.2 Asset Purchase Agreement dated December 31, 1998, among Dataware,
Sovereign Hill Software, Inc. and certain Stockholders of Sovereign Hill.
(Exhibit to Form 8-K dated January 14, 1999).*
3.1 Restated Certificate of Incorporation, as amended through April 14, 1997
(Exhibit to Form 8-K dated April 17, 1997).*
3.2 Bylaws as amended through February 9, 1999.
4.1 Rights Agreement dated July 8, 1996 by and between American Stock Transfer
& Trust Company as Rights Agent and the Registrant (the "Rights
Agreement"). (Exhibit to Form 8-K dated July 18, 1996).*
4.2 First Amendment to Rights Agreement, dated April 14, 1997 (Exhibit to 8-K
dated April 17, 1997).*
4.3 Warrant Agreements, dated as of November 21, 1996 and April 14, 1997,
between the Company and Advest, Inc. (Exhibit to June 30, 1997 Form 10-
Q).*
4.4 Warrant Agreement, dated as of April 14, 1997, between the Company and
Wharton Capital Partners Ltd. (Exhibit to June 30, 1997 Form 10-Q).*
4.5 Warrant Agreements dated as of June 23, 1997 and September 10, 1997,
between the Company and Imperial Bank (Exhibits to June 30, 1997 and
September 30, 1997 Forms 10-Q, respectively).*
4.6 Warrant Agreement, dated as of March 31, 1996, between the Company and
Entrust Nominees Limited (Exhibit to June 30, 1997 Form 10-Q).*
4.7 Warrant Agreement dated as of December 31, 1998 between the Registrant and
Sovereign Hill Software, Inc.
10.1 1993 Equity Incentive Plan, as amended through May 20, 1998. #
10.2 1993 Employee Stock Purchase Plan, as amended through May 20, 1998.#
10.3 1993 Stock Option Plan for Directors, as amended through December 9, 1996
(Exhibit to 1996 Form 10-K).*#
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 Severance Agreement between the Registrant and Kurt Mueller dated December
31, 1998.#
10.7 Employment Agreement between the Registrant and Jeffrey O. Nyweide dated
October 28, 1988, as amended. (Registration Statement No. 33-63308).*#
10.8 Consultant Agreement between the Registrant and Michael Gonnerman, Inc.
dated June 18, 1998 (Exhibit to Form 10-Q dated July 31, 1998).*#
10.9 Employment Agreement between the Registrant and David Mahoney dated
December 31, 1998.#
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
99.1 Important Factors Regarding Future Results.
* Incorporated by reference to the filing indicated in parentheses.
# Denotes management contracts and compensation plans.
47
<PAGE>
EXHIBIT 3.2
As Amended through February 9, 1999
BY-LAWS
OF
DATAWARE TECHNOLOGIES, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders shall be held at
-----------------
the principal office of the corporation or at such other place as may be named
in the notice.
SECTION 2. Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine. If the
annual meeting is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time by the President, the Chairman of the Board, if any, or the
Board of Directors.
SECTION 4. Notice of Meetings. Except where some other notice is required
------------------
by law, written notice of each meeting of stockholders, stating the place, date
and hour thereof and the purposes for which the meeting is called, shall be
given by the Secretary under the direction of the Board of Directors or the
President, not less than ten nor more than sixty days before the date fixed for
such meeting, to each stockholder of record entitled to vote at such meeting.
Notice shall be given personally to each stockholder or left at his or her
residence or usual place of business or mailed postage prepaid and addressed to
the stockholder at his or her address as it appears upon the records of the
corporation. In case of the death, absence, incapacity or refusal of the
Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to such notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Except as required by statute, notice
of any adjourned meeting of the stockholders shall not be required.
SECTION 5. Record Date. The Board of Directors may fix in advance a record
-----------
date for the determination of the stockholders entitled to notice of or to vote
at any meeting of stockholders, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action. Such record date shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
before any other
1
<PAGE>
action to which such record date relates. If no record date is fixed, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day before the day on
which notice is given, or, if notice is waived, at the close of business on the
day before the day on which the meeting is held, and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating to
such purpose. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the following procedures shall be eligible for election as
directors at any annual or special meeting of stockholders. Nominations of
persons for election as directors may be made only by or at the direction of the
Board of Directors, or by any stockholder entitled to vote for the election of
directors at the meeting in compliance with the notice procedures set forth in
this Section 6. Such nominations, other than those made by or at the direction
of the Board, shall be made pursuant to timely notice in writing to the Chairman
of the Board, if any, the President or the Secretary. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 90 days before the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event the annual meeting is called for a date
that is not within 30 days before or after such anniversary date, notice by the
shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which notice of the date of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever occurs first. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or re-
election as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of capital stock of the corporation
that are beneficially owned by the person and (iv) any other information
relating to the person that is required to be disclosed in solicitations for
proxies for election of directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice, (i) the name and record address of such stockholder and (ii)
the class and number of shares of capital stock of the corporation that are
beneficially owned by such stockholder.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 7. Advance Notice of Business at Annual Meetings. At any annual
---------------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be brought properly before an
annual meeting, business must be either (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the President or the
Board of Directors, (b) otherwise properly brought before the meeting by or at
the direction of the Board, or (c) properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be brought
2
<PAGE>
properly before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Chairman of the Board, if any, the
President or the Secretary. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 90 days before the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
the annual meeting is called for a date that is not within 30 days before or
after such anniversary date, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following the day
on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was made, whichever occurs first. A
stockholder's notice shall set forth as to each matter the stockholder proposes
to bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of the
corporation that are beneficially owned by the stockholder and (iv) any material
interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 7, provided, however, that nothing in this
-------- -------
Section 7 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 8. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall make or have made, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days before the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
SECTION 9. Quorum of Stockholders. At any meeting of the stockholders, the
----------------------
holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but in the absence of a quorum a smaller group may adjourn any
meeting from time to time. When a quorum is present at any meeting, a majority
of the stock represented thereat and entitled to vote shall, except where a
larger vote is required by law, by the certificate of incorporation or by these
by-laws, decide any
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question brought before such meeting. Any election by stockholders shall be
determined by a plurality of the vote cast by the stockholders entitled to vote
at the election.
SECTION 10. Proxies and Voting. Unless otherwise provided in the
------------------
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote unless in the transfer by the pledgor on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 11. Conduct of Meeting. Meetings of the stockholders shall be
------------------
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, a chairman to be chosen by the stockholders.
The Secretary of the corporation, if present, or an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman of the meeting shall appoint a secretary of
the meeting.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the corporation
--------------
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation that are not by law required to be
exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number; Election; Tenure and Qualification. Subject to any
------------------------------------------
restrictions contained in the Certificate of Incorporation, the number of
directors that shall constitute the whole Board shall be fixed by resolution of
the Board of Directors but in no event shall be less than one. The directors
shall be elected in the manner provided in the Certificate of Incorporation, by
such stockholders as have the right to vote thereon. The number of directors
may be increased or decreased by action of the Board of Directors. Directors
need not be stockholders of the corporation.
SECTION 3. Enlargement of the Board. Subject to any restrictions contained
------------------------
in the Certificate of Incorporation, the number of the Board of Directors may be
increased at any time, such increase to be effective immediately unless
otherwise specified in the resolution, by vote of a majority of the directors
then in office.
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SECTION 4. Vacancies. Unless and until filled by the stockholders and
---------
except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by the holders of such series,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director, may be filled by vote of a majority of the
directors then in office although less than a quorum, or by the sole remaining
director. Each director so chosen to fill a vacancy shall serve for a term
determined in the manner provided in the Certificate of Incorporation. When one
or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective. If at any
time there are no directors in office, then an election of directors may be held
in accordance with the General Corporation Law of the State of Delaware.
SECTION 5. Resignation. Any director may resign at any time upon written
-----------
notice to the corporation. Such resignation shall take effect at the time
specified therein, or if no time is specified, at the time of its receipt by the
President or Secretary.
SECTION 6. Removal. Except as may otherwise be provided by the General
-------
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, at an annual meeting or at a special meeting called for
that purpose, by the holders of a majority of the shares then entitled to vote
in an election of directors. The vacancy or vacancies thus created may be filled
by the stockholders at the meeting held for the purpose of removal or, if not so
filled, by the directors in the manner provided in Section 4 of this Article II.
SECTION 7. Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee to replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of any
member of any such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. The Board of Directors shall have the power to change the members of
any such committee at any time, to fill vacancies therein and to discharge any
such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the Board
of Directors, or in these by-laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority denied it by Section 141 of the General Corporation Law of
the State of Delaware.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of
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Directors shall otherwise by resolution provide. Each committee shall keep
regular minutes of its meetings and make such reports as the Board of Directors
may from time to time request.
SECTION 8. Meetings of the Board of Directors. Regular meetings of the
----------------------------------
Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board of Directors, the President, Treasurer, Secretary, or two or more
directors. Reasonable notice of the time and place of a special meeting shall
be given to each director unless such notice is waived by attendance or by
written waiver in the manner provided in these by-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least seventy-two hours, or by telegram or fax at least forty-eight
hours, before the meeting, addressed to such director at his or her usual or
last known business or home address.
Directors or members of any committee may participate in a meeting of the
Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
SECTION 9. Quorum and Voting. A majority of the total number of directors
-----------------
shall constitute a quorum, except that when a vacancy or vacancies exist in the
Board, a majority of the directors then in office (but not less than one-third
of the total number of the directors) shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except where a different vote is required or permitted by law, by the
Certificate of Incorporation or by these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees for their
------------
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity, as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 11. Action Without Meeting. Any action required or permitted to be
----------------------
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting and without notice if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or of such committee.
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ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall consist of a
------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, who may include without
limitation a Chairman of the Board, a Vice-Chairman of the Board and one or more
Vice-Presidents, Assistant Treasurers or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote electing such officer, or until his or her earlier death,
resignation or removal.
SECTION 3. Qualification. Unless otherwise provided by resolution of the
-------------
Board of Directors, no officer, other than the Chairman or Vice-Chairman of the
Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or without cause, at
-------
any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a written
-----------
resignation to the corporation at its principal office or to the Chairman of the
Board, if any, the President, or the Secretary. Such resignation shall be
effective upon receipt or at such later time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time fill any
---------
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation shall have
-----------------
such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors and shall have such
additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. President and Vice-Presidents. Except to the extent that such
-----------------------------
duties are assigned by the Board of Directors to the Chairman of the Board, or
in the absence of the Chairman or in the event of his or her inability or
refusal to act, the President shall be the chief executive officer of the
corporation and shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The President shall preside at each meeting of the stockholders
and the Board of Directors unless a Chairman or Vice-Chairman of the Board is
elected by the Board and is present at such meeting.
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The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors. In the absence of the President or in the event of his
or her inability or refusal to act, the duties of the President shall be
performed by the Executive Vice-President, if any, Senior Vice President, if
any, or Vice President, if any, in that order (and, in the event there be more
than one person in any such office, in the order of their election), and when so
acting, such officer shall have all the powers of and be subject to all the
restrictions upon the President.
SECTION 9. Secretary and Assistant Secretaries. The Secretary shall attend
-----------------------------------
all meetings of the Board of Directors and of the stockholders and record all
the proceedings of such meetings in a book to be kept for that purpose, shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal, which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
Any Assistant Secretary may, in the absence of the Secretary or in the event
of the Secretary's inability or refusal to act, perform the duties and exercise
the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer shall have
----------------------------------
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by or
pursuant to resolution of the Board of Directors. The Treasurer shall disburse
the funds of the corporation as may be ordered by the Board of Directors, the
Chairman of the Board, if any, or the President, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, the President, and
the Board of Directors, at its regular meetings or whenever they may require it,
an account of all transactions and of the financial condition of the
corporation.
Any Assistant Treasurer may, in the absence of the Treasurer or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may require any officer
---------------
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of the duties of such officer and for the restoration
to the corporation of all property in his or her possession or control belonging
to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors or any committee thereof appointed for the
purpose.
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ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more stock certificates, signed by
---------------------
the Chairman or Vice-Chairman of the Board of Directors or by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, shall be issued to each stockholder certifying the
number of shares owned by the stockholder in the corporation. Any or all
signatures on any such certificate may be facsimiles. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile signature
shall have been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Each certificate for shares of stock that are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the by-laws, applicable
securities laws, or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
SECTION 2. Transfers of Shares of Stock. Subject to the restrictions, if
----------------------------
any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. The corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to that stock, regardless of any transfer, pledge
or other disposition of that stock, until the shares have been transferred on
the books of the corporation in accordance with the requirements of these by-
laws.
SECTION 3. Lost Certificates. A new stock certificate may be issued in the
-----------------
place of any certificate theretofore issued by the corporation and alleged to
have been lost, stolen, destroyed or mutilated, upon such terms in conformity
with law as the Board of Directors shall prescribe. The directors may, in their
discretion, require the owner of the lost, stolen, destroyed or mutilated
certificate, or the owner's legal representatives, to give the corporation a
bond, in such sum as they may direct, to indemnify the corporation against any
claim that may be made against it on account of the alleged loss, theft,
destruction or mutilation of any such certificate, or the issuance of any such
new certificate.
SECTION 4. Fractional Share Interests. The corporation may, but shall not
--------------------------
be required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (l) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form, which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not
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<PAGE>
unless otherwise provided therein, entitle the holder to exercise voting rights,
to receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions that the Board of Directors may impose.
SECTION 5. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the Common
Stock of the corporation as and when they deem expedient.
ARTICLE V
INSURANCE
SECTION 1. Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of the General Corporation Law of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from time to time by
-----------
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such form as
--------------
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal, and a duplicate seal may be kept and used by each
Assistant Secretary and by any other officer the Board of Directors may
authorize.
SECTION 3. Certificate of Incorporation. All references in these by-laws to
----------------------------
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as in effect from time to time.
SECTION 4. Execution of Instruments. The Chairman and Vice-Chairman of the
------------------------
Board of Directors, if any, the President, and the Treasurer shall have power to
execute and
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deliver on behalf and in the name of the corporation any instrument requiring
the signature of an officer of the corporation, including deeds, contracts,
mortgages, bonds, notes, debentures, checks, drafts and other orders for the
payment of money. In addition, the Board of Directors, the Chairman and Vice
Chairman of the Board of Directors, if any, the President, and the Treasurer may
expressly delegate such powers to any other officer or agent of the corporation.
SECTION 5. Voting of Securities. The Chairman and Vice-Chairman of the
--------------------
Board of Directors, if any, the President, the Treasurer, and each other person
authorized by the directors, each acting singly, may waive notice of, and act
as, or appoint any person or persons to act as, proxy or attorney-in-fact for
this corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation. In addition, the Board of
Directors, the Chairman and Vice Chairman of the Board of Directors, if any, the
President, and the Treasurer may expressly delegate such powers to any other
officer or agent of the corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, an
---------------------
Assistant Secretary or a temporary secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for that
reason or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or a committee of the Board of
Directors that authorizes the contract or transaction or solely because the vote
of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
such committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair to the corporation as of the time it
is authorized, approved or ratified by the Board of Directors, a committee of
the Board of Directors or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee that authorizes
the contract or transaction.
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SECTION 8. Books and Records. The books and records of the corporation
-----------------
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. These by-laws may be altered, amended
-------------------------
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
SECTION 2. By the Stockholders. These by-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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EXHIBIT 4.7
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). NEITHER THIS WARRANT NOR SUCH SHARES MAY BE TRANSFERRED UNLESS THE
WARRANT OR SUCH SHARES ARE REGISTERED UNDER THE ACT OR THE COMPANY IS PROVIDED
WITH AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IN FORM AND SUBSTANCE
THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE.
DATAWARE TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
(40,000 SHARES)
Dataware Technologies, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Sovereign Hill Software, Inc. ("Sovereign
Hill") or its assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time after the date hereof
and before 5:00 P.M., Boston time, on the fifth anniversary of the date of
initial issuance of this Warrant (the "Termination Date"), up to Forty Thousand
(40,000) fully paid and nonassessable shares of common stock, $.01 par value, of
the Company ("Common Stock"), at a purchase price per share of $6.00 (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Purchase Price"). The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
As used herein the following terms,unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Dataware Technologies, Inc. and any
corporation that shall succeed or assume the obligations of Dataware
Technologies, Inc. hereunder.
(b) The terms "Warrant" or "Warrants" mean this Warrant and any other warrant
or warrants issued in exchange or substitution for, or upon partial exercise of,
this Warrant.
(c) The term "Warrant Shares" means the shares of Common Stock issued or
issuable upon exercise of this Warrant and, following subdivision of this
Warrant, shall include the shares issued or issuable upon exercise of all
successor Warrants; provided that for purposes of Section 10, regarding
registration, and Section 15.1, regarding amendments, such term shall not
include any such shares that have been sold in a public sale.
(d) The term "Market Price" of the Common Stock means the average of the
closing prices of sales of a share of Common Stock on all domestic securities
exchanges (including the Nasdaq National Market) on which the Common Stock may
at the time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
Nasdaq System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the Nasdaq System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such
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case averaged over a period of 21 trading days ending with the last trading day
before the day as of which "Market Price" is being determined. If at any time
such security is not listed on any domestic securities exchange or quoted in the
Nasdaq System or the domestic over-the-counter market, the "Market Price" shall
be the fair value thereof as of such time if and as determined in good faith by
the Company's Board of Directors.
1. EXERCISE OF WARRANT. Subject to Section 12, this Warrant may be exercised
-------------------
in full or in part by the holder hereof by surrender of this Warrant to the
Company at its principal office, with the subscription form at the end hereof
duly executed by such holder, accompanied by either (a) payment in cash or by
certified or official bank check payable to the order of the Company in the
amount of the aggregate Purchase Price for the number of shares of Common Stock
designated by the holder in the subscription form or (b) a written notice to the
Company that the holder is exercising this Warrant (or a portion thereof) by
authorizing the Company to withhold from issuance a number of shares of Common
Stock issuable upon such exercise of this Warrant that, when multiplied by the
Market Price of the Common Stock, is equal to the aggregate Purchase Price (and
such withheld shares shall no longer be issuable under this Warrant). On any
partial exercise the Company at its expense will forthwith issue and deliver to
or upon the order of the holder hereof a new Warrant or Warrants of like tenor,
in the name of the holder hereof or as such holder (upon compliance with
Sections 11 and 12 and payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which this Warrant may still be exercised.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as practicable
-------------------------------------------------
after the exercise of this Warrant in full or in part, and in any event within
10 days thereafter, the Company at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and delivered
to the holder hereof, or as such holder (upon compliance with Sections 11 and 12
and payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock to which such holder shall be entitled on such exercise.
3. NOTICE OF RECORD DATE. In case the Company shall take a record of the
---------------------
holders of its Common Stock (or other stock or securities at the time
deliverable upon the exercise of this Warrant) for the purpose of entitling or
enabling them to receive any dividend or other distribution, or to receive any
right to subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, then and in each such case the
Company will mail or cause to be mailed to the Registered Holder of this Warrant
a notice specifying the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right. Such notice shall be mailed at least ten
(10) business days before the record date or effective date for the event
specified in such notice.
4. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
----------------------------------------------------------
4.1 In case at any time or from time to time, the Company shall (a) effect
a reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or
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<PAGE>
arrangement contemplating the dissolution of the Company, then, in each such
case, the holder of this Warrant, on the exercise hereof as provided in Section
1 at any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be (but not
later than the Termination Date), shall receive, in lieu of the Common Stock
issuable on exercise before such consummation or such effective date, the stock
and other securities and property (including cash) to which such holder would
have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant
immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 5.
4.2 Upon any reorganization, consolidation, merger or transfer (and any
dissolution following any transfer) referred to in this Section 4, this Warrant
shall continue in full force and effect until the Termination Date and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company.
5. ADJUSTMENT UPON EXTRAORDINARY EVENTS. In the event that the Company shall
------------------------------------
(i) issue additional shares of Common Stock as a dividend or other distribution
on outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, then, in each such event, the Purchase Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Purchase Price by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately before such event and
the denominator of which is the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price. Upon any such adjustment, the holder of this Warrant shall
thereafter, upon the exercise hereof as provided in Section 1, be entitled to
receive that number of shares of Common Stock determined by multiplying the
number of shares of Common Stock issuable upon exercise hereof immediately
before such adjustment by a fraction, the numerator of which is the Purchase
Price that was in effect immediately before such adjustment, and the denominator
of which is the Purchase Price in effect on the date of such exercise.
6. NOTIFICATION AS TO ADJUSTMENTS. In each case of any adjustment or
------------------------------
readjustment in the Purchase Price and shares of Common Stock issuable on the
exercise of the Warrants, the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the holder of this Warrant at
his or its address registered on the books of the Company, which notice shall
state the Purchase Price resulting from such adjustment and the increased or
decreased, if any, number of shares purchasable at such price upon the exercise
of this Warrant, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
7. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The Company
------------------------------------------------------------
will at all times reserve and keep available,
3
<PAGE>
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock from time to time issuable upon the exercise of the Warrants.
8. EXCHANGE OF WARRANTS. On surrender for exchange of any Warrant, properly
--------------------
endorsed, to the Company, the Company at its expense will issue and deliver to
or on the order of the holder thereof a new Warrant or Warrants of like tenor,
in the name of such holder or as such holder (upon compliance with Sections 11
and 12 and payment by such holder of any applicable transfer taxes) may direct,
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
-----------------------
the Company of the loss, theft, destruction or mutilation of any Warrant and, in
the case of any such loss, theft or destruction of any Warrant, on delivery of
an indemnity agreement or security satisfactory in form and amount to the
Company in its sole discretion or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. REGISTRATION OF WARRANT SHARES.
------------------------------
10.1 Registration Requirement. The Company will, within 45 days after the
------------------------
Company receives a written request from the holders of not less than fifty
percent (50%) of the Warrant Shares that the Company effect a registration of
not less than fifty percent (50%) of the Warrant Shares under the Act on Form S-
3 (or successor Form providing for incorporating substantially all information
about the Company by reference from other SEC filings), if the Company is then
eligible to register the resale of such securities on such Form, the Company
will (a) give notice of such request to all other holders of record of Warrant
Shares and (b) within 45 days of such request, file a Registration Statement on
such Form covering all Warrant Shares that any of such holders shall (within 20
days after the Company's notice) request be registered, and will use its
reasonable efforts to cause such registration statement to become effective
thereafter and to remain effective until the second anniversary of the first
date on which any of the Warrants were exercised (the "Termination Date").
Notwithstanding the foregoing, if the Company is not eligible to register the
resale of such securities on such Form within such time, the Company will file
such registration statement promptly after it again becomes so eligible,
whereupon the other provisions of this Section 10 shall apply. The Buyer shall
not be obligated to file more than one registration statement pursuant to this
Section 10.1 Subject to receipt of the transferee's agreement described in
Section 12, the Company will amend such registration statement within a
reasonable time after request to include the names of any permitted transferee
of the Warrant Shares as selling stockholders. Each holder of Warrant Shares
being registered on such registration statement (the "Selling Holders") shall,
as a condition thereof, provide the Company with all such information about such
holder and his or its proposed method of distribution as the Company shall
reasonably request to comply with the provisions of the Act and the rules of the
SEC thereunder.
10.2 Registration Procedures. In connection with any registration
-----------------------
statement filed under Section 10.1, the Company shall:
(a) furnish to the Selling Holders such numbers of copies of a
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<PAGE>
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of the registered Warrant Shares owned by
them;
(b) notify each Selling Holder at any time when a prospectus relating
to such shares is required to be delivered under the Act as a result of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, whereupon each such Selling Holder shall refrain
from selling any Warrant Shares pursuant to such registration statement until
the Company shall have filed such amendment or supplement to such registration
statement and the prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement;
(c) cause all such registered Warrant Shares to be registered (if not
exempt) under the blue sky laws of any state reasonably requested by a Selling
Holder and to be listed on each securities exchange or national market on which
similar securities issued by the Company are then listed; and
(d) pay all expenses of such registration, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company (but not for any
Selling Holder) , blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding
discounts, selling commissions and fees and stock transfer taxes applicable to
the securities registered by a Selling Holder).
10.3 Indemnification.
---------------
(a) The Company will indemnify each Selling Holder, each of its
officers and directors and partners and each Person controlling any such Persons
within the meaning of Section 15 of the Act, and each underwriter, if any, and
each Person who controls any underwriter within the meaning of Section 15 of the
Act, against all expenses, claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in the
investigation or settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, not misleading, or any violation by
the Company of any rule or regulation promulgated under the Act or any state
securities laws applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Selling Holder, each of its officers
and directors and each Person controlling any such Persons, each such
underwriter and each Person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided that the
5
<PAGE>
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability, expense, or violation arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Selling Holder or underwriter, or
any action or inaction required of any Selling Holder in connection therewith.
(b) Each Selling Holder will indemnify the Company, each of its
directors and officers, each underwriter, if any, of the Company's securities
covered by such a registration statement, each Person who controls the Company
or such underwriter within the meaning of Section 15 of the Act, and each other
such Person whose securities are covered by such registration statement, each of
its officers and directors and each Person controlling such selling
securityholder within the meaning of Section 15 of the Act, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by such Selling Holder of any rule or
regulation promulgated under the Act or any state securities laws applicable to
such Selling Holder and relating to action or inaction required of such Selling
Holder in connection with any such registration, qualification or compliance,
and will reimburse the Company, such other selling securityholders, such
directors, officers, underwriters or control Persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Selling
Holder for use therein or such violation arises out of any action or inaction
required of such Selling Holder in connection therewith; provided, however, that
-------- -------
the obligation of such Selling Holder hereunder shall be limited to an amount
equal to the gross proceeds received by such Selling Holder upon the sale of the
Warrant Shares sold by such Selling Holder in the offering covered by such
registration.
(c) Each party entitled to indemnification under this Section 10.3
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party shall bear the
expense of such defense of the Indemnified Party if representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest (as determined in good faith by the Indemnified Party).
The failure of any Indemnified Party to give notice as
6
<PAGE>
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless the failure to do so materially prejudices the
Indemnifying Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 10.3 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable to such
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in this Section 10.3 an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party or parties on the one hand and the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, demands or liabilities as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or parties on the one hand or the
Indemnified Party on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid to an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this Section 10.3(d) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any action or claim that is the subject of this Section 10.3. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
11. COMPLIANCE WITH SECURITIES LAWS. This Warrant has been issued in reliance
-------------------------------
on the representations and agreements set forth herein and may be exercised,
transferred or exchanged only in compliance with the Act. This Warrant may only
be exercised by, and Common Stock issued to, a person who provides the Company
with confirmation that such person is not acquiring such Common Stock with a
view to any offering or distribution thereof in violation of applicable
securities laws. Any holder by accepting this Warrant represents to the Company
that the Warrant is acquired without a view to any offering or distribution in
violation of applicable securities laws. Each holder of this Warrant agrees
that he or it will not offer, sell or otherwise dispose of this Warrant or the
shares of Common Stock issuable upon exercise hereof except in circumstances
that will not result in a violation of the Act or any applicable laws relating
to the sale of securities, and such holder agrees to provide the Company with
such documentation as the Company shall deem necessary to demonstrate that such
offer, sale or disposition will comply with applicable securities laws. This
provision shall similarly apply to subsequent transferees of this Warrant.
12. TRANSFERS. This Warrant is issued upon the following terms, to all of which
---------
each holder or owner hereof, including each transferee, by acceptance hereof
consents and agrees.
7
<PAGE>
12.1 This Warrant may not be transferred or subdivided into fewer than
twenty-three (23) Warrants.
12.2 Subject to Section 11, title to this Warrant may only be transferred
by endorsement (by the holder hereof executing the form of assignment at the end
hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery; provided that each
transferee executes an agreement with the Company (in the form appearing on the
form of assignment) to be bound by the obligations of a holder hereunder.
12.3 Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.
13. NO RIGHTS AS A STOCKHOLDER. Until the exercise of this Warrant, the holder
--------------------------
hereof shall have only the rights provided herein and shall not by virtue hereof
have or exercise any voting or other rights as a stockholder of the Company.
14. NOTICES, ETC. All notices and other communications from the Company to the
------------
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
15. MISCELLANEOUS.
-------------
15.1 This Warrant and any term hereof may be amended, waived, discharged or
terminated only by an instrument in writing signed by the Company and the
registered holder hereof; provided that (a) amendments or waivers of any part of
Section 10 hereof shall require only the signatures of the Company and holders
of a majority of the issued or issuable Warrant Shares and (b) if this Warrant
is divided or subdivided into multiple Warrants, any such action with respect to
any other term of this Warrant shall require only the signatures of holders of
Warrants for the purchase of a majority of the Warrant Shares issuable upon
exercise of all then outstanding Warrants.
15.2 This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. This Warrant is being executed as an instrument under seal.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
8
<PAGE>
Dated as of December 31, 1998
DATAWARE TECHNOLOGIES, INC.
By: /s/ Kurt Mueller
---------------------------
Kurt Mueller
Chairman and President
9
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO DATAWARE TECHNOLOGIES, INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _______________
shares of Common Stock of Dataware Technologies, Inc. and herewith makes payment
of $__________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered____________________________________________
to_________________________________________, whose address is___________________
________________________________________________________________________.
The undersigned confirms that he or it is not acquiring such Common Stock
with a view to any offering or distribution thereof in violation of applicable
securities laws.
Dated: _______________ .............................................
(Signature must conform to the name of holder as
specified on the face of the Warrant)
.............................................
(Address)
____________________
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto __________________________________________ the right represented by the
within Warrant to purchase ______________________ [not less than 1,000 shares
without the Company's prior written consent] shares of Common Stock of Dataware
Technologies, Inc. to which the within Warrant relates, and appoints
___________________________________ attorney to transfer such right on the books
of Dataware Technologies, Inc. with full power of substitution in the promises.
Dated: _______________ ................................................
(Signature must conform to name of the holder as
specified on the face of the Warrant)
Signed in the presence of: .............................................
(Address)
....................
The undersigned transferee agrees to be bound by
all the obligations of a holder under the Warrant.
By:_____________________________________
Typed name:
10
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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.
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"Effective Date" means May 19, 1993.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock, which may be earned by
the achievement of performance goals, awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time during which an Award may be
forfeited to the Company pursuant to the terms and conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
--------------
2
<PAGE>
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
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 __________ 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
-------------
3
<PAGE>
(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
------------------
4
<PAGE>
(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.
5
<PAGE>
(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.
6
<PAGE>
(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 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
7
<PAGE>
and whose election or nomination for election by the Company's
stockholders at the beginning of his or her current tenure was
approved by a vote of at least a majority of the Directors who
were then Incumbent Directors, except that no individual shall be
an Incumbent Director if such individual's initial assumption of
office as a Director occurred as a result of an actual or
threatened election contest with respect to the election or
removal of Directors, or other actual or threatened solicitation
of proxies or consents, by, or on behalf of, a Person other than
the Board.
(C) The consummation of a reorganization, merger, consolidation, sale
or other disposition of all or substantially all of the assets of
the Company, or similar transaction (a "Business Combination"),
unless all of the following conditions are met:
(1) the individuals and entities who are the beneficial owners
of the Company's Outstanding Voting Securities immediately
before the consummation of the Business Combination would
beneficially own, directly or indirectly, securities
representing more than 50% of the outstanding combined
voting power of the voting securities that would be
outstanding and entitled to vote generally in the election
of the governing body of the corporation or other entity
resulting from such Business Combination (including, without
limitation, a corporation or other entity that as a result
of such transaction would own the Company or all or
substantially all of the Company's assets, either directly
or through one or more subsidiaries) (the "Resulting
Entity"), and the securities of the Resulting Entity that
would be owned by such beneficial owners of the Company's
Outstanding Voting Securities would be owned by them in
substantially the same proportions as they own the Company's
Outstanding Voting Securities;
(2) no Person (excluding any corporation or other entity
resulting from such Business Combination, and excluding any
employee benefit plan or related trust of the Company or of
such corporation or other entity resulting from such
Business Combination) would beneficially own, directly or
indirectly, 30% or more of the combined voting power of the
outstanding voting securities of the Resulting Entity except
to the extent that such ownership existed before the
Business Combination; and
(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.
8
<PAGE>
(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."
(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
9
<PAGE>
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.
(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.
. Increase in shares issuable 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.
. Increase in shares issuable adopted by the Board of Directors
February 11, 1997 and approved by the Shareholders May 23, 1997.
. Increase in shares issuable adopted by the Board of Directors April
14, 1998 and approved by the Shareholders May 21, 1998.
11
<PAGE>
EXHIBIT 10.2
DATAWARE TECHNOLOGIES, INC.
1993 EMPLOYEE STOCK PURCHASE PLAN
Section 1. Purpose
- -------------------
The purpose of this 1993 Employee Stock Purchase Plan (the "Plan") is to
provide employees (referred to in this Plan as "associates") of Dataware
Technologies, Inc. (the "Company") and its subsidiaries the opportunity to
purchase shares (the "Shares") of the Company's Common Stock. The Plan is
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code of 1954, as amended (the "Code").
Section 2. Eligible Associates
- -------------------------------
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
has been in the full-time employment (as defined below) of the Company, or any
of its subsidiaries (as defined in Section 425(f) of the Code) the employees of
which are designated from time to time by the Board of Directors as eligible to
participate in the Plan, for the six (6) month period before the day on which an
Offering Date (as defined in Section 3 below) occurs is eligible to participate
in any Offering (as defined in Section 3 below) made by the Company hereunder.
Full-time employment shall include all associates whose customary employment is:
(a) 20 hours or more per week and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
Section 3. Offering Dates
- --------------------------
From time to time, the Company, by action of the Board of Directors, will
grant rights to purchase Shares to associates eligible to participate in the
Plan pursuant to one or more offerings (each of which is an "Offering") on a
date or series of dates (each of which is an "Offering Date") designated for
this purpose by the Board of Directors.
Section 4. Prices
- ------------------
The price per share for each grant of rights hereunder shall be the lesser
of:
(a) eighty-five percent (85%) of the fair market value of a Share on
the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on
the date such right is exercised.
1
<PAGE>
At its discretion, the Board of Directors may determine a higher price for a
grant of rights.
Section 5. Exercise of Rights and Method of Payment
- ----------------------------------------------------
(a) Unless sooner cancelled by the associate pursuant to Section 10,
rights granted under the Plan will be exercised automatically and irrevocably,
in each case for a whole number of shares, periodically on specified dates
(each, and "Exercise Date") determined by the Board of Directors pursuant to
Section 6.
(b) The method of payment for Shares purchased upon exercise of rights
granted hereunder shall be through regular payroll deductions or by lump sum
cash payment or both, as determined by the Board of Directors. No interest
shall be paid upon payroll deductions unless specifically provided for by the
Board of Directors.
(c) Any payments or deductions received by the Company from a
participating associate and not utilized for the purchase of Shares upon
exercise of rights granted hereunder shall be promptly returned to such
associate by the Company after termination or cancellation of the right to which
the payment relates.
Section 6. Term of Rights
- --------------------------
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when
it authorizes an Offering shall determine the length of the Offering Period and
may designate one or more Exercise Dates during the Offering Period. In any
event, the last day of each Offering Period shall be an Exercise Date. Rights
granted on an Offering Date shall be exercisable in full on the Offering Date or
in such proportion on each Exercise Date as the Board of Directors determines.
Section 7. Shares Subject to the Plan
- --------------------------------------
No more than Eight Hundred Fifty Thousand (850,000) Shares may be sold
pursuant to rights granted under the Plan. Appropriate adjustments in the above
figure, in the number of Shares covered by outstanding rights granted hereunder,
in the exercise price of the rights and in the maximum number of Shares that an
associate may purchase (pursuant to Section 9 below) shall be made to give
effect to any mergers, consolidations, reorganizations, recapitalizations, stock
splits, stock dividends or other relevant changes in the capitalization of the
Company occurring after the effective date of the Plan, provided that no
fractional Shares shall be issuable hereunder. Any agreement of merger or
consolidation shall include provisions for protection of the then existing
rights of participating associates under the Plan. Either authorized and
unissued Shares or issued Shares heretofore or hereafter reacquired by the
Company may be made subject to rights under the Plan. If for any reason any
right under the Plan terminates in whole or in part, Shares subject to such
terminated right may again be made subject to a right under the Plan.
Section 8. Limitations on Grants
- ---------------------------------
(a) No associate shall be granted a right hereunder if such associate,
immediately after the right is granted, would own stock or rights to purchase
stock possessing five percent
2
<PAGE>
(5%) or more of the total combined voting power or value of all classes of stock
of the Company, or of any subsidiary, computed in accordance with Section
423(b)(3) of the Code.
(b) No associate shall be granted a right, if, after such grant, his right
to purchase shares under all employee stock purchase plans of the Company and
its subsidiaries would accrue at a rate that exceeds twenty-five thousand
dollars ($25,000) (or such other maximum as may be prescribed from time to time
by the Code) of the fair market value of such Shares (determined at the time
such right is granted) for each calendar year in which such right is outstanding
at any time in accordance with the provisions of Section 423(b)(8) of the Code.
(c) No right granted to any participating associate under an Offering,
when aggregated with rights granted under any other Offering still exercisable
by such associate, shall cover more shares than may be purchased at an exercise
price not to exceed fifteen percent (15%) of the associate's annual rate of
compensation on the date the associate elects to participate in the Offering, or
such lesser percentage as the Board of Directors may determine.
Section 9. Limit on Participation
- ----------------------------------
Participation in an Offering shall be limited to eligible associates who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
Section 10. Cancellation of Election to Participate
- ----------------------------------------------------
An associate who has elected to participate in an Offering may cancel such
election as to all (but not part) of the unexercised rights granted under such
Offering by giving written notice of such cancellation to the Company at any
time during the Offering. All amounts paid by the associate for the Shares or
withheld for the purchase of Shares from the associate's compensation through
payroll deductions that have not then been used for the purchase of Shares upon
a prior Exercise Date shall be paid to the associate, without interest, unless
otherwise determined by the Board of Directors, upon such cancellation.
Section 11. Termination of Employment
- --------------------------------------
Upon the termination of a participating associate's employment for any
reason, including the death of the associate, during an Offering, all such
unexercised rights to purchase Shares held by the associate shall immediately
terminate and amounts paid by the associate for the Shares or withheld for the
purchase of Shares from the associate's compensation through payroll deductions
that have not then been used for the purchase of Shares upon a prior Exercise
Date shall be paid to the associate or to the associate's estate, without
interest unless otherwise determined by the Board of Directors.
Section 12. Associate's Rights as Stockholder
- ----------------------------------------------
No participating associate shall have any rights as a stockholder in the
Shares subject to a right granted hereunder until such right has been exercised
and full payment has been made for such Shares.
3
<PAGE>
Section 13. Rights Not Transferable
- ------------------------------------
Rights under the Plan are not assignable or transferable by a participating
associate and are exercisable only by the associate.
Section 14. Amendments to or Discontinuation of the Plan
- ---------------------------------------------------------
The Board of Directors of the Company shall have the right to amend, modify
or terminate the Plan at any time without notice; provided, however, that the
then existing rights of all participating associates shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, the total number of Shares that may be offered under the Plan
may not be increased without the approval of the stockholders of the Company.
Section 15. Effective Date and Approvals
- -----------------------------------------
Subject to the approval of the stockholders of the Company, this Plan shall
be effective on May 19, 1993, the date it was adopted by the Board of Directors.
Approval of this Plan by the stockholders shall be secured within twelve (12)
months after the date of such adoption.
The Company's obligation to offer, sell and deliver its Shares under the
Plan is subject to (i) the approval of any governmental authority required in
connection with the authorization, issuance or sale of such Shares, (ii)
satisfaction of the listing or quotation requirements of any national securities
exchange or national market system on which the Shares are then listed or quoted
and (iii) compliance, in the opinion of the Company's counsel, with all
applicable federal and state securities and other laws.
Section 16. Term of Plan
- -------------------------
No rights shall be granted under the Plan after May 19, 2003.
Section 17. Administration of the Plan
- ---------------------------------------
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan as it deems necessary to meet special circumstances not
anticipated or covered expressly by the Plan. In the event that the Board of
Directors delegates such authority to a committee of the Board, all references
herein to the "Board of Directors" shall be deemed to be references to such
Committee. Nothing contained in this Section shall be deemed to authorize the
Administrator to alter or administer the provisions of the Plan in a manner
inconsistent with the provisions of Section 423 of the Code.
________________________________________
. Plan adopted by the Board of Directors on May 19, 1993.
. Plan approved by the stockholders on May 19, 1993.
. Increase in shares issuable adopted by the Board of Directors April
14, 1998 and approved by the Shareholders May 21, 1998.
4
<PAGE>
EXHIBIT 10.6
December 31, 1998
Mr. Kurt Mueller
Dataware Technologies, Inc.
One Canal Park
Cambridge, MA 02141
Dear Mr. Mueller:
This letter will confirm the agreements that we have reached concerning the
termination of your employment from Dataware Technologies, Inc. following the
Sovereign Hill acquisition and the compensation package that we have agreed to
as a condition of such termination and in consideration of the continuing
services you have agreed to provide.
1. Your active employment with Dataware will cease at the close of business on
December 31, 1998. Dataware will pay you any accrued salary and other
compensation to which you are entitled, including your 1998 bonus, when
payable in the ordinary course, and will reimburse you for all outstanding
business expenses you have incurred in the performance of your duties
promptly upon presentation of customary documentation.
2. Your outstanding stock options under the Dataware 1993 Equity Incentive Plan
(the "Plan") are hereby amended to provide that they will not terminate as a
result of the termination of your employment but will remain exercisable
until the respective expiration dates provided therein. All such options
will continue to vest in accordance with their respective terms as long as
you are still active with the company as a director. To the extent not
already provided, vesting of such options will be accelerated, such that all
such stock options shall become exercisable in full, upon a "change in
control" of Dataware, as defined in the Plan, that occurs while you are a
director.
3. You have agreed to act as a consultant for Dataware until June 30, 2000 (the
"Transition Period") to perform the items listed in the transition memo to
you dated December 31, 1998 and such other services as may be agreed between
you and the President or Board of Directors of Dataware. You agree that you
will make yourself available to work on such matters on a full-time basis
through June 30, 1999, subject to reasonable outside commitments consistent
with those you have heretofore observed and to prorated vacation and
personal time at the same rates to which you are currently entitled.
Thereafter, the Company may request that you work on such matters for up to
2-3 days per month on average during the 12-month period from July 1, 1999
through June 30, 2000; provided that you shall not be required to do so.
4. Dataware will provide you the compensation described in this paragraph
during the Transition Period. Dataware will continue your salary payments at
your current rate through June 30, 1999, and will pay you 50% of the 1999
bonus allocable to you under the 1999 executive compensation plan, when
payable in the ordinary course. From July 1, 1999 through June 30, 2000,
Dataware will pay you a monthly amount equal to your monthly average total
compensation earned with respect to the fiscal years 1997 and 1998. If
additional time is required by Dataware and mutually agreed upon, you will
be paid $3000.00 per day of such additional time. During the Transition
Period, Dataware will continue to provide you with all employee and fringe
benefits, including without limitation medical and disability coverage and
use as needed of an apartment in Cambridge rented by Dataware, that you have
been receiving as President.
5. During the Transition Period, Dataware will provide you with a telephone,
email, and a portable PC, which you will return when such services
terminate. Dataware shall continue to reimburse you for business expenses
incurred in the performance of your consulting services, including without
limitation for travel to and from Germany, subject to Dataware's customary
policies..
6. After the Transition Period, you shall be entitled to receive extended
medical coverage at the group rate under COBRA by paying the applicable
premium until you secure comparable coverage from
<PAGE>
another source or for eighteen months, whichever is less. You will receive a
separate notice of your COBRA rights.
7. You acknowledge that you shall continue to be bound by your non-competition,
non-disclosure, and assignment of inventions agreements with Dataware during
the Transition Period. Your obligations under your noncompetition shall
continue for one year after the Transition Period, and your obligations
under your non-disclosure agreement shall continue as provided therein.
Copies of those agreements will be provided to you upon request.
8. You shall remain a director of Dataware, subject to resignation, removal,
and the other provisions of the Restated Certificate of Incorporation and
Bylaws, and shall be reimbursed for your expenses as a director. Assuming
you remain a director following the Transition Period, you shall be eligible
to receive meeting fees on the same basis as other nonemployee directors
beginning with the first meeting of the Board of Directors after the
Transition Period. You shall become eligible to receive stock options under
the Dataware 1993 Director Stock Option Plan or other equity compensation
provided to nonemployee directors effective upon the 2000 Annual Meeting of
Stockholders.
9. You agree that you shall hereafter be an independent contractor and not an
employee of Dataware; provided that Dataware may withhold such taxes from
any amounts payable to you as may be required by law.
10. In exchange for the payments and the other benefits outlined above, you
hereby fully, forever, irrevocably and unconditionally release, remise and
discharge Dataware from any and all manner of claims, charges, complaints,
demands, actions, causes of action, suits, rights, debts, dues, sums of
money, costs, losses, accounts, reckonings, covenants, contracts, promises,
liabilities and expenses (including attorney's fees and costs), of every
kind and nature whatsoever, whether known or unknown, either at law in
equity, or mixed which you ever had, now has or may have by reason of any
matter or thing which has happened, developed, or occurred before the
signing of this Agreement, including, but not in limitation of the foregoing
general terms, any claims, asserted or unasserted, arising from your
employment with or separation from Dataware, and specifically including any
claims you may have under any federal or state labor, employment or
discrimination laws, including but not limited to, Title VII of the Civil
Rights Act of 1964, as amended, the Age Discrimination In Employment Act of
1967, as amended, the Fair Labor Standards Act of 1938, as amended, the
Americans with Disabilities Act of 1992, Chapter 151B of the Massachusetts
General Laws, Sections 24A-24J of Chapter 149 of the Massachusetts General
Laws, the Massachusetts Civil Rights Act, the Massachusetts Equal Rights
Law, or at common law, but excluding (i) any claims under this Agreement,
-------------
(ii) any and all rights you have as a stockholder or holder of stock options
of Dataware, (iii) your rights to indemnification by reason of your service
as a director, officer, or agent of Dataware under the Restated Certificate
of Incorporation and Bylaws or otherwise, and (iv) any and all other rights
you have as a director of Dataware. Subject to the foregoing exclusions, it
is expressly agreed and understood that this release is a General Release.
11. This Agreement shall be governed by Massachusetts law. This Agreement
contains the entire agreement between you and Dataware concerning payment of
severance or other compensation following the termination of your employment
and supersedes all prior agreements and understandings, written or oral,
including without limitation the letter agreement dated October 28, 1988,
which is hereby terminated.
Since this is a binding legal document, you should consider it carefully before
signing. You should consult with an attorney if you wish to do so. If you wish
to accept the severance package as set out in this letter please sign the
enclosed copy of this letter and return it to me. You may have up to fourteen
days to decide whether to accept this severance agreement and release and you
may have up to seven days after signing to rescind your acceptance. Therefore
the agreement will not become binding until seven days after you have accepted
it.
<PAGE>
Sincerely,
/s/ Michael Gonnerman
Michael Gonnerman
Vice President and Chief Financial Officer
I have read the foregoing terms, fully understand them and freely accept them.
/s/ Kurt Mueller 1/12/99
- ----------------------------------- ----------------
Kurt Mueller Date
<PAGE>
EXHIBIT 10.9
** CONFIDENTIAL **
December 31, 1998
Mr. David Mahoney
President and CEO
Sovereign Hill Software, Inc.
100 Venture Way
Hadley, MA 01035
Dear Dave;
I am very pleased to confirm our offer to you to join Dataware Technologies,
Inc. as President & Chief Executive Officer, reporting to the Dataware
Technologies, Inc. board of directors.
The terms of our offer of employment are summarized in the attached Proposed
Employment Terms.
In order to accept this position, please sign a copy of this letter and return
it to me, retaining a copy for your records.
We are looking forward to working with you at Dataware.
Best regards,
DATAWARE TECHNOLOGIES, INC.
/s/ Kurt Mueller
Kurt Mueller
Chairman
Offer Accepted:
By /s/ David Mahoney Date 12/31/98
----------------- --------------
Enclosure
- ---------
<PAGE>
DAVID MAHONEY
PROPOSED EMPLOYMENT TERMS
Position: President and Chief Executive Officer, reporting to the Dataware
- --------
Technologies, Inc. board of directors. Member of the Dataware
board of directors.
Term: Your employment will commence on January 1, 1999 (the "Start
- ----
Date"). Employment with Dataware can be terminated at any time
at your option or the Company's.
Base Salary: $182,200 per year, payable semi-monthly.
- -----------
Auto: $7,800 per year auto allowance, payable semi-monthly.
- -----
Bonus: $100,000 per calendar year at plan. Bonus will be based 100% on
- -----
overall company performance - 50% on revenue growth and 50% on
profit achievement. The revenue component of the bonus is
uncapped. For 1999, 25% of the bonus ($25,000) will be
guaranteed, subject to board approval. No bonus participation
for 1998.
Benefits: You will be entitled to medical, dental, disability, and life
- --------
insurance, 15 days paid vacation, 5 paid personal days and 5 paid
sick days (accruing in proportion to the time worked during a
calendar year) and 10 paid holidays per calendar year and other
benefits provided to our executive employees. You may substitute
your existing life insurance for the Company life insurance, and
the Company will reimburse you up to $5,000 per year in premiums.
Expenses: You will be reimbursed for reasonable business related
- --------
expenses, in accordance with the Company travel policy. Mileage
reimbursements for business-related travel by private car will be
at the latest IRS approved rate.
Equity: A stock option for 415,000 shares will be granted to you by the
- -------
Dataware Board of Directors. The exercise price will be the fair
market value on the date of the grant, defined as the closing
price on the day before. The vesting is as follows:
25,000 Immediately
25,000 June 30, 1999
91,250 December 31, 1999
91,250 December 31, 2000
91,250 December 31, 2001
91,250 December 31, 2002
Vesting will be accelerated should the Company be acquired or
merged with another company.
Severance: Should the Company terminate you "without cause" or should the
- ----------
Company be acquired or merged with another company, and as a
result, your employment with the Company is terminated, the
Company will continue your base salary for a period of six (6)
months, plus one additional month for each full year of service
with the Company. Total severance will be limited to twelve (12)
months base salary plus earned pro-rata bonus. Severance payment
will be reduced by any amounts you receive from subsequent
employment during the severance period.
<PAGE>
Other: You will sign non-disclosure and non-competition agreements
- -----
satisfactory to the Company prior to your start date. You will
also need to certify that you have no outstanding non-disclosure
or non-compete obligations that would interfere with your full-
time employment by Dataware.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Jurisdiction of Organization
- ---------- ----------------------------
Dataware Technologies (UK) Ltd. England
Dataware Technologies Pte Ltd. Singapore
Dataware Technologies A/S Denmark
Creative Multimedia Corporation Oregon
Green Book International Corporation Canada
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Dataware Technologies, on Form S-3 (File Nos. 333-27007 and
333-39633) and Form S-8 (File Nos. 33-70498, 33-70500, 33-79824, 333-04487,
333-28545, 333-56691 and 333-56693) of our report dated February 11, 1999,
appearing on page 19 of Dataware Technologies, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998.
/s/ PricewaterhouseCoopers LLP
----------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,468
<SECURITIES> 0
<RECEIVABLES> 5,094
<ALLOWANCES> 846
<INVENTORY> 0
<CURRENT-ASSETS> 18,071
<PP&E> 11,042
<DEPRECIATION> 7,648
<TOTAL-ASSETS> 28,749
<CURRENT-LIABILITIES> 12,396
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 16,258
<TOTAL-LIABILITY-AND-EQUITY> 28,749
<SALES> 32,990
<TOTAL-REVENUES> 32,990
<CGS> 10,199
<TOTAL-COSTS> 10,199
<OTHER-EXPENSES> 23,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (102)
<INCOME-TAX> 105
<INCOME-CONTINUING> (207)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<PAGE>
Exhibit 99.1
DATAWARE TECHNOLOGIES, INC.
Important Risk Factors Regarding Future Results
Our SEC filings or other public announcements may contain "forward-looking
statements." These are statements that relate to the future and include
statements about our:
. projected financial performance;
. market opportunities;
. product development;
. commercialization of new products; and
. future operations.
These statements can be identified by the use of words like "may," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words. These
statements are necessarily based on management's knowledge at the time.
Although we believe that the assumptions and expectations reflected in such
"forward-looking statements" are reasonable, you should not view them as
guarantees of future performance.
All statements like this are subject to known and unknown risks and
uncertainties and other factors that could cause our actual results to differ
materially from those contemplated by the statements. Important factors that
could cause future results to differ materially from those projected in the
forward-looking statements include those discussed below and others.
We may not be able to respond to rapid technological changes in the market for
our products and services.
With the recent popularity of the Internet and internal corporate "intranets,"
the market for information management and distribution products and services
continues to change rapidly. We will not be successful if we do not keep up
with changing technology and customer demands, including next-generation user
interfaces, semantic modeling and collaborative filtering technologies and other
features introduced by competitors. This depends in large part on whether we
can continue to hire and retain personnel with the necessary skills and
creativity and providing adequate funding for development efforts. As with any
new product, our most innovative offerings may be subject to delays in
production and will require a period of adjustment to ensure that they are
meeting customer requirements.
We currently rely heavily on indirect distribution channels, such as value-added
resellers. Our inability to develop and effectively manage these relationships
without disruption also could have a material adverse effect on our business.
We may not be able to retain key personnel.
Our success depends on our ability to attract and retain highly skilled
technical, management, sales and marketing personnel. We cannot assure you that
we will be successful in attracting and retaining such personnel. Competition
for such personnel in the computer software and services industry is intense,
and we are always at risk of losing key personnel to competitors. Our ability
to provide competitive equity
<PAGE>
compensation to key employees plays a significant role in personnel retention.
Unless the market price of our common stock rises, we may not be able to do
this.
Intense competition may hurt our results.
The markets in which we compete are intensely competitive. Our competition
varies by:
. geography (North America, Europe, Asia);
. type of customer (commercial, corporate, government agency);
. market segment; and
. application category (from high-end, complete software and service solutions
to pure software sales).
Our competitors include traditional information retrieval competitors, as well
as very significant potential players such as Lotus (IBM), Netscape and
Microsoft, all of whom approach knowledge management system development from a
different product base. It is likely that new competitors will enter the
markets as they continue to grow. Furthermore, as the markets grow, a number of
companies could attempt to increase their presence in the markets we serve by
acquiring or forming strategic alliances with our competitors or by introducing
products or services specifically designed for these markets. Compared to us,
many of our current and future competitors have longer operating histories and
significantly greater financial, technical, sales, marketing and other
resources.
We may not be able to respond effectively to market or technological changes or
to compete successfully with current and future competitors. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could have a material adverse effect on our business,
operating results and financial condition.
Distribution agreement with a key customer may affect future results.
Historically, we distributed our products and services largely through direct
channels. In September 1997, we sold a portion of our data services business to
Information Handling Services Group, Inc. and entered into a distribution
agreement with IHS, under which IHS took over the software distribution
activities previously performed by five of our foreign subsidiaries. IHS is now
our biggest customer, accounting for 28% of total revenues in 1998. In
addition, we provide software and multimedia services for use by IHS internally
and in its publishing activities. Our results of operations may be
significantly affected by factors such as:
. the extent to which IHS is able to perform the same types of services we
provided before the sale and the quality of such services;
. the ability of IHS to distribute our software effectively;
. increased competition that may result from IHS' access to our customers and
former employees; and
. the quality of the ongoing relationships with IHS.
2
<PAGE>
Fluctuations in quarterly results may affect operations.
We have experienced, and may continue to experience, significant quarterly
fluctuations in our operating results. Our revenue from software license fees
are substantially dependent on factors such as the following:
. the timing of product shipments and receipt of license reports for sales
that are often difficult to forecast;
. our ability to close significant sales in any quarter;
. external market conditions; and
. competition.
Changes in such factors may result in a material variation between forecasted
quarterly results and actual results. Moreover, a disproportionately large
percentage of quarterly sales occur in the closing weeks of each quarter, thus
making any prediction of quarterly results before the end of a quarter
potentially unreliable. Given these variations, we cannot assure you that we
will be consistently profitable during any particular period.
Cash requirements may reduce flexibility in operations.
In recent years we have had significant operating losses. Although we believe
that our liquid assets and anticipated cash from operations will be sufficient
to meet our liquidity needs for the foreseeable future, our working capital and
other capital requirements may change because of factors such as the following:
. unanticipated changes in business conditions or delays in market acceptance
of new products;
. expansion of operations or research and development activities;
. development of new distribution channels;
. competitive and technological developments;
. costs of remediation of Year 2000 computer problems; and
. possible future acquisitions of businesses and/or product rights.
We cannot assure you that we will not experience liquidity problems because of
adverse market conditions, changes in the economy or other unfavorable events.
Factors affecting certain classes of customers may hurt our results.
Our revenues depend on distributors maintaining relationships with certain
classes of customers, including:
. government agencies in the United States, Canada, Germany and the United
Kingdom;
. corporate and commercial publishers, and law firms (for certain on-line
products);
. financial printers, issuers of securities; and
. financial services and health care organizations.
Factors that affect any of these customer groups may have a substantial adverse
effect on our earnings. For example, political pressures may cause governmental
customers to reduce spending on our products
3
<PAGE>
and services. A reduction in the amount of orders received from any customer
class would have a material adverse effect on our earnings and may cause actual
results to vary materially from quarter to quarter.
Failure to protect our proprietary intellectual property rights may hurt our
results.
Our success also depends on protecting our proprietary intellectual property
rights. We rely primarily on a combination of copyright, trademark and trade
secret laws, license agreements, employee and third party non-disclosure
agreements and other methods to protect our software. We do not rely on patent
protection for our software products and existing copyright laws afford only
limited protection.
Other factors also create risks in this area. For example, it is difficult to
protect proprietary rights in certain international markets such as South
America, the Middle East, the Pacific Rim and the Far East, where foreign laws
do not offer the same intellectual property protection as U.S. law.
Third parties may claim we are infringing their rights. If such claims are
made, they may result in costly litigation or require us to license intellectual
property rights of others, which may not be possible on reasonable terms or at
all. Any such claims, with or without merit, can be time consuming and
expensive to defend, which can adversely affect our financial condition.
International market changes may affect overall sales.
We generate a significant portion of our revenues from international sales.
Currently, we have direct sales organizations in the United Kingdom, Denmark and
Singapore and have distribution agreements covering other European countries,
the Pacific Rim, and South America. Risks of doing business abroad include:
. regional economic trends such as the turmoil in the economies of Asia
beginning in 1997 and Brazil in 1998;
. disruptions due to the conversion of the European currencies to the Euro;
. changes in the value of major foreign currencies in which we conduct business;
. unanticipated changes in regulatory requirements, tariffs and other barriers;
. political instability; and
. difficulties in managing foreign operations.
These or other factors may have a material adverse effect on
. our international sales;
. our ability to collect international receivables;
. the value of our assets denominated in foreign currencies;
any of which would impact our operating results.
We may have difficulty integrating acquisitions into our business.
Over the last several years, we have expanded our product range and customer
base through a number of selective acquisitions. We may acquire additional
businesses or assets in the future. The success of an
4
<PAGE>
acquisition is dependent upon our ability to integrate the acquired business or
assets into our organization. For example, we may have difficulty integrating
acquired technology into our products, or we may not be able to retain, motivate
or manage key employees of the acquired company. Our inability to integrate an
acquired business, or an increase in the cost of integration, could materially
and adversely affect our business, operating results and financial condition.
We may be affected by Year 2000 errors in computing systems.
The "Year 2000 problem" may have a material adverse effect on our operating
results if our products and systems are not Year 2000 compliant or if those of
our principal suppliers and/or customers are not Year 2000 compliant.
We have initiated a comprehensive program to try to assess this potential effect
of the year 2000 problem and to remedy any deficiencies where possible. More
information is contained in the "Management's Discussion and Analysis" section
of each of our recent SEC reports. This program is not complete, and we cannot
assure you that it will be successful. In addition, we do not know the full
extent of the impact on our business if such problems cannot be assessed or
remedied; however the impact may be material to our business.
5
