-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E5fKzfZzRwbB7HYCGPNYwyCL37bgGnrJke2Q/j99zRosRlICtEBWv3IC2sZ4Y7nH lkfd1BVwSyeltBK28mV6VA== 0000927016-99-003002.txt : 19990817 0000927016-99-003002.hdr.sgml : 19990817 ACCESSION NUMBER: 0000927016-99-003002 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATAWARE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000875942 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 061232140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-21860 FILM NUMBER: 99691497 BUSINESS ADDRESS: STREET 1: ONE CANAL PARK STREET 2: SUITE 3300 CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176210820 MAIL ADDRESS: STREET 1: 222 THIRD STREET STREET 2: SUITE 3300 CITY: CAMBRIDGE STATE: MA ZIP: 02142 10-Q/A 1 FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1999 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 (IRS Employer Identification No.) incorporation or organization) One Canal Park 02141 Cambridge, MA (Zip Code) (Address of principal executive offices) 617-621-0820 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Number of shares outstanding of the issuer's classes of common stock as of July 30, 1999: Class Number of Shares Outstanding ------------------------------------- ---------------------------- Common Stock, par value $.01 per share 9,607,975 DATAWARE TECHNOLOGIES, INC. This Amended and Restated Form 10-Q amends the Form 10-Q filed by Dataware Technologies, Inc. on August 4, 1999 by adding Part II, Item 4 (Submission of Matters to a Vote of Security Holders) and Exhibit 10.1 and, as so amended, restates the Form 10-Q in its entirety. INDEX PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 3 Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports Filed on Form 8-K 13 SIGNATURE 14 EXHIBIT INDEX 15 2 Part 1. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Dataware Technologies, Inc. Consolidated Balance Sheets (In thousands, except share data)
June 30, December 31, 1999 1998 ----------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,128 $ 12,468 Accounts receivable, less allowance for doubtful accounts of $946 and $846 at June 30, 1999 and December 31, 1998, respectively 4,795 4,248 Prepaid expenses and other current assets 1,169 1,355 ---------- --------- Total current assets 18,092 18,071 Property and equipment, net 3,335 3,394 Computer software costs, net 3,128 3,540 Investment in Northern Light, LLC 256 512 Goodwill, net 2,908 3,232 ---------- --------- Total assets $ 27,719 $ 28,749 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 1,350 $ 1,350 Accounts payable 1,652 2,538 Accrued acquisition-related costs 193 578 Accrued non-recurring charges 357 559 Accrued compensation 1,473 1,976 Other accrued expenses 2,184 2,345 Income taxes payable 638 720 Deferred revenue 3,877 2,330 ---------- --------- Total current liabilities 11,724 12,396 ---------- --------- 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; 9,586,403 shares issued and 9,512,403 shares outstanding at June 30, 1999; 9,465,305 shares issued and 9,391,305 shares outstanding at December 31, 1998 96 95 Additional paid-in capital 47,841 47,323 Accumulated deficit (31,434) (30,625) Accumulated other comprehensive loss (250) (182) Treasury stock, 74,000 shares at cost (258) (258) ---------- --------- Total stockholders' equity 15,995 16,353 ---------- --------- Total liabilities and stockholders' equity $ 27,719 $ 28,749 ========== =========
The accompanying notes are an integral part of the consolidated financial statements 3 Dataware Technologies, Inc. Consolidated Statements of Operations (In thousands except per share data) (unaudited)
Three months ended Six months ended June 30, June 30, 1999 1998 1999 1998 ---------- ------------- ----------- -------------- Revenues: Software license fees $ 2,865 $ 4,761 $ 6,794 $ 9,361 Services 3,139 3,341 6,269 6,578 ----------- ------------- ----------- -------------- Total revenues 6,004 8,102 13,063 15,939 ----------- ------------- ----------- -------------- Cost of revenues: Software license fees 795 584 1,659 1,039 Services 2,438 1,792 4,507 3,730 ----------- ------------- ----------- -------------- Total cost of revenues 3,233 2,376 6,166 4,769 ----------- ------------- ----------- -------------- Gross profit 2,771 5,726 6,897 11,170 ----------- ------------- ----------- -------------- Operating expenses: Sales and marketing 3,522 2,808 6,385 5,480 Product development 1,739 1,557 3,777 3,079 General and administrative 1,885 1,263 3,083 2,487 Acquired in-process research and development --- --- --- 450 ----------- ------------- ----------- -------------- Total operating expenses 7,146 5,628 13,245 11,496 ----------- ------------- ----------- -------------- Income (loss) from operations (4,375) 98 (6,348) (326) Interest income, net 73 134 478 224 Gain on Investment in Northern Light, LLC 5,056 --- 5,056 --- Other income (expense), net 61 (18) 18 (25) ----------- ------------- ----------- -------------- Income (loss) before income taxes 815 214 (796) (127) Provision for income taxes 13 --- 13 --- ----------- ------------- ----------- -------------- Net income (loss) $ 802 $ 214 $ (809) $ (127) =========== ============= =========== ============== Net income (loss) per common share -- basic $ 0.08 $ 0.02 $ (0.09) $ (0.01) =========== ============= =========== ============== Net income (loss) per common share -- diluted $ 0.08 $ 0.02 $ (0.09) $ (0.01) =========== ============= =========== ============== Weighted average number of common shares outstanding -- basic 9,501 9,358 9,465 9,327 =========== ============= =========== ============== Weighted average number of common shares outstanding -- diluted 9,565 9,782 9,465 9,327 =========== ============= =========== ==============
The accompanying notes are an integral part of the consolidated financial statements 4 Dataware Technologies, Inc. Consolidated Statements of Cash Flows (In thousands) (unaudited)
Six months ended June 30, 1999 1998 -------- -------- Cash flows provided by (used in) operating activities: Net loss $ (809) $ (127) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,521 1,917 Provision for doubtful accounts 184 449 Gain on Investment in Northern Light LLC (5,056) -- Gain on foreign currency transactions (44) (29) Acquired in-process research and development -- 450 Stock options issued to consultants and partners 116 8 Changes in operating assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (926) 3,089 Prepaid expenses and other current assets 154 272 Accounts payable (859) (1,004) Accrued expenses and compensation (864) (1,548) Accrued acquisition costs (140) (691) Income taxes payable (77) (40) Deferred revenue 1,645 (398) -------- ------- Net cash provided by (used in) operating activities (4,155) 2,348 -------- ------- Cash flows provided by (used in) investing activities: Additions to property and equipment (812) (633) Acquisition of business -- (450) Proceeds from investment in Northern Light LLC, net of costs incurred 5,312 -- Acquisition of third party software license (130) (1,040) Additions to capitalized software costs (801) (946) -------- ------- Net cash provided by (used in) investing activities 3,569 (3,069) -------- ------- Cash flows provided by financing activities: Proceeds from issuance of common stock and exercise of stock options 204 286 -------- ------- Net cash provided by financing activities 204 286 -------- ------- Effect of exchange rate changes on cash and cash equivalents 42 72 -------- ------- Net change in cash and cash equivalents (340) (363) Cash and cash equivalents at beginning of period 12,468 13,231 -------- ------- Cash and cash equivalents at end of period $ 12,128 $12,868 ======== ======= Supplemental disclosure of non-cash operating and financing transaction: Waiver of escrow shares transferred from accrued liabilities to additional paid-in capital $ 200 $ -- ======== =======
The accompanying notes are an integral part of the consolidated financial statements. 5 DATAWARE TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) A. Basis of Presentation These consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and the financial statements and footnotes included therein. The interim financial data as of June 30, 1999 and for the six months ended June 30, 1999 and June 30, 1998 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to Securities and Exchange Commission rules and regulations. B. 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." The following table reconciles the numerator and denominator of the basic and diluted earnings per share computations shown in the Consolidated Statements of Operations:
For the Three Months Ended June 30, For the Six Months Ended June 30, (In thousands, except per share data) 1999 1998 1999 1998 ---- ---- ---- ---- Basic and Diluted EPS Numerator: Net income (loss) $ 802 $ 214 $ (809) $ (127) ====================================================================== Denominator: Common shares outstanding-basic 9,501 9,358 9,465 9,327 Dilutive options 64 352 ---- ---- Dilutive warrants ---- 72 ---- ---- ---------------------------------------------------------------------- Common shares outstanding-diluted 9,565 9,782 9,465 9,327 ====================================================================== Basic and Diluted EPS $ 0.08 $ 0.02 $(0.09) $(0.01) ======================================================================
Options to purchase 280,396 and 2,677,227 shares of common stock outstanding with weighted average exercise prices of $6.12 and $2.53 as of the three month periods ended June 30, 1998 and 1999, respectively, and 351,645 and 1,995,461 shares of common stock outstanding with weighted average exercise prices of $5.60 and $3.04 as of the six month periods ended June 30, 1998 and 1999, respectively, were excluded from the calculation of diluted net income (loss) per share as the effect of their inclusion would have been anti-dilutive. C. Comprehensive Income (Loss) The Company's comprehensive earnings were as follows:
For the Three Months Ended June 30, For the Six Months Ended June 30, (In thousands) 1999 1998 1999 1998 ------ ------ ------ ------ Net income (loss) $802 $ 214 $(809) $(127) Foreign currency translation adjustment (19) (10) (68) 23 ---------------------------------------------------------------------- Total comprehensive income (loss) $ 783 $ 204 $(877) $(104) ======================================================================
6 D. New Accounting Standard On June 15, 1998, the Financial Accounting Standards Board issued SFAS 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for fiscal years beginning after June 15, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair values. Changes in fair values of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. The Company has not yet completed the evaluation of the impact of the adoption of this new standard; however, it is not expected to have an impact on the Company's results in the near term. E. 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 related 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 knowledge management and professional electronic publishing applications in Europe and the Pacific Rim); and Multimedia (providing a complete array of multimedia application development and web site hosting 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:
CORPORATE AND Six months ended June 30, 1999 USLA EURASIA MULTIMEDIA ELIMINATIONS TOTAL ------------------------------------------------------------------------- Revenues from unaffiliated customers $ 6,427 $ 4,160 $ 2,476 $ --- $ 13,063 Operating income (loss) 2,574 790 (573) (9,139) (6,348) CORPORATE AND Six months ended June 30, 1998 USLA EURASIA MULTIMEDIA ELIMINATIONS TOTAL ------------------------------------------------------------------------- Revenues from unaffiliated customers $ 7,924 $ 4,176 $ 3,839 $ --- $ 15,939 Operating income (loss) 6,538 (23) 1,131 (7,972) (326)
F. Pending Litigation A lawsuit has been filed against the Company by a former consultant, with allegations related to the value of compensation received and emotional distress. The Company's motion for summary judgement was allowed in part and a trial has not yet been scheduled. The Company denies these charges and is vigorously defending them. At this time, it is not possible to estimate the likelihood of damages related to these charges. 7 G. Gain on Investment in Northern Light LLC During the second quarter, Northern Light Technology LLC, developer of the world's first research engine, announced that it had completed a $35 million equity financing. Following this announcement, Dataware sold one-half of its interest in the LLC back to Northern Light for $4.1 million in cash. In addition, the Company was repaid by Northern Light for its $1.2 million promissory note held by Dataware. These transactions resulted in a $5.1 million gain after adjusting for legal costs incurred and the investment in Northern Light that was carried on the Company's books. After these transactions, Dataware retains an approximate 5% interest in Northern Light. 8 Dataware Technologies, Inc. Item 2. 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 products or markets, made throughout this Form 10-Q, may be deemed forward-looking statements. Such statements are based on the current assumptions of the Company's 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 the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (which is incorporated herein by reference), that could cause actual results to differ materially from those described in the forward-looking statements. Relationship with IHS On September 30, 1997, the Company 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 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. As Dataware's largest distributor, IHS accounted for 38% of software license revenues (23% of total revenues) in the second quarter of 1999 compared with 41% and 26%, respectively, during the second quarter of 1998. IHS accounted for 40% of software license revenues (25% of total revenues) for the first six months of 1999 compared with 48% and 29%, respectively, in the first six months of 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 revenues from sales of the Company's newer offerings 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 the Company. RESULTS OF OPERATIONS Revenues The Company's total revenues decreased 26% from $8.1 million in the second quarter of 1998 to $6.0 million in the second quarter of 1999. The Company's total revenues decreased 18% from $15.9 million in the first six months of 1998 to $13.1 million in the first six months of 1999. The decline in revenues resulted, in part, from several orders slipping into the third quarter of 1999 due to a combination of delays in finalizing statements of work, as well as from distractions resulting from management changes made since the end of 1998. The Company has taken steps at both the strategic and tactical levels during the first half of 1999 to further its previously communicated plan to become a provider of enterprise-scale, intranet-based knowledge management solutions, which were designed to improve the Company's execution and deliver more predictable results through the second half of the year. However, there is a lag time before these steps can prove their potential. Other contributing factors included delays in finalizing the Company's knowledge management products and in establishing strong reference accounts to support further sales. Quarter over quarter, software license fees decreased 40% from $4.8 million to $2.9 million. Software license fees include revenues from systems and tools, applications and custom software products. Software licenses decreased 27% from $9.4 million for the six months ended June 30, 1998 to $6.8 million for the six months ended June 30, 1999. 9 Software license fees in the second quarter of 1998 and 1999 included $1.9 and $1.0 million, respectively, in software revenues under agreements with IHS. For the six months ended June 30, 1998 and 1999, software license fees included $4.5 and $2.7 million, respectively, of these revenues. 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 quarter of 1999 include $.7 million of such discounted payments accelerated from the years 2000 through 2001. For the first six months of 1999 software revenues include $1.5 million of these discounted payments. While it is in the Company's discretion whether to accelerate such payments in any quarter, if the Company continues to accelerate the maximum amount available each quarter, the guaranteed payments under these agreements with IHS would terminate in the fourth quarter of 1999. Service revenues decreased 6% from $3.3 million in the second quarter of 1998 to $3.1 million in the same period for 1999. Service revenues are primarily derived from interactive multimedia development, production services, software maintenance, web site hosting, custom software development and project management. These revenues decreased 5% from $6.6 million to $6.3 million for the six-month periods ended June 30, 1998 and 1999. Software revenues decreased from 59% of total revenues in the second quarter of 1998 to 48% in the second quarter of 1999, and services revenues increased from 41% of total revenues in the second quarter of 1998 to 52% in the second quarter of 1999. Software revenues decreased from 59% of total revenues in the six months ended June 30, 1998 to 52% in the same period of 1999, and services revenues increased from 41% of total revenues during this six month period in 1998 to 48% in the first six months of 1999. This shift from software to service revenues is consistent with the Company's plan to move toward more solution- based sales. The mix within the software revenues continues to favor the Company's legacy products, although the newer Knowledge Management Suite and Dataware II Publisher products have been gaining momentum since late 1998 despite stiff competition in the market. Cost of Revenues Cost of revenues increased 36% from $2.4 million in the second quarter of 1998 to $3.2 million during the same period in 1999. Cost of revenues increased 29% from $4.8 million in the first six months of 1998 to $6.2 million during the same period in 1999. As a percentage of revenues, total cost of revenues increased from 29% of total revenues for the three months ended June 30, 1998 to 54% for the three months ended June 30, 1999 and from 30% to 47% for the six months ended June 30, 1998 and 1999, respectively. The cost of software licenses as a percentage of software license fees increased from 12% in the second quarter of 1998 to 28% during the second quarter of 1999. During the first six months of 1999, the cost of software licenses as a percentage of software license fees increased to 24% from 11% for the same period in 1998. This increase on a quarterly and year to date basis is principally caused by the decline in software revenues while fixed costs, such as amortization of capitalized software, increased due to the addition of purchased software in 1998. The cost of services, as a percentage of service revenues, increased from 54% for the second quarter of 1998 to 78% during the second quarter of 1999. During the first six months of 1999, the cost of services as a percentage of service revenues increased to 72% from 57% for the same period in 1998. The increase quarter over quarter and year over year is primarily caused by underutilization of the knowledge management consulting group during the first half of 1999. Gross Profit Total gross profit was $5.7 million or 71% of total revenues for the second quarter of 1998 and $2.8 million or 46% of total revenues for the second quarter of 1999. For the first six months of 1998, total gross profit amounted to $11.2 million as compared with $6.9 million for the same period in 1999, representing 70% and 53% of total revenues, respectively. Quarter to quarter, software margins decreased from 88% in 1998 to 72% in 1999 and service margins decreased from 46% in 1998 to 22% in 1999. On a year to year basis, software margins decreased from 89% to 76% and services margins decreased from 43% to 28% in 1998 and 1999, respectively. Gross margins may improve in the long run if the Company attains additional improvements in service 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. In particular, the Company's 10 increasing emphasis on providing solutions in the knowledge management field, not just selling software, will involve an increasing proportion of lower margin services. Other factors include: the inherent risks and costs of new product introductions, including uncertainty of customer acceptance; 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 increased 25%, from $2.8 million to $3.5 million, during the second quarters of 1998 and 1999, respectively, and 17%, from $5.5 million to $6.4 million, during the first six months of 1998 and 1999, respectively. These increases reflect costs incurred in connection with reorganizing the sales process as well as spending on marketing programs, including corporate identity and branding projects. Sales and marketing expenses increased as a percentage of revenues from 35% to 59% on a quarter to quarter basis and from 34% to 49% year over year due to the decline in revenues and increase in costs. Product Development Expenses Product development expenses, which exclude capitalized software costs, increased 12% from $1.6 million in the second quarter of 1998 to $1.7 million in the second quarter of 1999, and increased 23% from $3.1 million during the first six months of 1998 to $3.8 million during the same period in 1999. The Company capitalized software development costs in the amount of $357,000 in the second quarter of 1999 as compared to $485,000 in the second quarter of 1998. During the first half of 1999, the Company capitalized $801,000 in internally developed software costs as compared with $946,000 during the same period in 1998. The Company also capitalized $130,000 in purchased software during the first half of 1999. Product development expenses as a percentage of total revenues increased from 19% to 29% on both a quarter to quarter and year to year basis. General and Administrative Expenses General and administrative expenses increased 49%, from $1.3 million in the second quarter of 1998 to $1.9 million in the second quarter of 1999. These expenses increased 24%, from $2.5 million in the first half of 1998 to $3.1 million in the first half of 1999. The increase is primarily related to reorganization costs during 1999. General and administrative expenses as a percentage of total revenues increased from 16% to 31% on a quarter to quarter basis and from 16% to 24% on a year to year basis. The Company's full-time employee headcount at June 30, 1999 was 238, which compares with 205 at December 31, 1998 and 236 at March 31, 1999. The increase year to date includes 16 employees that came to Dataware as part of the Sovereign Hill acquisition at the beginning of the year. 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. 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. Because the acquired technology was incomplete and required substantial additional development, the Company recorded a charge of $450,000 for purchased R&D in the first quarter of 1998. Other Income (Expense), Net During the second quarter of 1999, the Company reported approximately $73,000 in net interest income as compared with approximately $134,000 in the second quarter of 1998. During the first six months of 1999, the company reported approximately $478,000 in net interest income as compared with $224,000 in the same period in 1998. The interest income earned during the first quarter of 1999 includes interest collected on a secured note receivable. For the three months ended June 30, 1999, the Company recorded $61,000 in net other income compared with $18,000 in net other expense during the same period in 1998. For the first half of 1999, the Company recorded approximately $18,000 in net other income as opposed to $25,000 in net other expense in the first half of 1998 (mostly foreign exchange gains and losses on intercompany balances). 11 Provision for Income Taxes The Company recorded a $13,000 provision for income taxes in the three and six- month periods ended June 30, 1999 related to a foreign subsidiary. The Company did not record a provision for income taxes for the three or six month periods ended June 30, 1998, because of the losses incurred during those periods and the substantial net operating loss carryforward from prior periods. At June 30, 1999, the Company had a net operating loss carryforward of approximately $13.2 million. Use of the Company's net operating loss carryforward is limited due to changes in ownership of the Company's stock. 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 is continuing to implement the Year 2000 readiness program as described in the Form 10-K for 1998, to try to assess this potential effect, to remediate it where possible, and to develop contingency plans where management believes that to be appropriate and cost-effective. To date, the Company has incurred costs of approximately $40,000 on these activities. There can be no assurance that the program will be successful, and the extent of the impact on the Company if such problems cannot be assessed or remediated is not fully known. Gain on Investment in Northern Light LLC During the second quarter of 1999, Northern Light Technology LLC, developer of the world's first research engine, announced that it had completed a $35 million equity financing. Following this announcement, Dataware sold one-half of its interest in the LLC back to Northern Light for $4.1 million in cash. In addition, the Company was repaid by Northern Light for its $1.2 million promissory note held by Dataware. These transactions resulted in a $5.1 million gain after adjusting for legal costs incurred and the investment in Northern Light that was carried on the Company's books. After these transactions, Dataware retains an approximate 5% interest in Northern Light. Certain Factors That May Affect Future Results Statements in this Form 10-Q about the Company's prospects, including references to its revenues, profits and markets, are forward looking statements based on assumptions that may not be realized for various reasons. Important factors that could cause actual results to differ materially include that the business solutions offered by the Company may not adequately meet the needs of a rapidly changing marketplace; that the Company may not effectively reorganize to carry out its increasing focus on solutions; that the Company may not be able to develop appropriate new distribution channels to deliver these offerings economically and on time; that sales of the Company's older product lines may decline more rapidly than they can be replaced by revenues from newer offerings; that the Company's competitors, some of whom have significantly more resources than the Company, may meet the needs of the market more quickly and effectively; and that increases in various cost and expense categories may exceed management's current expectations. In general, for the Company to be successful it also must continue to attract and retain highly skilled technical, management, sales and marketing personnel despite the stiff competition for such personnel that exists in today's market; and worldwide and regional economic conditions must not significantly deteriorate. Liquidity and Capital Resources As of June 30, 1999, the Company had cash and cash equivalents of $12.1 million and working capital of $6.4 million. Operating activities used $4.2 million of the Company's cash during the first six months of 1999. Days sales outstanding increased from 44 days at December 31, 1998, to 62 days at June 30, 1999. The Company previously reported that it anticipated that its days sales outstanding would increase to their traditional levels during 1999. The Company's investing activities provided cash of $3.6 million during the first six months of 1999, consisting of $5.3 million received in connection with the Company's investment in Northern Light LLC, offset by additions to property and equipment, internally developed capitalized software, and a third party license for software that will be included in the Company's products and used to develop custom applications for customers. The Company's financing activities provided cash of $0.2 million during the first six months of 1999, which 12 consisted of proceeds from the issuance of common stock under the Company's Employee Stock Purchase Plan. The Company believes that its cash, cash equivalents, and marketable securities, 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no material change from the information provided in response to Item 7A of the Company's 1998 annual report on Form 10-K. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders on May 27, 1999, the Company's shareholders voted as follows: (a) To reelect William R. Lonergan to the Board of Directors for a three-year term. Total Vote For 7,600,135 Total Vote Withheld 191,188 (b) To reelect Jeffrey O. Nyweide to the Board of Directors for a three-year term. Total Vote For 7,600,135 Total Vote Withheld 191,188 Item 6. Exhibits and Reports Filed on Form 8-K (a) Exhibits. See exhibit list on page 15. (b) The Company filed no reports on Form 8-K during the quarter. 13 DATAWARE TECHNOLOGIES, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATAWARE TECHNOLOGIES, INC. (Registrant) Date: August 16, 1999 By: /s/ Michael Gonnerman ------------------------------- Michael Gonnerman Vice President, Chief Financial Officer, Treasurer (Principal Financial and Principal Accounting Officer) 14 Exhibit Index 10.1 Equity Incentive Plan, as Amended and Restated April 13, 1999. 27.1 Financial Data Schedule. 99.1 Important Factors Regarding Future Results (Exhibit 99.1 to 1998 Form 10-K)*. * Incorporated by reference to the filing indicated in parentheses. 15 EX-10.1 2 EQUITY INCENTIVE PLAN EXHIBIT 10.1 DATAWARE TECHNOLOGIES, INC. EQUITY INCENTIVE PLAN (as Amended and Restated) This Equity Incentive Plan (the "Plan") constitutes an amendment and restatement of the Dataware Technologies, Inc. 1993 Equity Incentive Plan, and incorporates the former Dataware Technologies, Inc. 1988 Stock Option Plan and 1993 Director Stock Option Plan (the "Merged Plans"), which have been merged into this Plan. The rights and privileges of holders of outstanding options or rights under the Merged Plans shall not be adversely affected by such merger or restatement. Section 1. Purpose The purpose of 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. 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 or granted under the Plan. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor to such Code. "Committee" means a committee of not less than two members of the Board appointed by the Board to administer the Plan, each of whom is a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 or any successor provision, as applicable to the Company at the time ("Rule 16b-3"). "Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the Company. "Company" means Dataware Technologies, Inc. "Designated Beneficiary" means the beneficiary designated by a Participant, in a manner determined by the Committee, to receive amounts due or exercise rights of the Participant in the event of the Participant's death. In the absence of an effective designation by a Participant, "Designated Beneficiary" shall mean the Participant's estate. "Effective Date" means May 19, 1993. "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 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. "Outside Director" means a member of the Board who is not an employee of the Company or any Affiliate. "Participant" means a person who receives an Award under the Plan. "Performance Cycle" or "Cycle" means the period of time selected by the Committee during which performance is measured for the purpose of determining the extent to which an award of Performance Shares has been earned. "Performance Shares" mean shares of Common Stock, which may be earned by the achievement of performance goals, awarded to a Participant under Section 8. "Reporting Person" means a person subject to Section 16 of the Securities Exchange Act of 1934 or any successor provision. "Restricted Period" means the period of time during which an Award may be forfeited to the Company pursuant to the terms and conditions of such Award. "Restricted Stock" means shares of Common Stock subject to forfeiture awarded to a Participant under Section 9. "Stock Appreciation Right" or "SAR" means a right to receive any excess in value of shares of Common Stock over the exercise price awarded to a Participant under Section 7. "Stock Unit" means an award of Common Stock or units that are valued in whole or in part by reference to, or otherwise based on, the value of Common Stock, awarded to a Participant under Section 10. Section 3. Administration The Plan shall be administered by the Committee, provided that the Board may in any instance perform any of the functions of the Committee. The Committee shall have authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, and to interpret the provisions of the Plan. The Committee's decisions shall be final and binding. To the extent permitted by applicable law, the Committee may delegate to one or more executive 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 3,500,000 shares of Common Stock. If any Award in respect of shares of Common Stock, including any grant of option originally issued under either of the Merged Plans, expires or is terminated unexercised or is forfeited, the shares subject to such Award, to the extent of such expiration, termination or forfeiture, shall again be available for award under the Plan. Common Stock issued through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares available for Awards under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) In the event that the Committee determines that any stock dividend, extraordinary cash dividend, creation of a class of equity securities, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or other similar transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits or potential benefits intended to be made available under the Plan, then the Committee (subject, in the case of Incentive Stock Options, to any limitation required under the Code) shall equitably adjust any or all of (i) the number and kind of shares in respect of which Awards may be made under the Plan, (ii) the number and kind of shares subject to outstanding Awards, and (iii) the award, exercise or conversion price with respect to any of the foregoing, and if considered appropriate, the Committee may make provision for a cash payment with respect to an outstanding Award, provided that the number of shares subject to any Award shall always be a whole number. Section 6. Stock Options (a) Subject to the provisions of the Plan, the Committee may award Incentive Stock Options and Nonstatutory Stock Options and determine the number of shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option. The terms and conditions of Incentive Stock Options shall be subject to and comply with Section 422 of the Code or any successor provision and any regulations thereunder, and no Incentive Stock Option may be granted hereunder more than ten years after the Effective Date. (b) The Committee shall establish the option price at the time each Option is awarded, which price shall not be less than 100% of the Fair Market Value of the Common Stock on the date of award with respect to Incentive Stock Options. Nonstatutory Stock Options may be granted at such prices as the Committee may determine. (c) Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may specify in the applicable Award or thereafter. The Committee may impose such conditions with respect to the exercise of Options, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. (d) No shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Company. Such payment may be made in whole or in part in cash or, to the extent permitted by the Committee at or after the award of the Option, by delivery of a note or shares of Common Stock owned by the optionee, including Restricted Stock, or by retaining shares otherwise issuable pursuant to the Option, in each case valued at their Fair Market Value on the date of delivery or retention, or such other lawful consideration as the Committee may determine. (e) The Committee may provide that, subject to such conditions as it considers appropriate, upon the delivery or retention of shares to the Company in payment of an Option, the Participant automatically be awarded an Option for up to the number of shares so delivered. Section 7. Stock Appreciation Rights (a) Subject to the provisions of the Plan, the Committee may award SARs in tandem with an Option (at or after the award of the Option), or alone and unrelated to an Option. SARs in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem SARs are exercised. SARs granted in tandem with Options shall have an exercise price not less than the exercise price of the related Option. SARs granted alone and unrelated to an Option may be granted at such exercise prices as the Committee may determine. (b) An SAR related to an Option, which SAR can only be exercised upon or during limited periods following a change in control of the Company, may entitle the Participant to receive an amount based upon the highest price paid or offered for Common Stock in any transaction relating to the change in control or paid during the thirty-day period immediately preceding the occurrence of the change in control in any transaction reported in the stock market in which the Common Stock is normally traded. Section 8. Performance Shares (a) Subject to the provisions of the Plan, the Committee may award Performance Shares and determine the number of such shares for each Performance Cycle and the duration of each Performance Cycle. There may be more than one Performance Cycle in existence at any one time, and the duration of Performance Cycles may differ from each other. The payment value of Performance Shares shall be equal to the Fair Market Value of the Common Stock on the date the Performance Shares are earned or, in the discretion of the Committee, on the date the Committee determines that the Performance Shares have been earned. (b) The committee shall establish performance goals for each Cycle, for the purpose of determining the extent to which Performance Shares awarded for such Cycle are earned, on the basis of such criteria and to accomplish such objectives as the Committee may from time to time select. During any Cycle, the Committee may adjust the performance goals for such Cycle as it deems equitable in recognition of unusual or non-recurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine. (c) As soon as practicable after the end of a Performance Cycle, the Committee shall determine the number of Performance Shares that have been earned on the basis of performance in relation to the established performance goals. The payment values of earned Performance Shares shall be distributed to the Participant or, if the Participant has died, to the Participant's Designated Beneficiary, as soon as practicable thereafter. The Committee shall determine, at or after the time of award, whether payment values will be settled in whole or in part in cash or other property, including Common Stock or Awards. Section 9. Restricted Stock (a) Subject to the provisions of the Plan, the Committee may award shares of Restricted Stock and determine the duration of the Restricted Period during which, and the conditions under which, the shares may be forfeited to the Company and the other terms and conditions of such Awards. Shares of Restricted Stock may be issued for no cash consideration or such minimum consideration as may be required by applicable law. (b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Committee, during the Restricted Period. Shares of Restricted Stock shall be evidenced in such manner as the Committee may determine. Any certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant and unless otherwise determined by the Committee, deposited by the Participant, together with a stock power endorsed in blank, with the Company. At the expiration of the Restricted Period, the Company shall deliver such certificates to the Participant or if the Participant has died, to the Participant's Designated Beneficiary. Section 10. Stock Units (a) Subject to the provisions of the Plan, the Committee may award Stock Units subject to such terms, restrictions, conditions, performance criteria, vesting requirements and payment rules as the Committee shall determine. (b) Shares of Common Stock awarded in connection with a Stock Unit Award shall be issued for no cash consideration or such minimum consideration as may be required by applicable law. Section 11. Other Stock-Based Awards (a) Subject to the provisions of the Plan, the Committee may make other awards of Common Stock and other awards that are valued in whole or in part by reference to, or are otherwise based on, Common Stock, including without limitation convertible preferred stock, convertible debentures, exchangeable securities and Common Stock awards or options. Other Stock-Based Awards may be granted either alone or in tandem with other Awards granted under the Plan and/or cash awards made outside of the Plan. (b) The Committee may establish performance goals, which may be based on performance goals related to book value, subsidiary performance or such other criteria as the Committee may determine, Restricted Periods, Performance Cycles, conversion prices, maturities and security, if any, for any Other Stock-Based Award. Other Stock-Based Awards may be sold to Participants at the face value thereof or any discount therefrom or awarded for no consideration or such minimum consideration as may be required by applicable law. Section 12. Grant of Options to Outside Directors (a) Automatic Grant of Options. (i) Immediately following the annual meeting of stockholders each year, each Outside Director of the Company newly elected at or continuing in office after such meeting shall automatically be granted Nonstatutory Stock Options to purchase 6,000 shares of Common Stock. (ii) Immediately following his or her election, each Outside Director of the Company newly elected to the Board at any point during the year between annual meetings of stockholders shall automatically be granted Nonstatutory Stock Options to purchase 1,500 shares of Common Stock for each calendar quarter beginning before the next anniversary date of the preceding annual meeting of stockholders. (b) Date of Grant. The "Date of Grant" for Options granted under this Section 12 shall be (i) the date of the respective annual meeting of stockholders, for each grant pursuant to clause (i) of subsection (a) and (ii) the date of the respective director's election, for each grant pursuant to clause (ii) of subsection (a). (c) Option Price. The option price for each option granted under this Section 12 shall be the current fair market value of a share of Common Stock of the Company, which, for this purpose, shall be the last sale price for the Company's Common Stock as reported by the Nasdaq National Market System, or the principal exchange on which the Common Stock is then traded, as the case may be, for the business day immediately preceding the Date of Grant. (d) Term of Option. The term of each Option granted under this Section 12 shall be ten years from the Date of Grant. (e) Exercisability of Options. Options granted under this Section 12 shall become exercisable, during the optionee's term in office, with respect to 1,500 shares at the beginning of each calendar quarter following the Date of Grant. (f) General Exercise Terms. An optionee holding exercisable Options under this Section 12 who ceases to serve as a member of the Board may, during his or her lifetime, exercise the rights he or she had under such Options at such time for the full unexpired term of such Option. Any rights that have not yet become exercisable shall terminate upon cessation of membership on the Board. Upon the death of a director, those entitled to do so shall have the right, at any time within twelve months after the date of death, to exercise in whole or in part any rights that were available to the director at the time of his or her death. The rights of the optionee may be exercised by the optionee's guardian or legal representative in the case of disability and by the beneficiary designated by the optionee in writing delivered to the Company or, if none has been designated, by the optionee's estate or his or her transferee on death in accordance with this Section 12, in the case of death. Options granted hereunder shall terminate, and no rights thereunder may be exercised, after the expiration of the applicable exercise period. Notwithstanding the foregoing provisions of this section, no rights under any Options may be exercised after the expiration of ten years from their Date of Grant. (g) Method of Exercise and Payment. Options granted under this Section 12 may be exercised as provided in Section 6(d). Upon receipt of such notice and payment, the Company shall promptly issue and deliver to the optionee (or other person entitled to exercise the Option) a certificate or certificates for the number of shares as to which the exercise is made. (h) Merger. In the event of a Change in Control (as defined in Section 13(h)), or a reorganization or liquidation of the Company, any deferred exercise period shall be automatically accelerated and each holder of an outstanding option granted under this Section 12 shall be entitled to receive upon exercise and payment in accordance with the terms of the option the same shares, securities or property as he or she would have been entitled to receive upon the occurrence of such event if he or she had been, immediately prior to such event, the holder of the number of shares of Common Stock purchasable under his or her option; provided, however, that in lieu of the foregoing the Board may upon written notice to each holder of an outstanding option or right under this Section 12, provide that such option or right shall terminate on a date not less than 20 days after the date of such notice unless theretofore exercised. Section 13. General Provisions Applicable to Awards (a) Limitations on Grants of Options and SARs. Subject to adjustment under Section 5(b), the number of shares subject to Options and SARs granted to any one individual during any fiscal year may not exceed 250,000 shares of Common Stock. (b) Transferability. An Award under this Plan may be transferred only to the extent expressly permitted by the Committee and subject to such conditions as the Committee may in its discretion impose. (c) Documentation. Each Award under the Plan shall be evidenced by a writing delivered to the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or to comply with applicable tax and regulatory laws and accounting principles. (d) Committee Discretion. Each type of Award may be made alone, in addition to or in relation to any other type of Award. The terms of each type of Award need not be identical, and the Committee need not treat Participants uniformly. Except as otherwise provided by the Plan or a particular Award, any determination with respect to an Award may be made by the Committee at the time of award or at any time thereafter. (e) Settlement. The Committee shall determine whether Awards are settled in whole or in part in cash, Common Stock, other securities of the Company, Awards or other property. The Committee may permit a Participant to defer all or any portion of a payment under the Plan, including the crediting of interest on deferred amounts denominated in cash and dividend equivalents on amounts denominated in Common Stock. (f) Dividends and Cash Awards. In the discretion of the Committee, any Award under the Plan may provide the Participant with (i) dividends or dividend equivalents payable currently or deferred with or without interest, and (ii) cash payments in lieu of or in addition to an Award. (g) Termination of Employment. The Committee shall determine the effect on an Award of the disability, death, retirement or other termination of employment of a Participant and the extent to which, and the period during which, the Participant's legal representative, guardian or Designated Beneficiary may receive payment of an Award or exercise rights thereunder. (h) Change in Control. In order to preserve a Participant's rights under an Award in the event of a Change in Control (as defined below), the Committee in its discretion may, at the time an Award is made or at any time thereafter, take one or more of the following actions: (i) provide for the acceleration of any time period relating to the exercise or realization of the Award, (ii) provide for the purchase of the Award upon the Participant's request for an amount of cash or other property that could have been received upon the exercise or realization of the Award had the Award been currently exercisable or payable, (iii) adjust the terms of the Award in a manner determined by the Committee to reflect the Change in Control, (iv) cause the Award to be assumed, or new rights substituted therefor, by another entity, or (v) make such other provision as the Committee may consider equitable and in the best interests of the Company. As used herein, a "Change in Control" of the Company shall be deemed to have occurred upon the occurrence of any of the following: (A) Any transaction or series of transactions, as a result of which any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder) (a "Person") is or becomes a "beneficial owner" (as defined in Rule 13d-3 under such act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding voting securities (the "Company's Outstanding Voting Securities"); provided, however, that a Change in Control shall not be deemed to have occurred solely because of the acquisition of securities of the Company by (1) one or more employee benefit plans or related trusts established for the benefit of the employees of the Company or any Affiliate of the Company; or (2) any Person when such acquisition (a) is effected primarily to prevent the Company from being declared insolvent and (b) is approved by the Board of Directors of the Company (the "Board"). (B) Any change in the membership of the Board such that individuals who are Incumbent Directors (as defined herein) cease for any reason to constitute at least a majority of the Board. The Incumbent Directors shall be (1) those members of the Board who were Directors as of April 15, 1996 and who have served continuously as Directors since such date, and (2) any other member of the Board who subsequently became a Director and whose election or nomination for election by the Company's stockholders at the beginning of his or her current tenure was approved by a vote of at least a majority of the Directors who were then Incumbent Directors, except that no individual shall be an Incumbent Director if such individual's initial assumption of office as a Director occurred as a result of an actual or threatened election contest with respect to the election or removal of Directors, or other actual or threatened solicitation of proxies or consents, by, or on behalf of, a Person other than the Board. (C) The consummation of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Company, or similar transaction (a "Business Combination"), unless all of the following conditions are met: (1) the individuals and entities who are the beneficial owners of the Company's Outstanding Voting Securities immediately before the consummation of the Business Combination would beneficially own, directly or indirectly, securities representing more than 50% of the outstanding combined voting power of the voting securities that would be outstanding and entitled to vote generally in the election of the governing body of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity that as a result of such transaction would own the Company or all or substantially all of the Company's assets, either directly or through one or more subsidiaries) (the "Resulting Entity"), and the securities of the Resulting Entity that would be owned by such beneficial owners of the Company's Outstanding Voting Securities would be owned by them in substantially the same proportions as they own the Company's Outstanding Voting Securities; (2) no Person (excluding any corporation or other entity resulting from such Business Combination, and excluding any employee benefit plan or related trust of the Company or of such corporation or other entity resulting from such Business Combination) would beneficially own, directly or indirectly, 30% or more of the combined voting power of the outstanding voting securities of the Resulting Entity except to the extent that such ownership existed before the Business Combination; and (3) at least a majority of the members of the board of directors of the Resulting Entity would be persons who were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination. (D) Approval by the Company's stockholders of a liquidation or dissolution of the Company (unless the liquidation or dissolution is part of a Business Combination excepted from clause (C) above). (E) The close of business on the latest of the following dates: (1) the date that a tender or exchange offer by any Person (other than the Company, any Affiliate of the Company, or any employee benefit plan or related trust established for the benefit of the employees of the Company or any Affiliate of the Company) that, if consummated, would result in such Person becoming a "beneficial owner" (as defined in clause (A) above), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding voting securities, is first published or sent or given within the meaning of Rule 14d- 2(a) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder; (2) the date upon which all regulatory approvals required for the acquisition of securities pursuant to the tender or exchange offer referred to in clause (1) have been obtained or waived; or (3) the date upon which any approval of the security holders of the Person publishing or sending or giving the tender or exchange offer referred to in clause (1) required for the acquisition of securities pursuant to such tender or exchange offer is obtained or waived." (i) Loans. The Committee may authorize the making of loans or cash payments to Participants in connection with any Award under the Plan, which loans may be secured by any security, including Common Stock, underlying or related to such Award (provided that such Loan shall not exceed the Fair Market Value of the security subject to such Award), and which may be forgiven upon such terms and conditions as the Committee may establish at the time of such loan or at any time thereafter. (j) Withholding Taxes. The Participant shall pay to the Company, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. In the Committee's discretion, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery. The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Participant. (k) Foreign Nationals. Awards may be made to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or to comply with applicable laws. (l) Amendment of Award. The Committee may amend, modify or terminate any outstanding Award, including substituting therefor another Award of the same or a different type, changing the date of exercise or realization and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant. Section 14. Miscellaneous (a) No Right To Employment. Except as provided in Section 12, no person shall have any claim or right to be granted an Award. 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. The Plan became effective on the Effective Date. (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. ____________________________________________ . Plan, including merger of 1988 Stock Option Plan, adopted by the Board of Directors and 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 Stockholders May 25, 1994. . Amendments adopted by the Board of Directors April 15, 1996 and approved by the Stockholders 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 Stockholders May 23, 1997. . Increase in shares issuable adopted by the Board of Directors April 14, 1998 and approved by the Stockholders May 21, 1998. . Amendment and restatement, including merger of 1993 Director Stock Option Plan, adopted by the Board of Directors April 13, 1999. EX-27 3 EX-27
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 12,128 0 5,741 946 0 18,092 11,752 8,417 27,719 11,724 0 0 0 96 15,899 27,719 13,063 13,063 6,166 6,166 13,245 0 21 (796) 13 (809) 0 0 0 (809) (.09) (.09)
-----END PRIVACY-ENHANCED MESSAGE-----