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EXHIBIT 3.1
DATAWARE TECHNOLOGIES, INC.
CERTIFICATE OF DESIGNATIONS OF
8% SERIES C CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law of the State of
Delaware)
Dataware Technologies, Inc., a Delaware corporation (the "Corporation"),
hereby certifies in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware (the "DGCL") that:
(1) Pursuant to the Restated Certificate of Incorporation of the
Corporation, on August 25, 2000, the Board adopted the following resolution
providing for the creation of a series of the Corporation's preferred stock,
$.01 par value, which series is designated as "8% Series C Convertible Preferred
Stock:"
VOTED: That, pursuant to Article FOURTH of the Restated Certificate of
Incorporation, a series of 8% Series C Convertible Preferred Stock of
the Company, $.01 par value ("Series C Stock"), be and it hereby is
created with the designations, powers, preferences and rights, and the
qualifications, limitations and restrictions, as presented to this
meeting; and that the proper officers of the Company are hereby
authorized and directed to execute and file a Certificate of
Designations with the Secretary of State of Delaware with respect to
the Series C Stock.
(2) That the certificate attached hereto as Exhibit A contains the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions, of the Series C Stock, as adopted pursuant to said
resolution.
IN WITNESS WHEREOF, Dataware Technologies, Inc. has caused this
certificate to be signed as of August 31, 2000.
DATAWARE TECHNOLOGIES, INC.
By: /s/ Michael Gonnerman
Michael Gonnerman
Vice President, Treasurer, and
Chief Financial Officer
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EXHIBIT A
TERMS OF PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The series of
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preferred stock shall be designated as its 8% Series C Convertible Preferred
Stock (the "Preferred Stock"), which series shall consist of 350 (which shall
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not be subject to increase without the consent of the holders of the Preferred
Stock (each, a "Holder" and collectively, the "Holders")). Each share of
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Preferred Stock shall have a par value of $.01 per share and a stated value
equal to the sum of $10,000 plus all accrued and unpaid dividends, and amounts
owed by the Corporation under the Purchase Agreement (as defined below) that are
payable in kind, to the date of determination to the extent not previously paid
in cash (the "Stated Value").
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Section 2. Dividends.
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(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Corporation shall pay, cumulative dividends at the
rate per share (as a percentage of the Stated Value per share) of 8% per annum,
payable on each Conversion Date (as defined herein) for such share, in cash or
by accretion of the Stated Value. The decision whether to accrete dividends
hereunder to the Stated Value or to pay for dividends in cash shall be at the
discretion of the Corporation. The Corporation shall provide the Holders
written notice of its intention to accrete dividends hereunder to the Stated
Value or pay dividends in cash not less than ten days prior to each Conversion
Date for so long as shares of Preferred Stock are outstanding (the Corporation
may indicate in such notice that the election contained in such notice shall
continue for later periods until revised). Failure to timely provide such
written notice shall be deemed (if permitted hereunder) an election by the
Corporation to accrete dividends hereunder to the Stated Value. Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year, shall
accrue daily commencing on the Original Issue Date (as defined in Section 6),
and shall be deemed to accrue from such date whether or not earned or declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. Except as otherwise provided
herein, if at any time the Corporation pays less than the total amount of
dividends then accrued on account of the Preferred Stock, such payment shall be
distributed ratably among the Holders based upon the number of shares of
Preferred Stock held by each Holder. Any dividends to be paid in cash hereunder
that are not paid within three Trading Days (as defined in Section 6) following
a Conversion Date shall continue to accrue and shall entail a late fee, which
must be paid in cash, at the rate of 18% per annum or the lesser rate permitted
by applicable law (such fees to accrue daily, from the date such dividend is due
hereunder through and including the date of payment).
(b) So long as any Preferred Stock shall remain outstanding,
neither the Corporation nor any subsidiary thereof shall (i) other than pursuant
to forfeiture/repurchase provisions of employee benefit plans or agreements with
employees or consultants relating to shares of Common Stock issued in connection
with the employment or consulting relationship, redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 6),
(ii) directly or indirectly pay or declare any dividend or make any distribution
(other than a dividend or distribution described in Section 5 or dividends due
and paid in the ordinary
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course on preferred stock of the Corporation at such times when the Corporation
is in compliance with its payment and other obligations hereunder) upon, nor
shall any distribution be made in respect of, any Junior Securities, nor shall
any monies be set aside for or applied to the purchase or redemption (through a
sinking fund or otherwise) of any Junior Securities or shares pari passu with
the Preferred Stock, or (iii) consummate any "going private" or other similar
transaction having the effect of causing the Corporation to no longer be
publically reporting and trading.
(c) In no circumstances may either the Corporation or any Holder
require redemption of any shares of Preferred Stock held by such Holder without
the other's consent
Section 3. Voting Rights. Except as otherwise provided herein and
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as otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the Holders of a majority
of the shares of the Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or
alter or amend this Certificate of Designation, (b) authorize or create any
class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 4) senior to or otherwise pari passu with the
Preferred Stock, (c) amend its certificate or articles of incorporation or other
charter documents so as to affect adversely any rights of the Holders, (d)
increase the authorized number of shares of Preferred Stock, or (e) enter into
any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
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winding-up of the Corporation, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the assets of
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the Corporation, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value per share before any
distribution or payment shall be made to the holders of any Junior Securities,
and if the assets of the Corporation shall be insufficient to pay in full such
amounts, then the entire assets to be distributed to the Holders shall be
distributed among the Holders ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of 50% or more of the assets of the
Corporation or the effectuation by the Corporation of a transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or a consolidation or merger of the Corporation with
or into any other company or companies into one or more companies not wholly-
owned by the Corporation shall not be treated as a Liquidation, but instead
shall be subject to the provisions of Section 5. The Corporation shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record Holder.
Section 5. Conversion.
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(a)(i) Conversions at Option of Holder. Each share of Preferred Stock
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shall be convertible into shares of Common Stock (subject to the limitations set
forth in Section 5(a)(iii)) at the Conversion Ratio (as defined in Section 6),
at the option of the Holder, at any time and from time to time from and after
the Original Issue Date. Holders shall effect conversions by
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providing the Corporation and the Escrow Agent (as defined in Section 6), if
any, with the form of conversion notice attached hereto as Exhibit A (a
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"Conversion Notice"). Each Conversion Notice shall specify the number of shares
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of Preferred Stock to be converted, the number of shares of Preferred Stock
owned prior to and following such conversion, and the date on which such
conversion is to be effected, which date may not be prior to the date the Holder
delivers such Conversion Notice by facsimile (the "Conversion Date"). If no
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Conversion Date is specified in a Conversion Notice, the Conversion Date shall
be the date that such Conversion Notice is deemed delivered hereunder. To effect
a conversion of Preferred Stock, a Holder need not surrender the certificate(s)
representing such Preferred Stock to the Corporation or the Escrow Agent unless
all of the shares of Preferred Stock represented thereby are so converted, in
which case, following such conversion the Holder will deliver such certificate
to the Corporation. The number of shares of Preferred Stock owned by the Holder
and the relevant Conversion Price as determined by the Holder and reflected in
the Conversion Notice shall control absent manifest or computational error.
(ii) Automatic Conversion. Subject to the provisions of this
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paragraph and Section 5(a)(iii)(C), all outstanding shares of Preferred Stock
for which Conversion Notices have not previously been received or for which
redemption has not been made or required hereunder shall be automatically
converted on the third anniversary of the Original Issue Date at the Conversion
Ratio. The conversion contemplated by this paragraph shall not occur without the
consent of the Holder at such time as (a) the Holder is not permitted to resell
Underlying Shares pursuant to Rule 144(k) promulgated under the Securities Act,
without volume restrictions, (b) there are not sufficient shares of Common Stock
authorized and reserved for issuance upon such conversion; (c) the Corporation
shall be in default of any material respect on its covenants and obligations
hereunder or under the Purchase Agreement or Escrow Agreement (as defined in
Section 6); or (d) the Escrow Agent, if any, shall not have in its possession
for the benefit of the Holder, the number of freely tradeable shares of Common
Stock issuable upon such conversion. Notwithstanding the foregoing, the three-
year period for automatic conversion under this Section shall be extended (on a
day-for-day basis) for any Trading Days that a Holder is unable to resell
Underlying Shares due to the Common Stock not being listed or quoted for trading
on the Nasdaq National Market ("Nasdaq") or on the New York Stock Exchange,
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American Stock Exchange or Nasdaq SmallCap Market (each, a "Subsequent Market").
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The provisions of Sections 5(a)(iii)(A) and (B) shall not apply to any automatic
conversion pursuant to this Section 5(a)(ii).
(iii) Certain Conversion Restrictions.
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(A) A Holder may not convert shares of Preferred Stock or receive
shares of Common Stock as payment of dividends hereunder to the extent such
conversion or receipt of such dividend payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 6) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the shares of Preferred Stock held by such
Holder after application of this Section. Since the Holder will not be
obligated to report to the Corporation the number of shares of Common Stock it
may hold at the time of a conversion hereunder, unless the
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conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the shares of Preferred Stock are convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Conversion Notice for shares of Preferred Stock that, without regard to any
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the
Corporation shall notify the Holder of this fact and shall honor the conversion
for the maximum number of shares of Preferred Stock permitted to be converted on
such Conversion Date in accordance with the periods described in Section 5(b)
and, at the option of the Holder, either retain shares of Preferred Stock
tendered for conversion in excess of the permitted amount hereunder for future
conversions or return such excess shares of Preferred Stock permitted to the
Holder. The provisions of this Section may be waived by a Holder (but only as to
itself and not to any other Holder) upon not less than 61 days prior notice to
the Corporation. Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert shares of Preferred Stock or receive
shares of Common Stock as payment of dividends hereunder to the extent such
conversion or receipt of such dividend payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
dividends on, the shares of Preferred Stock held by such Holder after
application of this Section. Since the Holder will not be obligated to report
to the Corporation the number of shares of Common Stock it may hold at the time
of a conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for shares of Preferred Stock that,
without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted
amount hereunder, the Corporation shall notify the Holder of this fact and shall
honor the conversion for the maximum number of shares of Preferred Stock
permitted to be converted on such Conversion Date in accordance with the periods
described in Section 5(b) and, at the option of the Holder, either retain shares
of Preferred Stock tendered for conversion in excess of the permitted amount
hereunder for future conversions or return such excess shares of Preferred Stock
permitted to the Holder. The provisions of this Section may be waived by a
Holder (but only as to itself and not to any other Holder) upon not less than 61
days prior notice to the Corporation. Other Holders shall be unaffected by any
such waiver.
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(C) Notwithstanding any other provision of this Certificate of
Designation, if the Common Stock is then listed for trading on the Nasdaq
National Market or the Nasdaq SmallCap Market and the Corporation has not
obtained the Shareholder Approval (as defined below), then the Corporation may
not issue in excess of 2,142,395 shares of Common Stock (which equals 19.999% of
the number of shares of Common Stock outstanding on the Trading Day immediately
preceding the Original Closing Date) (subject to equitable adjustments from time
to time for stock splits, stock dividends, combinations, recapitalizations, and
similar events affecting the Common Stock after the date of filing this
Certificate of Designation) upon conversions of Preferred Stock at a price per
share that is less than the Closing Price (as defined in Section 6) on the
Trading Day immediately preceding the Original Issue Date (such number of
shares, the "Issuable Maximum"). Each Holder shall be entitled to a portion of
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the Issuable Maximum equal to the quotient obtained by dividing (x) the number
of shares of Preferred Stock issued and sold to such Holder on the Original
Issue Date by (y) the number of shares of Preferred Stock issued and sold by the
Corporation on the Original Issue Date. If any Holder shall no longer hold
shares of Preferred Stock, then such Holder's remaining portion of the Issuable
Maximum shall be allocated pro-rata among the remaining Holders. If on any
Conversion Date (A) the shares of Common Stock are listed for trading on the
Nasdaq National Market or Nasdaq SmallCap Market, (B) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of all then outstanding shares of
Preferred Stock, together with any shares of Common Stock previously issued
upon conversion of shares of Preferred Stock would exceed the Issuable Maximum,
and (C) the Corporation shall not have previously obtained the vote of
shareholders (the "Shareholder Approval"), if any, as may be required by the
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applicable rules and regulations of the Nasdaq Stock Market (or any successor
entity) applicable to approve the issuance of shares of Common Stock in excess
of the Issuable Maximum pursuant to the terms hereof, then the Corporation shall
issue to the Holder requesting a conversion a number of shares of Common Stock
equal to such Holder's pro-rata portion (which shall be calculated pursuant to
the terms hereof) of the Issuable Maximum and, with respect to the remainder of
the aggregate Stated Value of the shares of Preferred Stock then held by such
Holder for which a conversion in accordance with the Conversion Price would
result in an issuance of shares of Common Stock in excess of such Holder's pro-
rata portion (which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum, the Corporation shall have the option to either: (1) obtain
the Shareholder Approval applicable to such issuance as soon as is possible, but
in any event not later than the 60th day after such request, or (2) within ten
Trading Days cause the Common Stock to be delisted from the Nasdaq Stock Market
and quoted for trading on the OTC Bulletin Board, in which case, the downward
adjustment to the Conversion Price set forth in Section 5(c) shall apply. If
the Corporation shall have elected, but failed by the 60th day after the
Conversion Date on which the provisions of this Section first apply (including
as may be indicated in writing by the Holder in writing to the Corporation) for
any reason, to obtain the Shareholder Approval pursuant to the immediately
preceding sentence, then within ten Trading Days of such 60th day the
Corporation shall cause the Common Stock to be delisted from the Nasdaq Stock
Market and quoted for trading on the OTC Bulletin Board, in which case, the
downward adjustment to the Conversion Price set forth in Section 5(c) shall
apply. Shares of Common Stock issued to and then held by the Holder as a result
of conversions of Preferred Stock shall not be entitled to cast votes on any
resolution to obtain Shareholder Approval pursuant hereto.
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(b) Upon each delivery of a Conversion Notice, (A) the Escrow Agent,
if any, is hereby authorized and directed to deliver to the Holder from the
shares of Common Stock then held by it pursuant to the Escrow Agreement for
deliveries of Underlying Shares to the converting Holder a certificate or
certificates representing the number of shares of Common Stock issuable upon the
conversion of shares of Preferred Stock (if there is no Escrow Agent for such
purpose or for any reason there are insufficient shares of Common Stock
deposited with the Escrow Agent for delivery to the Holder upon conversion
hereunder, the Corporation will deliver to the Holder within three Trading Days
the shares of Common Stock issuable upon the conversion of Preferred Stock), and
(B) the Corporation shall deliver within Three Trading Days of the Conversion
Date a bank check in the amount of accrued and unpaid dividends (if the
Corporation has timely elected to pay accrued dividends in cash). The
Corporation shall, upon request of the Holder, if available, use its best
efforts to deliver any certificate or certificates required to be delivered by
the Corporation under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
third Trading Day after the Conversion Date, the Holder shall be entitled to
elect by written notice to the Corporation and the Escrow Agent at any time on
or before its receipt of such certificate or certificates thereafter, to rescind
such conversion.
(c)(i) The conversion price for each share of Preferred Stock in
effect on any Conversion Date (the "Conversion Price") shall be the lesser of
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(i) $4.69518 (the "Fixed Conversion Price") and (ii) 95% of the average of the
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three lowest Per Share Market Values during the thirty consecutive Trading Days
immediately preceding the applicable Conversion Date (which such Per Share
Market Values shall be subject to equitable adjustment for stock splits, stock
dividends, combinations, recapitalizations, and similar events affecting the
Common Stock during such thirty Trading Day period), provided, that such thirty
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Trading Day period shall be extended for the number of Trading Days during such
period in which trading in the Common Stock is suspended by the NASDAQ or a
Subsequent Market on which the Common Stock is then listed. Notwithstanding the
foregoing, upon the occurrence of each Material Event (as defined in Purchase
Agreement, the Fixed Conversion Price shall be automatically be adjusted
downward by 10% of its then current price and the discount reflected in the
Conversion Price determined under clause (ii) of this Section 5(c)(i) shall be
lowered 10 percentage points from its then current discount (for example, to 85%
for the first such occurrence, and 75% for the second such occurrence).
(ii) If the Corporation, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine (including by
way of reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification and exchange of the Common
Stock any shares of capital stock of the Corporation, then the Fixed Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made
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pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Corporation, at any time while any shares of Preferred
Stock are outstanding, shall issue rights, warrants or options to all holders of
Common Stock (and not to Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Per Share Market Value
at the record date mentioned below, then the Fixed Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the Fixed
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Fixed Conversion
Price shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Fixed Conversion Price
made pursuant to the provisions of this Section 5 upon the issuance of other
rights or warrants) had the adjustment of the Fixed Conversion Price made upon
the issuance of such rights, warrants, or options been made on the basis of
offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights, warrants or options
actually exercised.
(iv) If the Corporation or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while any
shares of Preferred Stock are outstanding, shall issue shares of Common Stock or
rights, warrants (including those issued under the Purchase Agreement), options
or other securities or debt that is convertible into or exchangeable for shares
of Common Stock ("Common Stock Equivalents") entitling any Person to acquire
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shares of Common Stock, at a price per share less than the Conversion Price (if
the holder of the Common Stock or Common Stock Equivalent so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights issued in connection with such issuance, be entitled
to receive shares of Common Stock at a price less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price), then, at the option of the Holder, the Conversion Price shall be
replaced with the conversion, exchange or purchase price for such Common Stock
or Common Stock Equivalents (including any reset provisions thereof) for all
subsequent conversions of Preferred Stock or such conversions as shall be
indicated by the Holder on its Conversion Notice. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. The
Corporation shall notify the Holder and the Escrow Agent in writing, no later
than
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the Trading Day following the issuance of any Common Stock or Common Stock
Equivalent subject to this section, indicating therein the applicable issuance
price, reset price, exchange price, conversion price and other pricing terms.
(v) If the Corporation, at any time while shares of Preferred Stock
are outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii)-(iv) above), then in each such case the Fixed Conversion Price at which
each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Fixed Conversion Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. The number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation, and the disposition of
any such shares shall be considered an issue or sale of Common Stock.
(vii) Whenever the Fixed Conversion Price or the Conversion Price is
adjusted pursuant to Section 5(c)(ii),(iii), (iv) or (v) the Corporation shall
promptly mail to each Holder, a notice setting forth the Fixed Conversion Price
or the Conversion Price (as applicable) after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.
(viii) In case of any reclassification of the Common Stock or
exchange pursuant to which all Common Stock is exchanged for securities, cash or
other property, the Holders shall have the right thereafter to convert shares of
Preferred Stock only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification or share exchange, and the Holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities, cash or property as a holder of the number of shares of Common Stock
of the Corporation into which such shares of Preferred Stock could have been
converted immediately prior to such reclassification or share exchange would
have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.
(ix) In case of any (1) merger or consolidation of the Corporation
(other than a merger or consolidation in which the shareholders of the
Corporation immediately preceding the closing of such merger or consolidation
own immediately following such closing
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in excess of 66 2/3% of the surviving entity's voting securities, provided that
the surviving entity is a publically traded entity that files reports under the
Exchange Act and that neither the conversion rights of the Holders nor the
Holders' right to resell Underlying Shares are restricted or impaired in any way
as a result of such merger or consolidation), or (2) sale by the Corporation of
more than one-half of the assets of the Corporation (on an as valued basis) in
one or a series of related transactions; a Holder shall have the right
thereafter to (A) convert its shares of Preferred Stock into the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related events to receive
150% of the amount of securities, cash and property as the shares of Common
Stock into which such shares of Preferred Stock could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled or (B) in the case of a merger or consolidation, (x) require the
surviving entity to issue shares of convertible preferred stock with such
aggregate stated value equal to the Stated Value of the shares of Preferred
Stock then held by such Holder, plus all accrued and unpaid dividends and other
amounts owing thereon, which newly issued shares of preferred stock shall have
terms identical (including with respect to conversion) to the terms of the
Preferred Stock and shall be entitled to all of the rights and privileges of a
Holder set forth herein and the agreements pursuant to which the Preferred Stock
was issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
other securities issuable upon conversion thereof), and (y) simultaneously with
the issuance of such convertible preferred stock, shall have the right to
convert such instrument only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale. In the case of clause (B), the
conversion price applicable for the newly issued shares of convertible preferred
stock shall be based upon the amount of securities, cash and property that each
share of Common Stock would receive in such transaction, the Conversion Ratio
immediately prior to the effectiveness or closing date for such transaction and
the Conversion Price stated herein. The terms of any such merger, sale or
consolidation shall include such terms so as continue to give the Holders the
rights set forth herein. This provision shall similarly apply to successive such
events.
(x) If (a) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock, (b) the Corporation shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (c) the
Corporation shall authorize the granting to all holders of Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Corporation
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Corporation is a party, any sale or
transfer of all or substantially all of the assets of the Corporation, or any
compulsory share of exchange whereby the Common Stock is converted into other
securities, cash or property, or (e) the Corporation shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Corporation; then the Corporation shall notify the Holders at their last
addresses as they shall appear upon the stock books of the Corporation, at least
20 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of
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<PAGE>
record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange. Holders are entitled
to convert shares of Preferred Stock during the 20-day period commencing the
date of such notice to the effective date of the event triggering such notice.
(d) The Corporation covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares of
Common Stock as shall be issuable (taking into account the provisions of Section
5(a) and Section 5(c)) upon the conversion of all outstanding shares of
Preferred Stock. The Corporation covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(e) Upon a conversion hereunder the Corporation shall not be required
to issue stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If any
fraction of an Underlying Share would, except for the provisions of this
Section, be issuable upon a conversion hereunder, the Corporation shall pay an
amount in cash equal to the Conversion Ratio multiplied by such fraction.
(f) The issuance of certificates for Common Stock on conversion of
Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such shares of Preferred Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock shall be
canceled and may not be reissued.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Financial Officer of the Corporation
addressed to One Canal Park Cambridge, MA 02141 Facsimile No.: (617) 577- 2893,
attention Chief Financial Officer, or to such other address or facsimile number
as shall be specified in writing by the Corporation for such purpose. Any and
all notices or other communications or deliveries to be provided to the Holder
or the Escrow Agent shall be in writing and delivered personally, by facsimile
or sent by a nationally recognized overnight courier service, addressed (A) to
each Holder at the facsimile telephone number or address of
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<PAGE>
such Holder appearing on the books of the Corporation, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder and (B) to the Escrow Agent as directed in writing by the Escrow Agent.
Any notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:30 p.m. (New York City time) (with
confirmation of transmission), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date
(with confirmation of transmission), (iii) upon receipt, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
Section 6. Definitions. For the purposes hereof, the following terms
-----------
shall have the following meanings:
"Closing Price" means on any particular date (a) the closing sales
-------------
price per share of Common Stock as of 4:00 PM (New York time)on such date on the
Nasdaq or on such Subsequent Market on which the shares of Common Stock are then
listed or quoted, or if there is no such price on such date, then the closing
sales price on the Nasdaq or on such Subsequent Market on the date nearest
preceding such date, or (b) if the shares of Common Stock are not then listed or
quoted on the Nasdaq or a Subsequent Market, the closing sales price for a share
of Common Stock in the over-the-counter market, as reported by the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the shares of Common Stock are not then reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the Holder, or
(d) if the Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority of the shares of the Preferred Stock.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Corporation's common stock, par value $.01
------------
per share, and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the numerator of
----------------
which is Stated Value and the denominator of which is the Conversion Price at
such time.
"Escrow Agent" means the Escrow Agent, if any, under the Escrow
------------
Agreement.
"Escrow Agreement" means the Escrow Agreement, dated the date of the
----------------
Purchase Agreement, among the Corporation, the original Holders and the Escrow
Agent, in the form attached to the Purchase Agreement, as amended, modified or
supplemented from to time in accordance with its terms.
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<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Junior Securities" means the Common Stock and all other equity or
-----------------
equity equivalent securities of the Corporation other than those securities that
are outstanding on the Original Issue Date and which are explicitly senior in
rights or liquidation preference to the Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
-------------------
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing
----------------------
bid price per share of Common Stock as of 4:00 PM (New York time) on such date
on the Nasdaq or on such Subsequent Market on which the shares of Common Stock
are then listed or quoted, or if there is no such price on such date, then the
closing bid price on the Nasdaq or on such Subsequent Market on the date nearest
preceding such date, or (b) if the shares of Common Stock are not then listed or
quoted on the Nasdaq or a Subsequent Market, the closing bid price for a share
of Common Stock in the over-the-counter market, as reported by the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the shares of Common Stock are not then reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the Holder, or
(d) if the Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority of the shares of the Preferred Stock.
"Person" means a corporation, an association, a partnership, an
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
------------------
Agreement, dated as of the Original Issue Date, to which the Corporation and the
original Holders are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Trading Day" means (a) a day on which the shares of Common Stock are
-----------
traded on the Nasdaq or on such Subsequent Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock are not
listed on the Nasdaq or a Subsequent Market, a day on which the shares of Common
Stock are traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the shares of Common Stock are not quoted on the OTC Bulletin
Board, a day on which the shares of Common Stock are quoted in the over-the-
counter market as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding its functions of reporting prices);
provided, that in the event that the shares of Common Stock are not listed or
--------
quoted as set forth
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<PAGE>
in (a), (b) and (c) hereof, then Trading Day shall mean any day except Saturday,
Sunday and any day which shall be a legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
"Transaction Documents" shall have the meaning set forth in the
---------------------
Purchase Agreement.
"Underlying Shares" means, collectively, the shares of Common Stock
-----------------
into which the shares of Preferred Stock are convertible in accordance with the
terms hereof.
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert the shares of 8% Series C Convertible
Preferred Stock of Dataware Technologies, Inc. (the "Corporation") indicated
-----------
below, into shares of the Corporation's common stock, par value $.01 per share
(the "Common Stock"), according to the conditions hereof, as of the date written
------------
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Corporation in accordance therewith. No fee will be charged to
the Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations: ___________________________________________________
Date to Effect Conversion
___________________________________________________
Shares of Preferred Stock owned prior to Conversion
___________________________________________________
Number of shares of Preferred Stock to be Converted
___________________________________________________
Stated Value of shares of Preferred Stock to be
Converted
___________________________________________________
Number of shares of Common Stock to be Issued
___________________________________________________
Applicable Conversion Price
___________________________________________________
Shares of Preferred Stock owned subsequent to
Conversion
___________________________________________________
Signature
___________________________________________________
Name
___________________________________________________
Address
