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Pursuant to Rule 424(b)(2)
Registration No. 333-37248
PROSPECTUS SUPPLEMENT DATED AUGUST 31, 2000
TO PROSPECTUS DATED MAY 26, 2000
DATAWARE TECHNOLOGIES, INC.
350 SHARES 8% SERIES C CONVERTIBLE PREFERRED STOCK, $0.01 PAR VALUE PER SHARE
362,500 COMMON STOCK PURCHASE WARRANTS
2,504,895 SHARES COMMON STOCK, $0.01 PAR VALUE PER SHARE
Dataware Technologies, Inc. is offering, in a privately-negotiated
transaction, 350 shares (the "Preferred Shares") of our 8% Series C Convertible
Preferred Stock, $0.01 par value per share ("Series C Preferred Stock"), and
Warrants (the "Warrants") to purchase 362,500 shares of our Common Stock, $0.01
par value per share ("Common Stock"), as well as up to 2,504,895 shares (the
"Underlying Shares") of our Common Stock issuable from time to time upon
conversion of the Preferred Shares and upon exercise of the Warrants.
We are issuing the Preferred Shares and Warrants directly to the purchaser
pursuant to a Convertible Preferred Stock Purchase Agreement dated as of August
31, 2000.
Our common stock is traded on the Nasdaq National Market under the symbol
"DWTI." On August 30, 2000, the last sale price for our common stock as
reported by the Nasdaq was $3.9375 per share.
We will receive gross proceeds of $3,220,000 from the sale of the Preferred
Shares and Warrants, and we expect to incur approximately $80,000 in offering
expenses. After deducting our estimated expenses, we will receive approximately
$3,140,000.
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INVESTING IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISK. THESE RISKS ARE
DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 4 OF THE
ACCOMPANYING PROSPECTUS AND UNDER THE CAPTION "ADDITIONAL RISK FACTORS" ON PAGE
S-3 OF THIS PROSPECTUS SUPPLEMENT.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Dataware Technologies, Inc. . One Canal Park . Cambridge, Massachusetts 02141
(617) 621-0820
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TABLE OF CONTENTS
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PAGE
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Additional Risk Factors................................................. S-3
The Financing........................................................... S-4
Terms of Preferred Shares............................................... S-6
Terms of Warrants....................................................... S-6
Other Provisions........................................................ S-6
Use of Proceeds......................................................... S-6
Plan of Distribution.................................................... S-6
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______________________
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with information that is different.
You should not assume that the information in this prospectus supplement, the
accompanying prospectus or any document incorporated by reference is accurate as
of any date other than the date of the applicable document.
______________________
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ADDITIONAL RISK FACTORS
IN MAKING AN INVESTMENT IN DATAWARE'S SECURITIES, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THOSE LISTED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 4 OF THE PROSPECTUS.
WE MAY BE UNABLE TO MAINTAIN OUR LISTING ON THE NASDAQ NATIONAL MARKET, WHICH
MAY REDUCE THE LIQUIDITY OF OUR TRADING MARKET.
At June 30, 2000, we were not in compliance with the criteria for
maintenance of our Nasdaq National Market listing in that our tangible net worth
is significantly less than the $4 million required. We have been asked by
Nasdaq to provide them with our plans and timetable for achieving compliance.
We expect that the sale of the Preferred Shares and Warrants will improve our
tangible net worth, but we also must be able to raise additional equity
financing and/or increase operating revenues sufficiently to ensure we continue
to meet the requirements. If we cannot meet the National Market criteria within
the time required by Nasdaq (which is not currently known, but is likely to be
short), our shares will no longer be listed on the Nasdaq National Market. A
listing on the Nasdaq Small Cap Market provides less visibility and a less
active trading market than the National Market. That might both result in lower
market prices for our Common Stock and reduce the ability of investors to sell
when and on terms they wish.
OUR OPERATING RESULTS HAVE BEEN, AND MAY CONTINUE TO BE, HAMPERED BY THE
LIQUIDITY CONCERNS OF SOME OF OUR CUSTOMERS, PARTICULARLY INTERNET-FOCUSED
BUSINESSES. THIS WILL RESULT IN OUR HAVING LESS CASH TO INVEST IN THE GROWTH OF
OUR BUSINESS AND OUR NEAR-TERM REVENUES MAY NOT BE AS HIGH AS WE HAD FORECAST.
We have not been able to increase our revenues as quickly as we had
predicted earlier this year. In particular, we have not been able to develop as
much business as we had hoped, or to collect certain significant receivables,
from internet-focused companies (so-called "dot.coms") due in part to their
liquidity troubles caused by the decline in their stock market values.
Accordingly, we will not have as much cash to invest in the growth of our
business as we had hoped. This means that our revenues may not grow as quickly
as we had predicted.
THE FINANCING
We are issuing 350 shares of 8% Series C Convertible Preferred Stock
(the "Preferred Shares"), which are convertible into shares of our Common Stock
("Common Shares"), as well as warrants (the "Warrants") to purchase 362,500
Common Shares, for an aggregate purchase price of $3,220,000. The mechanics of
conversion, dividend payments, and other features of the Preferred Shares, the
exercise and other terms of the Warrants and certain other aspects of this
financing transaction (the "Financing") are summarized below. However, this
summary is qualified in its entirety by reference to the agreements and other
documents under which the Financing is taking place, particularly the
Certificate of Designation setting forth the terms of the Preferred Shares, the
Convertible Preferred Stock Purchase Agreement, and the form of Warrant
(collectively, the "Financing Documents") that will be provided to each
purchaser before the Closing and that will be filed as exhibits to Dataware's
Current Report on Form 8-K expected to be filed with the Securities and Exchange
Commission on or about August 31, 2000. The
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Financing Documents contain the complete details and additional information
relating to these and other topics.
TERMS OF PREFERRED SHARES
OVERVIEW. Each Preferred Share has an initial "Stated Value" for
dividend and conversion purposes of $10,000. Holders of Preferred Shares will be
entitled to receive dividends at the rate of 8% of the Stated Value per annum.
The Stated Value per share will increase to the extent dividends accrue rather
than being paid in cash. The Preferred Shares will be convertible into Common
Shares at a rate that fluctuates with, and at a discount to, the market price of
the Common Stock. Following a merger in which control of Dataware changes hands
or a sale of our assets, the holders of Preferred Shares would be entitled to
receive 150% of the Common Shares they would otherwise receive when they convert
the Preferred Shares.
DIVIDENDS. The holders of Preferred Shares will be entitled to
receive cumulative dividends at the rate of 8% of the then-current Stated Value
per annum. Dividends are payable on each date on which a holder presents
Preferred Shares for conversion into Common Shares. We have the option each time
to pay dividends in cash or to accrue them. If we accrue dividends, they
increase the Stated Value of the unconverted Preferred Shares and are thus
subject to compounding until paid. The Preferred Shares rank senior with respect
to the payment of dividends to our Common Shares and to any other equity or
equity equivalent securities of Dataware other than those securities that are
currently outstanding and specifically provide that they are senior to the
Series C Preferred Stock with respect to dividends.
CONVERSION. The holders of Preferred Shares will have the option to
convert Preferred Shares into Common Shares at any time. The Preferred Shares
will be convertible into the number of Common Shares equal to the aggregate
Stated Value (as this value may have been increased by accruing and compounding
of dividends) of the number of Preferred Shares being converted, divided by the
Conversion Price as of that time. The "Conversion Price" floats at an amount
that equals 95% of the average of the 3 lowest closing bid prices of our Common
Stock in the 30 trading day period before the date of conversion. The Conversion
Price is subject to a cap (the "Fixed Conversion Price") equal to 120% of the
average of the 5 most recent closing bid prices before the date of the Closing
of the Financing. The Conversion Price or the Fixed Conversion Price (and
therefore the number of Common Shares issuable upon conversion of the Preferred
Shares) may be adjusted in the event that we take certain corporate actions,
such as:
. paying a stock dividend or making other distributions on shares of our
capital stock (other than the Preferred Shares) payable in Common Shares;
. subdividing, splitting or combining the outstanding Common Shares;
. issuing shares of capital stock upon reclassification or exchange of our
Common Shares;
. issuing shares, or warrants, rights or options to holders of Common Shares
(but not holders of Preferred Shares) entitling them to subscribe or convert
for Common Shares at a price below the Conversion Price in effect at any
time; or
. distributing to the holders of Common Shares evidence of indebtedness or
assets or rights or warrants to subscribe for any security of Dataware.
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A holder of Preferred Shares and Warrants may not utilize its conversion or
exercise rights to the extent that after such conversion or exercise, such
holder, together with its affiliates, would beneficially own over 4.999% and
9.999% of the outstanding Common Shares. This restriction may be waived by each
holder on not less than 61 days' notice to us. Since the number of Common
Shares issuable upon conversion of the Preferred Shares and exercise of the
Warrants will change based upon fluctuations of the market price of our Common
Shares before a conversion or exercise, the actual number of Common Shares that
will be issued under the Preferred Shares and Warrants, and consequently the
number of Common Shares that will be beneficially owned by such holder cannot be
determined at this time. This Prospectus Supplement covers more than the number
of Common Shares that would be beneficially owned by the initial purchaser upon
Closing. However, the 4.999% and 9.999% limitation would not prevent a holder
from acquiring and selling in excess of 4.999% and 9.999% of our Common Shares
through a series of conversions and sales under Preferred Shares and exercise of
Warrants.
In addition, under Nasdaq rules, we cannot issue shares at below-market
prices in an amount equal to 20% or more of the number of currently outstanding
shares of our Common Stock. Under the Financing Documents, if a conversion of
all Preferred Shares would cause us to exceed 19.999% of the Common Shares
outstanding immediately before the Closing of the Financing (2,142,395 shares),
we may seek shareholder approval to exceed the limit. If we do not obtain
shareholder approval, we will be required to delist from Nasdaq and have our
Common Shares quoted on the OTC Bulletin Board, which does not have a limit on
the number of shares issuable at below-market prices.
We must convert all outstanding Preferred Shares into Common Shares on the
third anniversary of the Closing of the Financing, unless this conversion is not
permitted at that time. The automatic conversion of Preferred Shares would be
delayed beyond that date for certain reasons, including that the issuance of the
Common Shares would exceed the Nasdaq share issuance limits or for so long as we
are in default under any of the Financing Documents.
NO REDEMPTION. The Preferred Shares contain no provisions for redemption,
whether in our or the holders' control.
LIQUIDATION PREFERENCE. In liquidation, the holders of Preferred Shares
would be entitled to receive the then-current Stated Value of the outstanding
Preferred Shares before the distribution of any cash or assets to the holders of
shares of Common Stock or any other equity or equity equivalent securities of
Dataware.
MERGER OR SALE. In a merger in which control of Dataware changes hands, or
upon the sale of more than one-half of our assets, the holders of Preferred
Shares would be entitled to convert all outstanding shares of Series C Preferred
Stock into the securities or other property to be received by the holders of
Common Stock at the rate of 150% of the amount they would have received upon
conversion in the absence of such merger or sale.
VOTING RIGHTS. Subject to certain protective provisions provided in the
Certificate of Designation establishing the Preferred Shares, the Preferred
Shares do not carry voting rights. As a condition of our agreeing to amend our
Shareholder Rights Plan as described below, the
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holders of Preferred Shares will agree to vote their Preferred Shares or Common
Shares, as the case may be, as requested by the Board of Directors on all
matters at any time that they own Preferred Shares or own more than 5% of the
outstanding Common Shares.
EXEMPTION FROM SHAREHOLDER RIGHTS PLAN. We have amended our Shareholder
Rights Plan to exclude each holder of Preferred Shares from the definition of an
"Acquiring Person" whose share acquisitions trigger the protective provisions of
that Plan, as long as the holder of Preferred Shares remains bound to vote as
described above.
NEW FINANCINGS. We may not consummate new financings without the approval
of the holders of Preferred Shares for 90 trading days following the Closing of
the Financing. Furthermore, we are required to give the holders of Preferred
Shares first refusal rights on future financings for 180 trading days following
the Closing of the Financing.
TERMS OF WARRANTS
We are issuing to the purchasers of the Preferred Shares Warrants to
purchase up to 362,500 Common Shares. Each Warrant has a term of 5 years and an
exercise price of 120% of the average of the 5 most recent closing bid prices of
our Common Stock before the date of the Closing of the Financing. Holders of the
Warrants may exercise the Warrants only on a "cashless" basis by surrendering a
portion of the Warrants in exchange for Common Shares issuable upon exercise of
the unsurrendered portion. With respect to warrants to purchase 262,500 Common
Shares, in the event of a merger in which control of Dataware changes hands, or
a sale of more than one-half of our assets, the holders of Warrants would be
entitled to exercise the Warrants for the securities or other property to be
received by the holders of Common Shares at the rate of 150% of the amount they
would have received upon exercise in the absence of such merger or sale.
Additionally, the exercise price and the number of Common Shares issuable upon
exercise of the Warrants may be adjusted in the event that we undertake
corporate transactions such as the ones described above under "Terms of
Preferred Shares - Conversion."
OTHER PROVISIONS
ESCROW OF COMMON SHARES. In order to facilitate the conversion of the
Preferred Shares, we will establish an escrow into which we will place Common
Share stock certificates. The Preferred Shareholders will agree that, while in
escrow, these certificates will not represent issued and outstanding Common
Shares nor will they confer any rights of a shareholder upon the holder thereof.
Upon conversion of the Preferred Shares, the escrow agent will deliver such
certificates to the holders of Preferred Shares, whereupon they will be deemed
to represent validly issued Common Shares.
LIQUIDATED DAMAGES. In the event of certain defaults in our obligations
under the Financing Documents, or if our stock is delisted from the Nasdaq
SmallCap Market, we could be liable to the holders of Preferred Shares for
liquidated damages in the amount of $200,000 per week until either the default
is cured or we have paid 33% of the original purchase price of the Preferred
Shares to the holders of the Preferred Shares and Warrants.
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USE OF PROCEEDS
We will receive aggregate gross proceeds from the sale of Preferred Shares
and Warrants in the Financing of $3,220,000, and we expect to incur
approximately $80,000 in offering expenses. We will use the net proceeds for
working capital and general corporate purposes.
PLAN OF DISTRIBUTION
We are selling the Preferred Shares and Warrants offered under this
prospectus supplement directly to an investor in a privately-negotiated
transaction. Our employees will not receive any compensation based upon their
participation in this offering and, pursuant to Rule 3a4-1 of the Exchange Act,
will not be deemed to be brokers as defined in the Exchange Act.
We determined the amount of the investment, the formula for the conversion
price, the warrant exercise price, and the other financial terms of the
Financing through negotiations with the purchaser.
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