-----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, L3Dx8WxNE3Rv9v1Z+pDnWaksajnUWAolmbyh2ZEv99KIs3JMXb8PhKrMKJS7qWO5 oIdb6LyBnIXI9vdilmGyxQ== /in/edgar/work/20000901/0000927016-00-003220/0000927016-00-003220.txt : 20000922 0000927016-00-003220.hdr.sgml : 20000922 ACCESSION NUMBER: 0000927016-00-003220 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000831 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATAWARE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000875942 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 061232140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21860 FILM NUMBER: 715934 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 8-K 1 0001.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): AUGUST 31, 2000 DATAWARE TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-21860 06-1232140 (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) ONE CANAL PARK, CAMBRIDGE, MASSACHUSETTS 02141 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (617) 621-0820 ITEM 5. OTHER EVENTS. ------------ On August 31, 2000, Dataware Technologies, Inc. ("Dataware," the "Company" or "we") completed the registered offer and sale of 350 shares of 8% Series C Convertible Preferred Stock, $0.01 par value per share (the "Preferred Shares"), and warrants (the "Warrants") to purchase 362,500 shares of Common Stock, $0.01 par value per share ("Common Stock"), for total proceeds of $3,220,000 (the "Financing"). A summary of the terms of the Preferred Shares and Warrants, and of the Financing, follows. This summary is qualified in its entirety by reference to the specific terms of 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 are filed as exhibits to this Current Report on Form 8-K. The Financing Documents contain the complete details and additional information relating to these and other topics. The Preferred Shares and Warrants, as well as the shares of Common Stock issuable upon conversion or exercise, respectively, of the Preferred Shares and Warrants (the "Underlying Shares") are covered by the Company's Registration Statement on Form S-3 (the "Registration Statement") (File No. 333-37248), which the Securities and Exchange Commission ("SEC") previously declared effective. In order to furnish an exhibit for incorporation by reference into the Registration Statement, the Company hereby files as Exhibit 5.2 to the Registration Statement an opinion of Palmer & Dodge LLP, counsel to the Company, regarding the validity of the Shares. INFORMATION ABOUT THE COMPANY / FORWARD LOOKING STATEMENTS ---------------------------------------------------------- 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 in the Company's press releases, SEC filings, and other oral and written public statements 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 set forth below and those described under "Gross Profit," "Liquidity and Capital Resources" and "Certain Factors That May Affect Future Results" in the Company's Quarterly Report on Form 10-Q, as amended, for the quarter ended June 30, 2000, and in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, that could cause actual results to differ materially from those described in the forward-looking statements. 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 improve operating results sufficiently to ensure we continue to meet the requirements. If we cannot meet the National Market criteria as required by Nasdaq, 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 result in lower market prices for our Common Stock and reduce both our ability to raise necessary financing and 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 anticipated earlier this year. In particular, we have not been able to develop as much business as we had hoped, or to collect significant receivables, from certain 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. TERMS OF PREFERRED SHARES ------------------------- Each Preferred Share has an initial "Stated Value" for dividend and conversion purposes of $10,000. Holders of Preferred Shares are 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 are 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. The holders of Preferred Shares are 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. The holders of Preferred Shares have the option to convert Preferred Shares into Common Shares at any time. The Preferred Shares are 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 3 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. 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 are beneficially owned by the initial purchaser upon Closing, giving effect to these provisions. 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. The Preferred Shares contain no provisions for redemption, whether in our or the holders' control. 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 4 assets to the holders of shares of Common Stock or any other equity or equity equivalent securities of Dataware. 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. 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 holders of Preferred Shares have agreed 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. 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. The Amendment is filed as Exhibit 4.2 to this Form 8-K. 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 issued 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." USE OF PROCEEDS --------------- Dataware received 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 5 offering expenses. We will use the net proceeds for working capital and general corporate purposes. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. ------------------------------------------------------------------ (c) Exhibits: -------- Exhibit No. Description ------- ----------- 3.1 Certificate of Designation dated August 31, 2000, amending the Company's Restated Certificate of Incorporation. 4.1 Convertible Preferred Stock Purchase Agreement between the Company and the Purchasers named therein, dated as of August 31, 2000. 4.2 Third Amendment to Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of August 31, 2000. 4.3 Form of Common Stock Purchase Warrant, dated as of August 31, 2000. 5.2 Opinion of Palmer & Dodge LLP. 23.3 Consent of Palmer & Dodge LLP (included as part of their opinion filed herewith). 6 SIGNATURES 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 hereunto duly authorized. Date: August 31, 2000 DATAWARE TECHNOLOGIES, INC. By: /s/ Michael Gonnerman --------------------------- Michael Gonnerman Vice President, Chief Financial Officer and Treasurer EXHIBIT INDEX Exhibit No. Description - -------- ----------- 3.1 Certificate of Designation dated August 31, 2000, amending the Company's Restated Certificate of Incorporation. 4.1 Convertible Preferred Stock Purchase Agreement between the Company and the Purchasers named therein, dated as of August 31, 2000. 4.2 Third Amendment to Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated as of August 31, 2000. 4.3 Form of Common Stock Purchase Warrant, dated as of August 31, 2000. 5.2 Opinion of Palmer & Dodge LLP. 23.3 Consent of Palmer & Dodge LLP (included as part of their opinion filed herewith). EX-3.1 2 0002.txt CERTIFICATE OF DESIGNATION 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 EXHIBIT A TERMS OF PREFERRED STOCK Section 1. Designation, Amount and Par Value. The series of --------------------------------- preferred stock shall be designated as its 8% Series C Convertible Preferred Stock (the "Preferred Stock"), which series shall consist of 350 (which shall --------------- 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 ------ ------- 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"). ------------ Section 2. Dividends. --------- (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 -2- 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 ------------- 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 ----------- winding-up of the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holders shall be entitled to receive out of the assets of ----------- 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. ---------- (a)(i) Conversions at Option of Holder. Each share of Preferred Stock ------------------------------- 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 -3- 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 --------- "Conversion Notice"). Each Conversion Notice shall specify the number of shares ----------------- 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 --------------- 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 -------------------- 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, ------ American Stock Exchange or Nasdaq SmallCap Market (each, a "Subsequent Market"). ------------------ 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. -------------------------------- (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 -4- 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. -5- (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 ---------------- 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 -------------------- 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. -6- (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 ---------------- (i) $4.69518 (the "Fixed Conversion Price") and (ii) 95% of the average of the ---------------------- 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 -------- 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 -7- 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 ------------------------ 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 -8- 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 -9- 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 -10- 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 -11- 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. -12- "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 -13- 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. -14- 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 EX-4.1 3 0003.txt CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 4.1 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as --------- of August 31, 2000, among Dataware Technologies, Inc., a Delaware corporation (the "Company"), and the investors signatory hereto (each such investor is a ------- "Purchaser" and all such investors are, collectively, the "Purchasers"). --------- ---------- WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Purchasers and the Purchasers, severally and not jointly, desire to purchase from the Company shares of the Company's 8% Series C Convertible Preferred Stock, par value $.01 per share (the "Preferred Stock"), which are convertible into shares of the Company's common --------------- stock, par value $.01 per share (the "Common Stock"), and certain other ------------ securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows: ARTICLE I PURCHASE AND SALE 1.1 The Closing. ----------- (a) The Closing (i) Subject to the terms and conditions set forth in ----------- this Agreement the Company shall issue and sell to the Purchasers and the Purchasers shall, severally and not jointly, purchase an aggregate of 350 shares of Preferred Stock ("Shares") and certain Common Stock purchase warrants as ------ described below in this Section for an aggregate purchase price of $3,220,000. The closing of the purchase and sale of such securities (the "Closing") shall ------- take place at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson Silverman"), 1290 Avenue of the Americas, New York, New York 10104, ------------------- immediately following the execution hereof or such later date as the parties shall agree. The date of the Closing is hereinafter referred to as the "Closing ------- Date." - ---- (ii) At the Closing, the parties shall deliver or shall cause to be delivered the following: (A) the Company shall deliver (1) to each Purchaser (i) an executed Escrow Agreement, in the form of Exhibit C (the "Escrow Agreement"), --------- ---------------- (ii) a stock certificate registered in the name of such Purchaser, representing a number of Shares equal to the quotient obtained by dividing the aggregate stated value indicated below such Purchaser's name on the signature page to this Agreement by 10,000, (iii) a Common Stock purchase warrant, in the form of Exhibit B, registered in the name of such Purchaser, pursuant to which such - --------- Purchaser shall have the right to acquire the number of shares of Common Stock indicated below such Purchaser's name on the signature page to this Agreement (each, a "Warrant" and, collectively, the "Warrants"), and (iv) the legal ------- -------- opinion of Palmer & Dodge LLP, outside counsel to the Company in mutually agreed form, and (2) to the Escrow Agent under the Escrow Agreement, (i) an Executed Escrow Agreement, and (ii) to hold and disburse in accordance with the terms of the Escrow Agreement, stock certificates representing 2,142,395 shares of Common Stock for issuance to the Purchasers 1 upon conversion of the Shares; and (B) each Purchaser shall deliver to the Company (i) the purchase price indicated below such Purchaser's name on the signature page to this Agreement in United States dollars in immediately available funds by wire transfer to an account designated in writing by the Company for such purpose and (ii) a executed Escrow Agreement. 1.2 Terms of Preferred Stock. The Preferred Stock shall have the ------------------------ rights, preferences and privileges set forth in Exhibit A, and shall be --------- incorporated into a Certificate of Designation (the "Certificate of -------------- Designation") to be filed prior to the Closing by the Company with the Secretary - ----------- of State of Delaware, in form and substance mutually agreed to by the parties. 1.3 Certain Defined Terms. For purposes of this Agreement, "Original --------------------- -------- Issue Date" and "Trading Day" shall have the meanings set forth in Exhibit A and - ---------- ----------- --------- "Business Day" shall mean any day except Saturday, Sunday and any day which ------------ shall be a federal legal holiday or a day on which banking institutions in the State of New York or the Commonwealth of Massachusetts are authorized or required by law or other governmental action to close. A "Person" means an ------ individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of the Company. The Company hereby --------------------------------------------- makes the following representations and warranties to the Purchasers: (a) Organization and Qualification. The Company is a corporation duly ------------------------------ incorporated, validly existing and in good standing under the laws of the State of Delaware, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company has no subsidiaries other than as set forth in Schedule 2.1(a) --------------- (collectively, the "Subsidiaries"). Each of the Subsidiaries is an entity, duly ------------ incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of the Securities (as defined below) or any of this Agreement, the Escrow Agreement, the Certificate of Designation, or the Warrants (collectively, the "Transaction Documents"), (y) --------------------- have or result in a material adverse effect on the results of operations, assets, prospects, or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to perform in all material respects on a timely basis its obligations under any of the Transaction Documents (any of (x), (y) or (z), a "Material Adverse Effect"). ----------------------- 2 (b) Authorization; Enforcement. The Company has the requisite -------------------------- corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company. This Agreement has been, and when delivered or filed, as the case may be, each of the other Transaction Documents will have been duly executed by the Company, and will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, by-laws or other organizational or charter documents. (c) Capitalization. The number of authorized, issued and outstanding -------------- capital stock of the Company is set forth in Schedule 2.1(c). Except as --------------- disclosed in Schedule 2.1(c), the Company owns all of the capital stock of each ---------------- Subsidiary. No shares of Common Stock are entitled to preemptive or similar rights, nor is any holder of the securities of the Company or any Subsidiary entitled to preemptive or similar rights arising out of any agreement or understanding with the Company or any Subsidiary by virtue of any of the Transaction Documents. Except as a result of the purchase and sale of the Shares and the Warrants and except as disclosed in Schedule 2.1(c), there are no --------------- outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. The issue and sale of the Shares, Warrants or Underlying Shares (as hereinafter defined) will not obligate the Company to issue shares of Common Stock or other securities to any Person other than the Purchaser and will not result in a right of any holder of Company's securities to adjust the exercise or conversion or reset price under such securities. (d) Issuance of the Shares and the Warrants. The Shares and the --------------------------------------- Warrants are duly authorized and, when issued and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens, encumbrances and rights of first refusal of any kind (collectively, "Liens"). The Company has on the date hereof and will, at ----- all times while the Shares and the Warrants are outstanding, maintain an adequate reserve of duly authorized shares of Common Stock, reserved for issuance to the holders of the Shares and the Warrants, to enable it to perform its conversion, exercise and other obligations under this Agreement, the Certificate of Designation and the Warrants. Such number of reserved and available shares of Common Stock is not less than the sum of (i) 200% of the number of shares of Common Stock which would be issuable upon conversion in full of the Shares, assuming (x) such conversion occurred on the Original Issue Date at the variable conversion price set forth in the Certificate of Designation, (y) the Shares remain outstanding for three years and (z) all accrued dividends are added to the Stated Value (as defined in the Certificate of 3 Designation) and (ii) the number of shares of Common Stock issuable upon exercise of the Warrants (such number of shares of Common Stock as contemplated in clauses (i)-(ii), the "Initial Minimum"). All such authorized shares of --------------- Common Stock shall be duly reserved for issuance to the holders of the Shares and the Warrants. The shares of Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants are collectively referred to herein as the "Underlying Shares." The Shares, the Warrants and the Underlying Shares are ----------------- collectively referred to herein as, the "Securities." When issued to the Escrow ---------- Agent in accordance with the Escrow Agreement and issued to the Purchasers in accordance with the Certificate of Designation and the Warrants, the Underlying Shares will be duly authorized, validly issued, fully paid and nonassessable, free and clear of all Liens. (e) No Conflicts. The execution, delivery and performance of the ------------ Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other charter documents (each as amended through the date hereof), or (ii) subject to obtaining the Required Approvals (as defined below), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, could not have or result in a Material Adverse Effect. (f) Filings, Consents and Approvals. Neither the Company nor any ------------------------------- Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing of the Certificate of Designation with the Secretary of State of Delaware, (ii) the filings required pursuant to Section 3.9, (iii) the filing with the Securities and Exchange Commission (the "Commission") of a supplement describing this transaction (the ---------- "Prospectus Supplement") to the base prospectus included in the Company's - ---------------------- registration statement on Form S-3 (Commission File No.333-37248) (the "Underlying Shares Registration Statement"), which shall occur on the Closing ---------------------------------------- Date, (iv) the application(s) to the Nasdaq National Market ("NASDAQ") for the ------ listing of the Underlying Shares for trading on the NASDAQ (and with any other national securities exchange or market on which the Common Stock is then listed) in the time and manner required thereby, (v) applicable Blue Sky filings, (vi) the consents listed in Schedule 2.1(f), each of which has been --------------- obtained, and (vii) in all other cases where the failure to obtain such consent, waiver, authorization or order, or to give such notice or make such filing or registration could not have or 4 result in, individually or in the aggregate, a Material Adverse Effect (collectively, the "Required Approvals"). ------------------ (g) Litigation; Proceedings. There is no action, suit, inquiry, ----------------------- notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "Action") which (i) ------ adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or result in a Material Adverse Effect. Except as described in the SEC Documents, (i) neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving (A) a claim of violation of or liability under federal or state securities laws or (B) a claim of breach of fiduciary duty; (ii) the Company does not have pending before the Commission any request for confidential treatment of information and the Company has no knowledge of any expected such request that would be made prior to the 90th day after the Closing Date; and (iii) there has not been, and to the best of the Company's knowledge there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. (h) No Default or Violation. Except as set forth on Schedule 2.1(h), ----------------------- neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred which has not been waived which, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound, (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is in violation of any statute, rule or regulation of any governmental authority, in each case of clauses (i), (ii) or (iii) above, except as could not individually or in the aggregate, have or result in a Material Adverse Effect. (i) Registration Statement. The Registration Statement was declared ---------------------- effective by the Commission on May 26, 2000 and the Company has not received notice that the Commission has issued or intends to issue a stop order with respect to the Registration Statement or that the Commission otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so. The Registration Statement (including the information or documents incorporated by reference therein), as of the time it was declared effective, and any amendments or supplements thereto, each as of the time of filing, conformed in all respects to the requirements of the Securities Act and the published rules and regulations of the Commission and did not contain any untrue statement of material fact or omit to state any material fact required to be state therein or necessary to make the statements therein not misleading; and on the Closing Date the Registration Statement and the Prospectus Supplement will conform in all respects to the requirements of the Securities Act and the published rules and regulations of the Commission, and neither of such documents will include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statement therein not misleading. The offer and sale of the Shares and the Warrants, and the offer of the Underlying 5 Shares deemed to be made by virtue of the Shares and the Warrants, are covered by the Registration Statement. (j) SEC Documents; Financial Statements. The Company has filed all ----------------------------------- reports required to be filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including pursuant to Section 13(a) or 15(d) ------------ thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials being collectively referred to herein as the "SEC Documents" and, together with ------------- the Schedules to this Agreement, the "Disclosure Materials") on a timely basis -------------------- or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933 (the "Securities Act") and the -------------- Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All material agreements to which the Company is a party or to which the property or assets of the Company are subject have been filed as exhibits to the SEC Documents as required under the Exchange Act. The financial statements of the Company included in the SEC Documents comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as ---- may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. Since June 30, 2000, except as specifically disclosed in the SEC Documents, (a) there has been no event, occurrence or development that has or that could result in a Material Adverse Effect, (b) the Company has not incurred any liabilities (contingent or otherwise) other than (x) liabilities incurred in the ordinary course of business consistent with past practice and (y) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or otherwise required to be disclosed in filings made with the Commission, (c) the Company has not altered its method of accounting or the identity of its auditors and (d) the Company has not declared or made any payment or distribution of cash or other property to its stockholders or officers or directors (other than in compliance with existing Company stock option and stock purchase plans) with respect to its capital stock, or purchased or redeemed (or made any agreements to purchase or redeem) any shares of its capital stock. (k) Investment Company. The Company is not, and is not an Affiliate ------------------ (as defined in Rule 405 under the Securities Act) of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (l) Certain Fees. No fees or commissions will be payable by the ------------ Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Purchasers shall have no obligation with respect to any fees incurred by the Company or any other Person 6 (other than the Purchasers, if the Purchasers have agreed in writing to pay such fees) or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement, except for fees payable to Cardinal Capital Securities L.L.C. as the Purchasers' agent. Except for such fees due to Cardinal Capital Securities L.L.C., the Company shall indemnify and hold harmless the Purchasers, their employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect of any such claimed or existing fees incurred by the Company or any other Person (other than the Purchasers, if the Purchasers have agreed in writing to pay such fees), as such fees and expenses are incurred. (m) Seniority. No class of equity securities of the Company is senior --------- to the Shares in right of payment, whether upon liquidation or dissolution, or otherwise. (n) Exclusivity. The Company shall not issue and sell the Shares to ----------- any Person other than the Purchasers without specific prior written consent of the Purchasers. (o) Listing and Maintenance Requirements. Except as set forth in the ------------------------------------ SEC Documents or on Schedule 2.1(o), the Company has not, in the two years preceding the date hereof received notice (written or oral) from the NASDAQ, any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted) to the effect that the Company is not in compliance with the listing or maintenance requirements of such exchange, market or trading facility. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (p) Patents and Trademarks. The Company and its Subsidiaries have, or ---------------------- have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and rights which are necessary or material for use in connection with their respective businesses as described in the SEC Documents and which the failure to so have would have a Material Adverse Effect (collectively, the "Intellectual Property Rights"). ---------------------------- Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or its Subsidiaries violates or infringes upon the rights of any Person. To the best knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. (q) Registration Rights; Rights of Participation. The Company has not -------------------------------------------- granted or agreed to grant to any Person any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority which have not been satisfied. No Person, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. (r) Regulatory Permits. The Company and its Subsidiaries possess all ------------------ certificates, authorizations and permits issued by the appropriate federal, state or foreign 7 regulatory authorities necessary to conduct their respective businesses as described in the SEC Documents, except where the failure to possess such permits could not, individually or in the aggregate, have or result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any such ---------------- Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. (s) Title. The Company and the Subsidiaries have good and marketable ----- title in fee simple to all real property owned by them which is material to the business of the Company and its Subsidiaries and good and marketable title in all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and its Subsidiaries are in compliance and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. (t) Labor Relations. No material labor problem exists or, to the --------------- knowledge of the Company, is imminent with respect to any of the employees of the Company. (u) Disclosure. The Company confirms that, except as set forth on ---------- Schedule 2.1(u), neither it nor any other Person acting on its behalf has provided any of the Purchasers or its agents or counsel with any information that constitutes or might constitute material non-public information. The Company understands and confirms that the Purchasers shall be relying on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (v) Shareholders Rights Plan. Neither the consummation of the ------------------------ transactions contemplated hereby nor the issuance of the Underlying Shares, even when taken together with shares of Common Stock issued to the Deephaven Private Placement Trading Ltd. pursuant to the Purchase Agreement dated August 3, 2000, will cause any Purchaser to be deemed an "Acquiring Person" under the Company's shareholders rights plan. 2.2 Representations and Warranties of the Purchasers. Each Purchaser ------------------------------------------------ hereby for itself and for no other Purchaser represents and warrants to the Company as follows: (a) Organization; Authority. Such Purchaser is an entity duly ----------------------- organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The purchase by such Purchaser of the Securities hereunder has been duly authorized by all necessary action on the part of such Purchaser. Each of this Agreement and the Escrow Agreement has been duly executed by such Purchaser, and when delivered by 8 such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) Investment Intent. Such Purchaser is acquiring the Securities as ----------------- principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Purchaser's right at all times to sell or otherwise dispose of all or any part of such Securities. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold Securities for any period of time. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute the Securities. (c) Purchaser Status. At the time such Purchaser was offered the ---------------- Securities, it was, and at the date hereof it is, and at each exercise date under its respective Warrants, it will be, an "accredited investor" as defined in Rule 501(a) under the Securities Act. (d) Experience of such Purchaser. Such Purchaser, either alone or ---------------------------- together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. (e) Ability of such Purchaser to Bear Risk of Investment. Such ---------------------------------------------------- Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (f) Access to Information. Such Purchaser acknowledges that it has --------------------- reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment and to verify the accuracy and completeness of the information contained in the Disclosure Materials. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser's right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company's representations and warranties contained in the Transaction Documents. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 2.2. 9 ARTICLE III OTHER AGREEMENTS OF THE PARTIES 3.1 Transfer Restrictions. (a) Securities may only be disposed of --------------------- pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable federal and state securities laws. As a condition of any transfer of Shares or Warrants, the transferee must agree in writing to be bound by the terms of this Agreement and the Certificate of Designations or Warrants, as applicable. A Purchaser may transfer Shares or Warrants without the consent of the Company only to up to three non-affiliated Persons. (b) Other than a legend indicating the transfer restriction stated in Section 3.1(a), the certificates evidencing the Securities shall not contain any legend at any time. The Company may not make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions of transfer set forth in this Section. 3.2 Acknowledgment of Dilution. The Company acknowledges that the -------------------------- issuance of the Underlying Shares upon (i) conversion of the Shares in accordance with the terms of the Certificate of Designation, and (ii) exercise of the Warrants in accordance with their terms, will result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations to issue Underlying Shares upon (x) conversion of the Shares in accordance with the terms of the Certificate of Designation, and (y) exercise of the Warrants in accordance with their terms, are unconditional and absolute, subject to the limitations set forth herein, in the Certificate of Designation or pursuant to the Warrants, regardless of the effect of any such dilution. 3.3 Furnishing of Information. As long as the Purchasers own Securities, ------------------------- the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if the Company is not required to file reports pursuant to such sections, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act such information as is required for the Purchasers to sell the Securities under Rule 144 promulgated under the Securities Act. 3.4 Integration. The Company shall not, and shall use its best efforts to ----------- ensure that, no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would be integrated with the offer or sale of the Securities for the purposes of the rules and regulations of NASDAQ. 3.5 Increase in Authorized Shares. If on any date the Company would be, ----------------------------- if a notice of conversion or exercise (as the case may be) were to be delivered on such date, precluded from issuing (a) 200% of the number of Underlying Shares as would then be issuable upon a conversion in full of the Shares, and (b) the number of Underlying Shares as would then be issuable upon exercise of the Warrants (the "Current Required Minimum"), in either case, due to ------------------------ 10 the unavailability of a sufficient number of authorized but unissued or reserved shares of Common Stock, then the Board of Directors of the Company shall promptly prepare and mail to the stockholders of the Company proxy materials requesting authorization to amend the Company's certificate or articles of incorporation to increase the number of shares of Common Stock which the Company is authorized to issue to at least such number of shares as reasonably requested by the Purchasers in order to provide for such number of authorized and unissued shares of Common Stock to enable the Company to comply with its issuance, conversion, exercise and reservation of shares obligations as set forth in this Agreement, the Certificate of Designation and the Warrants (the sum of (x) the number of shares of Common Stock then outstanding plus all shares of Common Stock issuable upon exercise of all outstanding options, warrants and convertible instruments, and (y) the Current Required Minimum, shall be a reasonable number). In connection therewith, the Board of Directors shall (a) adopt proper resolutions authorizing such increase, (b) recommend to and otherwise use its best efforts to promptly and duly obtain stockholder approval to carry out such resolutions (and hold a special meeting of the stockholders no later than the earlier to occur of the 60th day after delivery of the proxy materials relating to such meeting and the 90th day after request by a holder of Securities to issue the number of Underlying Shares in accordance with the terms hereof) and (c) within five Business Days of obtaining such stockholder authorization, file an appropriate amendment to the Company's certificate of incorporation to evidence such increase. 3.6 Reservation and Listing of Underlying Shares. (a) The Company shall -------------------------------------------- (i) in the time and manner required by the NASDAQ and any such other exchange, market or quotation facility on which the Common Stock is traded, prepare and file with the NASDAQ (and such other national securities exchange, market or trading or quotation facility on which the Common Stock is then traded) an additional shares listing application covering a number of shares of Common Stock which is not less than the Initial Minimum, and (ii) provide to the Purchasers evidence of such filing, and the Company shall maintain the listing of its Common Stock thereon or any Subsequent Market (as defined in the Certificate of Designation). If the number of Underlying Shares issuable upon conversion in full of the then outstanding Shares and upon exercise of the then unexercised portion of the Warrants exceeds 85% of the number of Underlying Shares previously listed on account thereof with NASDAQ (and any such other required exchanges, then the Company shall take the necessary actions to immediately list a number of Underlying Shares as equals no less than the then Current Required Minimum. (b) The Company shall maintain a reserve of shares of Common Stock for issuance upon conversion of the Shares in full and upon exercise in full of the Warrants in accordance with this Agreement, the Certificate of Designation and the Warrants, respectively, in such amount as may be required to fulfill its obligations in full under the Transaction Documents, which reserve shall equal no less than the then Current Required Minimum. 3.7 Conversion and Exercise Obligations and Procedures. The Company shall -------------------------------------------------- honor conversion of the Shares and exercise of the Warrants and shall deliver Underlying Shares in accordance with the respective terms, conditions and time periods set forth in the Certificate of Designation and Warrants. The Conversion Notice (as defined in the Certificate of Designation) and Notice of Exercise under the Warrants set forth the totality of the procedures with respect to the conversion of the Shares and exercise of the Warrants, including the form of legal opinion, if necessary, that shall be rendered to the Company's transfer agent and such other information and 11 instructions as may be reasonably necessary to enable the Purchasers to convert their Shares and exercise their Warrants as contemplated in the Certificate of Designation and the Warrants (as applicable). 3.8 Subsequent Financing; Limitation on Registrations. (a) Subject to ------------------------------------------------- Section 3.8(d) and (e), from the date hereof through the 90th Trading Day following the Closing Date, the Company will not offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition) any of its or its Affiliates' equity or equity equivalent securities (including the issuance of any debt or other instrument at any time over the life thereof convertible into or exchangeable for Common Stock. (b) Subject to Section 3.8(d) and (e), the Company shall not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition) any of its equity or equity-equivalent securities or securities of any of its Affiliates that are exchangeable or convertible (directly or indirectly) for shares of Common Stock, including the issuance of any debt or other instrument at any time over the life thereof convertible into or exchangeable for Common Stock (collectively, a "Subsequent Placement") from the -------------------- date hereof until the expiration of the 180th Trading Day after the Closing Date, unless (A) the Company delivers to each of the Purchasers a written notice (the "Subsequent Placement Notice") of its intention to effect such Subsequent --------------------------- Placement, which Subsequent Placement Notice shall describe in reasonable detail the proposed terms of such Subsequent Placement, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Placement shall be effected, and attached to which shall be a term sheet or similar document relating thereto and (B) such Purchaser shall not have notified the Company by 6:30 p.m. (New York City time) on the tenth Trading Day after its receipt of the Subsequent Placement Notice of its willingness to provide (or to cause its sole designee to provide), subject to completion of mutually acceptable documentation, financing to the Company on the same terms set forth in the Subsequent Placement Notice. If the Purchasers shall fail to notify the Company of their intention to enter into such negotiations within such time period, the Company may effect the Subsequent Placement substantially upon the terms and to the Persons (or Affiliates of such Persons) set forth in the Subsequent Placement Notice; provided, that the Company shall provide the Purchasers with a -------- second Subsequent Placement Notice, and the Purchasers shall again have the right of first refusal set forth above in this paragraph (a), if the Subsequent Placement subject to the initial Subsequent Placement Notice shall not have been consummated for any reason on the terms set forth in such Subsequent Placement Notice within 30 Trading Days after the date of the initial Subsequent Placement Notice with the Person (or an Affiliate of such Person) identified in the Subsequent Placement Notice. If the Purchasers shall indicate a willingness to provide financing in excess of the amount set forth in the Subsequent Placement Notice, then each Purchaser shall be entitled to provide financing pursuant to such Subsequent Placement Notice up to an amount equal to such Purchaser's pro- rata portion of the aggregate number of Shares purchased by such Purchaser under this Agreement, but the Company shall not be required to accept financing from the Purchasers in an amount in excess of the amount set forth in the Subsequent Placement Notice. (c) Except for Common Stock permitted to be issued pursuant to Section 3.8 (e), the Company shall not, for a period of not less than 90 Trading Days from the Closing Date, without the prior written consent of the Purchasers (i) issue or sell any of its or any of its 12 Affiliates' equity or equity-equivalent securities pursuant to Regulation S promulgated under the Securities Act, or (ii) register any securities of the Company. (d) With respect to Section 3.8(a) and (b), the 90 and 180 Trading Day periods shall be extended for the number of Trading Days during such period in which trading in the Common Stock is suspended by any securities exchange or market or quotation system on which the Common Stock is then listed. (e) The restrictions contained in Section 3.8(a), (b) and (c) above, shall not apply to (i) the granting of options or warrants to employees, officers and directors of the Company, and the issuance of Common Stock upon exercise of such options or warrants granted under any stock option plan heretofore or hereinafter duly adopted by the Company and (ii) issuances of Common Stock pursuant to a Strategic Transaction (as defined herein). A "Strategic Transaction" shall mean a transaction or relationship in which the - ---------------------- Company issues shares of Common Stock to a Person which is, itself or through its subsidiaries, an operating company in a business related to the business of the Company and in which the Company receives material benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities. 3.9 Certain Securities Laws Disclosures; Publicity. The Company shall: ---------------------------------------------- (i) on the Closing Date issue a press release acceptable to the Purchasers disclosing the transactions contemplated hereby, (ii) file with the Commission a Report on Form 8-K disclosing the transactions contemplated hereby within ten Business Days after the Closing Date, and (iii) on the Closing Date file with the Commission the Prospectus Supplement. The Company shall, no less than two Business Days prior to the filing of any disclosure required by clauses (ii) and (iii) above, provide a copy thereof to the Purchasers for their review. The Company and the Purchasers shall consult with each other in issuing any other press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or stock market or trading facility with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement, filings or other communications without the prior written consent of the other, except if such disclosure is required by law or stock market or trading facility regulation, in which such case the disclosing party shall promptly provide the other party with prior notice of such public statement, filing or other communication. Notwithstanding the foregoing, the Company shall not publicly disclose the names of the Purchasers, or include the names of the Purchasers in any filing with the Commission or any regulatory agency, trading facility or stock market without the prior written consent of the Purchasers, except to the extent such disclosure (but not any disclosure as to the controlling Persons thereof) is required by law or stock market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure. 3.10 Use of Proceeds. The Company shall use the net proceeds from the --------------- sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company's debt (other than payment of trade payables in the ordinary course of the Company's business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. 13 3.11 Transfer of Intellectual Property Rights. Except in connection with ---------------------------------------- the sale of all or substantially all of the assets of the Company or licensing arrangements in the ordinary course of the Company's business, the Company shall not transfer, sell or otherwise dispose of any Intellectual Property Rights, or allow any of the Intellectual Property Rights to become subject to any Liens not in existence on the date of this Agreement, or fail to renew such Intellectual Property Rights (if renewable and it would otherwise lapse if not renewed), without the prior written consent of the Purchasers. 3.12 Reimbursement. If any Purchaser becomes involved in any capacity in ------------- any action, proceeding or investigation brought by or against any Person, including stockholders of the Company, solely as a result of acquiring the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement. 3.13 Liquidated Damages. If at any time while the Shares are outstanding ------------------ (provided, that for purposes hereof a Share is outstanding until such time as the Underlying Shares issuable upon conversion thereof following delivery of a Conversion Notice under the Certificate of Designation has been issued and delivered to the converting holder), (i) the Common Stock shall fail to be listed for trading on the Nasdaq or on a Subsequent Market or shall be suspended from trading on the Nasdaq or on a Subsequent Market, in either case, for more than three Trading Days (which need not be consecutive Trading Days), then on such third Trading Day and each weekly anniversary of such third Trading Day thereafter until the Common Stock shall be listed for trading on the Nasdaq and not suspended from trading on the Nasdaq, or (ii) if the Company shall fail to observe or perform any other material covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been remedied within ten Business Days after the date on which written notice of such failure or breach shall have been given, then on such tenth Business Day and each weekly anniversary of such tenth Business Day thereafter until such failure or breach has been cured, the Company shall, in each case, pay an amount in cash to each Purchaser, as liquidated damages and not as penalty, equal to the product of (A) $200,000 and (B) the quotient obtained by dividing (x) the number of Shares issued and sold to such Purchaser on the Closing Date by (y) the number of Shares issued and sold by the Company on the Closing Date, provided, that the Company shall not be obligated to pay to a Purchaser for any single such event in excess of 33% of the purchase price paid by such Purchaser for Shares (as reflected on such Purchaser's signature page to this Agreement). Each event contemplated in clauses (i) and (ii) above is referred to herein as a "Material Event." If the -------------- 14 Company fails to pay such liquidated damages in full pursuant to this Section within seven days after the date first payable, the Company will pay each Purchaser to whom such payment has not been made in full interest thereon at a rate of 18% per annum or such lesser maximum amount that is permitted to be paid by applicable law, accruing daily until such amount, plus all such interest thereon, is paid in full. All amounts payable under this section following a Material Event may, at the option of the Purchasers be paid through additional "Stated Value" of the Shares. 3.14 Shareholder Rights Plan. Subject to compliance by a Purchaser with ----------------------- the voting agreement in this section, no claim will be made or enforced by the Company or any other Person under the Company's control (which shall include members of the board of directors of the Company, senior management of the Company and their respective affiliates) that such Purchaser is an "Acquiring Person" under any shareholders rights plan or similar plan or arrangement in effect on the date hereof or hereafter adopted by the Company, or that such Purchaser could be deemed to trigger the provisions of any such plan or arrangement by virtue of receiving Securities or shares of Common Stock under the Transaction Documents and/or the Purchase Agreement, dated August 3, 2000 with Deephaven Private Placement Trading Ltd. Each Purchaser severally agrees that, (a) so long as it is the beneficial owner of Shares and (b) so long as it is the beneficial owner of 5% or more of the issued and outstanding shares of Common Stock (in each case, as determined pursuant to Section 13(d) of the Exchange Act), it will vote or cause to be voted any and all such Shares or Common Stock, as the case may be, as recommended by the Company's Board of Directors in any meeting of the stockholders of the Company, at any adjournment thereof and whenever the consent of the stockholders of the Company is solicited, subject to the prohibition against voting set forth in Section 5(a)(iii)(C) of the Certificate of Designation. Any vote cast or action taken in contravention of the requirements hereof shall have no force or effect. The Purchasers' obligations under this Section shall not apply to any vote or other stockholder action taken on a matter listed in Section 1(b)(iii) or in clauses (a) through (e) of Section 3 of the Certificate of Designation. 3.15 Additional Prospectus Supplements. If the Company has received the --------------------------------- Shareholder Approval contemplated in the Certificate of Designation or the Common Stock is no longer listed for trading on the Nasdaq National Market or Nasdaq SmallCap Market and the shares of Common Stock covered by the Prospectus Supplement for issuance upon conversion of Shares is less than 125% of the shares of Common Stock issuable upon conversion in full of all then outstanding Shares, then the Company shall within five Business Days of the request therefor by a holder of Shares prepare and file with the Commission such additional prospectus supplements to the Registration Statement as are necessary to cover not less than 150% of the shares of Common Stock then issuable upon conversion in full of the then outstanding Shares. ARTICLE IV MISCELLANEOUS 4.1 Fees and Expenses. At the Closing, the Company shall reimburse ----------------- the Purchasers for their legal fees and expenses incurred in connection with the preparation and negotiation of the Transaction Documents by paying to Robinson Silverman $40,000 for the preparation and negotiation of the Transaction Documents. The amount contemplated by the immediately preceding sentence shall be retained by the Purchasers and shall not be delivered to 15 the Company at the Closing. Other than the amount contemplated herein each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Securities. 4.2 Entire Agreement; Amendments. The Transaction Documents, ---------------------------- together with the Exhibits and Schedules thereto contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 4.3 Notices. Any and all notices or other communications or ------- deliveries required or permitted to be provided hereunder shall be in writing and 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) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement 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, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: If to the Company: Dataware Technologies, Inc. One Canal Park Cambridge, MA 02141 Facsimile No.: (617) 577-2893 Attn: Chief Financial Officer With copies to: Palmer & Dodge LLP One Beacon Street Boston, MA 02118 Facsimile No.: (617) 227-4420 Attn: Matthew C. Dallett If to a Purchaser: To the address set forth under such Purchaser's name on the signature pages hereto. or such other address as may be designated in writing hereafter, in the same manner, by such Person. 4.4 Amendments; Waivers. No provision of this Agreement may be ------------------- waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each of the Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a 16 waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 4.5 Headings. The headings herein are for convenience only, do not -------- constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 4.6 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers and the rights of a Purchaser to transfer Shares and Warrants are subject to the provisions of Section 3.1(a). 4.7 No Third-Party Beneficiaries. This Agreement is intended for ---------------------------- the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. 4.8 Governing Law. The corporate laws of the State of Delaware ------------- shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 4.9 Survival. The representations, warranties, agreements and -------- covenants contained herein shall survive the Closing and the delivery and conversion or exercise (as the case may be) of the Shares and of the Warrants. 4.10 Execution. This Agreement may be executed in two or more --------- counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 17 4.11 Severability. In case any one or more of the provisions of this ------------ Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affecting or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 4.12 Remedies. In addition to being entitled to exercise all rights -------- provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance of each other's obligations under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 4.13 Independent Nature of Purchasers' Obligations and Rights. The -------------------------------------------------------- obligations of each Purchaser under any Transaction Document is several and not joint with the obligations of any other Purchaser and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 18 IN WITNESS WHEREOF, the parties hereto have caused this Convertible Preferred Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. DATAWARE TECHNOLOGIES, INC. By: /s/ Michael Gonnerman Name: Michael Gonnerman Title: Vice President and Chief Financial Officer [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF PURCHASERS FOLLOW] 19 DEEPHAVEN PRIVATE PLACEMENT TRADING LTD. By: /s/ Gary Sobczak Name: Gary Sobczak Title: Chief Financial Officer Purchase Price: $3,220,000 Aggregate Stated Value: $3,500,000 Warrants to be issued at Closing: 362,500 Address for Notice: Deephaven Private Placement Trading Ltd. c/o Deephaven Capital Management LLC 130 Cheshire Lane Minnetonka, MN 55305 Facsimile No.: (612) 249-5320 Attn: Bruce Lieberman With copies to: Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, NY 10104 Facsimile No.: (212) 541-4630 and (212) 541-1432 Attn: Eric L. Cohen, Esq. 20 EX-4.2 4 0004.txt THIRD AMENDMENT TO RIGHTS AGREEMENT EXHIBIT 4.2 THIRD AMENDMENT TO RIGHTS AGREEMENT This THIRD AMENDMENT TO THE RIGHTS AGREEMENT dated July 8, 1996, between Dataware Technologies, Inc., a Delaware corporation (the "Company"), and American Stock Transfer & Trust Company, a New York corporation, as Rights Agent, as amended to date (the "Agreement"), is dated as of August 31, 2000. Capitalized terms used and not defined herein have the same respective meanings as in the Agreement. Except as set forth herein, the Agreement shall remain in force without change. WHEREAS, on August 25, 2000, the Board of Directors of the Company authorized the issuance and sale of shares of the Company's Series C Convertible Preferred Stock (the "Series C Shares") and approved this Third Amendment to the Agreement as an inducement to such issuance and sale; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Amendment. Pursuant to Section 27 of the Agreement, the Agreement is hereby amended by deleting subsection 1(a) thereof in its entirety and substituting therefor the following new subsection 1(a): "(a) 'Acquiring Person' at any time shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding. Notwithstanding the foregoing, the term "Acquiring Person" shall not include the Company, any Company Affiliate or any "Purchaser," as such term is defined in the Convertible Preferred Stock Purchase Agreement of even date herewith by and among the Company and the Purchasers party thereto (the "Purchase Agreement"), as long as such Purchaser continues to be in compliance with Section 3.14 ("Shareholder Rights Plan") of the Purchase Agreement." Section 2. Effect of Amendment. Except as expressly amended hereby, the Rights Plan shall continue in full force and effect. All references in the Agreement, any Rights Certificate or any related agreement, instrument or document shall hereafter refer to the Agreement as amended hereby. Section 3. Counterparts. This Third Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. [CORPORATE SEAL] DATAWARE TECHNOLOGIES, INC. By: /s/ Michael Gonnerman Michael S. Gonnerman, Vice President and Chief Financial Officer [CORPORATE SEAL] AMERICAN STOCK TRANSFER AND TRUST COMPANY By: /s/ Herbert J. Lemmer Name: Herbert J. Lemmer Title: Vice President 2 EX-4.3 5 0005.txt FORM OF COMMON STOCK PURCHASE WARRANT EXHIBIT 4.3 THE TRANSFER OF THIS WARRANT IS SUBJECT TO RESTRICTIONS SET FORTH IN SECTION 3.1(A) OF THE PURCHASE AGREEMENT BETWEEN DATAWARE TECHNOLOGIES, INC. AND THE ORIGINAL HOLDERS OF THIS WARRANT. DATAWARE TECHNOLOGIES, INC. WARRANT ------- Warrant No.1 Dated: August 31, 2000 Dataware Technologies, Inc., a Delaware corporation (the "Corporation"), hereby certifies that, for value received, Deephaven Private Placement Trading Ltd. or its registered assigns ("Holder"), is entitled, subject to the terms set forth below, to purchase from the Corporation up to a total of 262,500 shares of common stock, $.01 par value per share (the "Common Stock"), of the Corporation (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $4.69518 per share (as adjusted from time to time as provided in Section 8, the "Exercise Price"), payable in accordance with Section 9 hereof, at any time and from time to time from and after the date hereof and through and including August 31, 2005 (the "Expiration Date"), and subject to the following terms and conditions: 1. Registration of Warrant. The Corporation shall register this ----------------------- Warrant, upon records to be maintained by the Corporation for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Corporation may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, and the Corporation shall not be affected by notice to the contrary. 2. Registration of Transfers and Exchanges. --------------------------------------- (a) The Corporation shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Corporation at its address for notice set forth in Section 12. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant. (b) This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Corporation at its address for notice set forth in Section 12 for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant 1 Shares which may then be purchased hereunder. Any such New Warrant will be dated the date of such exchange. 3. Duration and Exercise of Warrants. --------------------------------- (a) This Warrant shall be exercisable by the registered Holder on any business day before 6:30 P.M., New York City time, at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value. Prior to the Expiration Date, the Corporation may not call or otherwise redeem this Warrant. (b) Upon delivery of a duly completed and signed Form of Election to Purchase attached hereto (and the grid attached hereto as Annex A) ------- duly completed and signed, to the Corporation at its address for notice set forth in Section 12 and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, in the manner provided hereunder, all as specified by the Holder in the Form of Election to Purchase, the Corporation shall promptly (but in no event later than 3 business days after the Date of Exercise (as defined herein)) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends. Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. The Corporation shall, upon request of the Holder, if available, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. A "Date of Exercise" means the date on which the Corporation shall have received the Form of Election to Purchase completed and duly signed. (c) This Warrant shall be exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. 4. [INTENTIONALLY DELETED] 5. Payment of Taxes. The Corporation will pay all documentary stamp ---------------- taxes attributable to the issuance of Warrant Shares upon the exercise of this Warrant; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 6. Replacement of Warrant. If this Warrant is mutilated, lost, ---------------------- stolen or destroyed, the Corporation shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or 2 destruction and indemnity, if requested, satisfactory to it. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable charges as the Corporation may prescribe. 7. Reservation of Warrant Shares. The Corporation covenants that it ----------------------------- will at all times reserve and keep available out of the aggregate of its authorized but unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8). The Corporation covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 8. Certain Adjustments. The Exercise Price and number of Warrant ------------------- Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8. (a) If the Corporation, at any time while this Warrant is outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on outstanding preferred stock as of the date hereof which contain a stated dividend rate) or otherwise make a distribution or distributions on shares of its Common Stock or on any other class of capital stock payable in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of shares, or (iii) combine outstanding shares of Common Stock into a smaller number of shares, the Exercise 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 (excluding treasury shares, if any) outstanding after such event. Any adjustment made pursuant to this Section 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 or combination, and shall apply to successive subdivisions and combinations. (b) In case of any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then the Holder shall have the right thereafter to exercise this Warrant only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities or property equal to the amount of Warrant Shares such Holder would have been entitled to had such Holder exercised this Warrant immediately prior to such reclassification or share exchange. The terms of any such reclassification or share exchange shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 8(b) upon any exercise following any such reclassification or share exchange. (c) If the Corporation, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to holders of this Warrant) evidences of 3 its indebtedness or assets or rights or warrants to subscribe for or purchase any security (excluding those referred to in Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be determined by multiplying the Exercise 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 Exercise Price determined as of the record date mentioned above, and of which the numerator shall be such Exercise Price 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 reasonably determined by the Corporation's independent certified public accountants that regularly examines the financial statements of the Corporation (an "Appraiser"). (d) In case of any (1) merger or consolidation of the Corporation with or into another Person, or (2) sale by the Corporation of more than one-half of the assets of the Corporation (on a book value basis) in one or a series of related transactions, the Holder shall have the right thereafter to (A) exercise this Warrant for 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 the Holder shall be entitled upon such event or series of related events to receive such securities, cash and property as the Common Stock for which this Warrant could have been exercised 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 common stock purchase warrants equal to the number Warrant Shares to which this Warrant then permits, which newly warrant shall be identical to this Warrant, and (y) simultaneously with the issuance of such warrant, the Holder of such warrant shall have the right to exercise such warrant 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 or consolidation or (C) in the case of a merger or consolidation (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 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 exercise rights of the Holder nor the Holder's right to resell Warrant Shares are restricted or impaired in any way as a result of such merger or consolidation) exercise this Warrant for 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 the 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 Common Stock for which this Warrant could have been exercised immediately prior to such merger, consolidation or sales would have been entitled. In the case of clause (B), the exercise price for such new warrant shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such transaction and the Exercise Price of this Warrant immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale or consolidation shall include such terms so as continue to give the Holder the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events. (e) For the purposes of this Section 8, the following clauses shall also be applicable: 4 (i) Record Date. In case the Corporation shall take a ----------- record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in securities convertible or exchangeable into shares of Common Stock, or (B) to subscribe for or purchase Common Stock or securities convertible or exchangeable into shares of Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (ii) Treasury Shares. 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. (f) All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. (g) If: (i) the Corporation shall declare a dividend (or any other distribution) on its Common Stock; or (ii) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or (iii) the Corporation shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or (iv) 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 exchange whereby the Common Stock is converted into other securities, cash or property; or (v) the Corporation shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Corporation, then the Corporation shall cause to be mailed to each Holder at their last addresses as they shall appear upon the Warrant Register, 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 5 to be taken, the date as of which the holders of Common Stock of 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 shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any -------- ------- defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. 9. Payment of Exercise Price. The Holder shall pay the Exercise ------------------------- Price through a "net" or "cashless" exercise method (and shall not pay cash), whereupon the Corporation shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the closing sale prices of the Common Stock for the five (5) trading days immediately prior to (but not including) the Date of Exercise. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the issue date. 10. Certain Exercise Restrictions. ----------------------------- (a) A Holder may not exercise this Warrant to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules ------------ promulgated thereunder) in excess of 4.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon such exercise and 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 an exercise hereunder, unless the exercise 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 exercise hereunder and to the extent that the Holder 6 determines that the limitation contained in this Section applies, the determination of which portion of this Warrant is exercisable shall be the responsibility and obligation of the Holder. If the Holder has delivered a Form of Election to Purchase for a number of Warrant Shares 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 exercise for the maximum portion of this Warrant permitted to be exercised on such Date of Exercise in accordance with the periods described herein and, at the option of the Holder, either keep the portion of the Warrant tendered for exercise in excess of the permitted amount hereunder for future exercises or return such excess portion of the Warrant 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 exercise this Warrant to the extent such exercise 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 such exercise and 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 an exercise hereunder, unless the exercise 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 exercise hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of this Warrant is exercisable shall be the responsibility and obligation of the Holder. If the Holder has delivered a Form of Election to Purchase for a number of Warrant Shares 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 exercise for the maximum portion of this Warrant permitted to be exercised on such Date of Exercise in accordance with the periods described herein and, at the option of the Holder, either keep the portion of the Warrant tendered for exercise in excess of the permitted amount hereunder for future exercises or return such excess portion of the Warrant 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. 11. Fractional Shares. The Corporation shall not be required to ----------------- issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable on the exercise of this Warrant, the Corporation shall pay an amount in cash equal to the Exercise Price multiplied by such fraction. 7 12. Notices. Any and all notices or other communications or ------- deliveries hereunder shall be in writing and 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) on a business day, (ii) the business day 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, (iii) the business day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Corporation, to One Canal Park Cambridge, MA 02141 Facsimile No.: (617) 577- 2893, attn: Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Corporation in accordance with this Section. 13. Warrant Agent. The Corporation shall serve as warrant agent ------------- under this Warrant. Upon thirty days' notice to the Holder, the Corporation may appoint a new warrant agent. Any corporation into which the Corporation or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Corporation or any new warrant agent shall be a party or any corporation to which the Corporation or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 14. Miscellaneous. ------------- (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. This Warrant may be amended only in writing signed by the Corporation and the Holder and their successors and assigns. (b) Subject to Section 14(a), above, nothing in this Warrant shall be construed to give to any person or corporation other than the Corporation and the Holder any legal or equitable right, remedy or cause under this Warrant. This Warrant shall inure to the sole and exclusive benefit of the Corporation and the Holder. (c) The corporate laws of the State of Delaware shall govern all issues concerning the relative rights of the Corporation and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Corporation and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, 8 action or proceeding is improper. Each of the Corporation and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Corporation at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (d) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (e) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. DATAWARE TECHNOLOGIES, INC. By: /s/ Michael Gonnerman Name: Michael Gonnerman Title: Vice President and Chief Financial Officer 9 FORM OF ELECTION TO PURCHASE To Dataware Technologies, Inc.: The undersigned is the holder of a Warrant, dated August 31, 2000 (Warrant No. __) to acquire shares of your common stock, $.01 par value per share ("Common Stock"). The undersigned hereby irrevocably elects to purchase ________ shares of Common Stock under such Warrant. The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER (Please print name and address) Dated:_________, Name of Holder: (Print)________________________________ (By:)__________________________________ (Name:) (Title:) (Signature must conform in all respects to name of holder as specified on the face of the Warrant) 10 Annex A -------
- ----------------------------------------------------------------------------------- Date Number of Warrant Number of Warrant Number of Shares Available to Shares Exercised Warrant Shares be Exercised Remaining to be Exercised - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------
11 FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Dataware Technologies, Inc. to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Dataware Technologies, Inc. with full power of substitution in the premises. Dated: _______________, ____ _______________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) _______________________________________ Address of Transferee _______________________________________ _______________________________________ In the presence of: __________________________ 12 EX-5.2 6 0006.txt OPINION OF PALMER & DODGE LLP EXHIBIT 5.2 [LETTERHEAD OF PALMER & DODGE LLP] August 31, 2000 Dataware Technologies, Inc. One Canal Park Cambridge, MA 02141 Reference is made to our opinion dated May 17, 2000 and included as Exhibit 5.1 to the Registration Statement on Form S-3 (Commission File No. 333-37248) (the "Registration Statement") filed on May 17, 2000 by Dataware Technologies, Inc. (the "Company"), a Delaware corporation, with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). We are rendering this supplemental opinion in connection with the prospectus supplement (the "Prospectus Supplement") and base prospectus (the "Base Prospectus") filed on or about August 31, 2000 by the Company with the Commission pursuant to Rule 424 under the Securities Act. The Prospectus Supplement relates to the offering by the Company of (i) 350 shares of 8% Series C Convertible Preferred Stock, $0.01 par value per share ("Preferred Shares"), (ii) Common Stock Purchase Warrants ("Warrants") exercisable for up to 362,500 shares of the Company's Common Stock, $0.01 par value per share, and (iii) up to 2,504,895 shares of the Company's Common Stock ("Underlying Shares") issuable upon conversion of the Preferred Shares and exercise of the Warrants, respectively. The Preferred Shares, the Warrants, and the Underlying Shares (collectively, the "Securities") are covered by the Registration Statement. We understand that the Preferred Shares Shares and the Warrants are to be offered and sold, and the Underlying Shares to be issued, in the manner, respectively, described in the Prospectus Supplement. We have acted as your counsel in connection with the preparation of the Registration Statement, the Prospectus Supplement and the Base Prospectus. We are familiar with the proceedings of the Board of Directors of the Company in connection with the authorization, issuance and sale of the Securities. We have examined such other documents as we consider necessary to render this opinion. Based upon the foregoing, we are of the opinion that (i) the Preferred Shares and the Warrants have been duly authorized and, when issued and delivered against payment therefore as contemplated by the Prospectus Supplement, will be validly issued, fully paid and non-assessable and (ii) the Underlying Shares have been duly authorized and, when issued and delivered upon conversion of the Preferred Shares or exercise of the Warrants, respectively, as contemplated by the Prospectus Supplement, will be validly issued, fully paid and non- assessable. We hereby consent to the filing of this opinion as a part of the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Base Prospectus. Very truly yours, /s/ Palmer & Dodge LLP Palmer & Dodge LLP -----END PRIVACY-ENHANCED MESSAGE-----