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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) - December 10, 1999
Data Race, Inc.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation)
0-20706 74-2272363
(Commission File Number) (I.R.S. Employer Identification No.)
12400 Network Blvd.
San Antonio, Texas 78249
(210) 263-2000
(Address of Principal Executive Offices and Telephone Number, Including Area
Code)
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Item 5. Other Events.
Completion of a Private Placement.
On December 10, Data Race, Inc. (the "Company") completed a private
placement of 1,904,761 shares of its common stock (the "Common Shares"), and
warrants to purchase 571,429 shares of common stock (the "Warrants") to
Cranshire Capital, L.P., Keyway Investments Ltd., and Lionhart Investments Ltd.
(the "Investors"), for an aggregate price of $4,000,000. The Warrants are
exercisable at a price of $3.00 per share through December 10, 2001. The
Company intends to use the proceeds from the private placement primarily for
general corporate purposes.
The Company has agreed to file a registration statement under the
Securities Act of 1933, covering the resale of the Common Shares and the shares
of common stock issuable upon exercise of the Warrants. The Company will incur
certain penalties if the registration statement is not filed by January 9, 2000,
or declared effective by April 8, 2000. These penalties may be paid in cash or,
at the Investors' option, in common stock. In addition, if the Company issues
additional shares of common stock prior to the effective date of the
registration statement, then antidilution provisions contained in the securities
purchase agreement may require the Company to issue additional shares of common
stock to the Investors so as to prevent dilution of the Investors' investment in
the Company.
In connection with the private placement, the Company granted to the
Investors a right of first refusal to purchase additional securities issued by
the Company (subject to certain exceptions) prior to June 7, 2000.
As compensation for the investment by the Investors, the Company paid
to a placement agent a cash fee equal to 6% of the gross proceeds received by
the Company from the Investors.
THE SUMMARY OF THE PRIVATE PLACEMENT SET FORTH ABOVE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE SECURITIES PURCHASE AGREEMENT, THE WARRANT
AGREEMENTS, AND THE REGISTRATION RIGHTS AGREEMENT EXECUTED BY THE COMPANY IN
CONNECTION WITH THE PRIVATE PLACEMENT. SUCH DOCUMENTS ARE FILED AS EXHIBITS TO
THIS FORM 8-K.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit Description
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10.1 Securities Purchase Agreement dated December 10, 1999,
by and among Data Race, Inc. and Cranshire Capital,
L.P., Keyway Investments Ltd., and Lionhart Investments
Ltd., as the Investors
10.2 Registration Rights Agreement dated December 10, 1999,
by and among Data Race, Inc. and Cranshire Capital,
L.P., Keyway Investments Ltd., and Lionhart Investments
Ltd., as the Investors
10.3 Warrant Agreement, dated December 10, 1999, issued to
Cranshire Capital, L.P.
10.4 Warrant Agreement, dated December 10, 1999, issued to
Keyway Investments Ltd.
10.5 Warrant Agreement, dated December 10, 1999, issued to
Lionhart Investments Ltd.
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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.
DATA RACE, Inc.
Date: December 15, 1999 By: /s/ Gregory T. Skalla
--------------------------------------
Gregory T. Skalla,
Senior Vice President-Finance, Chief
Financial Officer, Treasurer and
Secretary
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EXHIBIT INDEX
Exhibit Description
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10.1 Securities Purchase Agreement dated December 10, 1999,
by and among Data Race, Inc. and Cranshire Capital,
L.P., Keyway Investments Ltd., and Lionhart Investments
Ltd., as the Investors
10.2 Registration Rights Agreement dated December 10, 1999,
by and among Data Race, Inc. and Cranshire Capital,
L.P., Keyway Investments Ltd., and Lionhart Investments
Ltd., as the Investors
10.3 Warrant Agreement, dated December 10, 1999, issued to
Cranshire Capital, L.P.
10.4 Warrant Agreement, dated December 10, 1999, issued to
Keyway Investments Ltd.
10.5 Warrant Agreement, dated December 10, 1999, issued to
Lionhart Investments Ltd.
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Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December
10, 1999, is entered into by and among Data Race Inc., a Texas corporation, with
headquarters located at 12400 Network Blvd., San Antonio, TX 78249-3341 (the
"Company"), and the investors listed on Schedule 1 attached hereto
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(individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 1,904,761shares of the Company's Common Stock,
no par value per share (the "Common Shares"), in the respective amounts set
forth opposite each Buyer's name on Schedule 1 and warrants, in substantially
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the same form attached hereto as Exhibit D (the "Warrants") to acquire 571,429
---------
shares of Company Common Stock (as exercised, collectively, the "Warrant
Shares"); and
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "Registration Rights
---------
Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES.
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a. Purchase of Common Shares and Warrants. In connection with the
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offering (the "Offering") by the Company of its common stock to the Buyers, and
subject to the satisfaction (or waiver) of the conditions set forth in Sections
6 and 7 below, the Company shall issue and sell to each Buyer and each Buyer
severally agrees to purchase from the Company the respective number of shares of
Common Shares set forth opposite such Buyer's name on Schedule 1, along with
----------
Warrants to acquire the respective number of Warrant Shares set forth opposite
such Buyer's name on Schedule 1 (the "Closing"). The purchase price (the
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"Purchase Price") of the Common Shares and the related Warrants at the Closing
shall be $4,000,000.
b. Closing Date. The date and time of the Closing (the "Closing
------------
Date") shall be 10:00 a.m. Central Time, within three (3) business days
following the date hereof, subject to notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6 and 7
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below (or such later date as is mutually agreed to by the Company and the
Buyers). The Closing shall occur on the Closing Date at the offices of Katten
Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-
3693.
c. Form of Payment. On the Closing Date, (i) subject to the
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satisfaction (or waiver) of the conditions set forth in Section 7 below, each
Buyer shall pay the Purchase Price to the Company, for the Common Shares and
Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) subject to the satisfaction (or waiver) of the conditions
set forth in Section 6 below, the Company shall deliver to Katten Muchin &
Zavis, c/o Anthony J. Ribaudo, located at 525 West Monroe St., Suite 1600,
Chicago, Illinois 60661-3693, as the escrow agent (the "Escrow Agent"), on
behalf of each Buyer, stock certificates (in the denominations as such Buyer
shall request) (the "Common Share Certificates") representing such number of the
Common Shares which such Buyer is then purchasing (as indicated opposite such
Buyer's name on Schedule 1) along with the Warrants such Buyer is purchasing (as
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indicated opposite such Buyer's name on Schedule 1) hereunder, duly executed on
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behalf of the Company and registered in the name of such Buyer or its designee.
Upon the completion of the conditions contained in Sections 6 and 7 of this
Agreement, the Escrow Agent shall deliver the certificates representing the
Common Shares and the Warrants to the Buyers via overnight courier after the
Buyers have wired the Purchase Price to the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer is acquiring the Common Shares and
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Warrants (the Common Shares, Warrants and Warrant Shares may also be referred to
herein as the "Securities"), for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
--------------------------
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
----------------------
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
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d. Information. Such Buyer and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities. Such Buyer
understands that only officers of the Company are authorized to provide
information on behalf of the Company and that no other person is authorized to
provide information on the Company's behalf. Such Buyer acknowledges that it has
reviewed the SEC Documents (as defined below) and information set forth under
the heading "Risk Factors" in the Company's annual report on Form 10-K filed
October 1, 1999.
e. No Governmental Review. Such Buyer understands that no United
----------------------
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
------------------
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended, (or a successor rule thereto) ("Rule 144"); and (ii) any sale
of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, and if Buyer intends to utilize Rule 144
but Rule 144 is not applicable to such resale, any resale of the Securities
under circumstances in which the Buyer (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder.
g. Legends. Such Buyer understands that the certificates or other
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instruments representing the Warrants, Warrant Shares, and Common Shares, except
as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
3
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ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (1) IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE
SECURITIES LAWS, OR (2) IN THE ABSENCE OF AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR ASSIGNED
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered and sold under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
h. Validity; Enforcement. This Agreement has been duly and validly
---------------------
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country and state
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specified in its address on Schedule 1.
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j. No Broker-Dealer Affiliation. Such Buyer is not an affiliate (as
----------------------------
that term is defined in Rule 144(a) promulgated under the 1933 Act) of a broker-
dealer registered with the SEC.
k. Short Sales. No Buyer shall have as of the Closing Date, and no
-----------
Buyer shall have had during the 10 business days prior to the Closing Date, any
net short position, put option or other similar exchange-traded instrument with
respect to the Company's Common Stock.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
------------------------------
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a controlling position of capital
stock or holds a controlling position of an equity or similar interest) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each
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of the Company and its Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results or operations or
financial condition of the Company and its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below).
b. Authorization; Enforcement; Validity. (i) The Company has the
------------------------------------
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions
(as defined in Section 5), the Warrants and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Common Shares and the Warrants and the
reservation for issuance and the issuance of the Warrant Shares issuable upon
exercise thereof, have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) the Transaction Documents have been duly
executed and delivered by the Company, and (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Issuance of Securities. The Common Shares are duly authorized
----------------------
and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable and (ii) free from all taxes, liens and
charges with respect to the issue thereof. 571,429 shares of Common Stock have
been duly authorized and reserved for issuance upon exercise of the Warrants.
Upon exercise in accordance with the Warrants, the Warrant Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. The issuance by the Company of
the Securities is exempt from registration under the 1933 Act.
d. No Conflicts. The execution, delivery and performance of the
------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
Company's issuance of the Common Shares and the reservation for issuance and
issuance of the Warrant Shares) will not (i) result in a violation of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation") or the Company's By-laws, as amended
and as in effect on the date hereof (the "By-laws") or (ii) 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
5
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rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal Market (as defined
below)) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected; provided that the issuance of the Common Shares at a discount from the
current market price will result in typical anti-dilution adjustments to
outstanding warrants. Neither the Company nor its Subsidiaries is in violation
of any term of or in default under its Articles of Incorporation, or By-laws or
their organizational charter or by-laws, respectively. Neither the Company or
any of its Subsidiaries is in violation of any term of or in default under any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults, terminations,
amendments which would not reasonably be expected to have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations the sanctions for which
either individually or in the aggregate would not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by the
Transaction Documents and as required under the 1933 Act, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self-
regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain prior to Closing
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company is not
in violation of the listing requirements of the Principal Market (as defined
below).
e. SEC Documents; Financial Statements. As of the Closing, the
-----------------------------------
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed since June 30, 1999 and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects
6
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the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information. The representations herein are subject to
Schedule 3(e).
- -------------
f. Absence of Certain Changes. Since the most recent 1934 Act filing
--------------------------
by the Company with the SEC, there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition or results of operations of the Company or its Subsidiaries. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any of its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
g. Absence of Litigation. Except as set forth in the SEC Documents,
---------------------
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or materially adversely affecting the Company, the Company's
common stock, the Common Shares or any of the Company's Subsidiaries or any of
the Company's or the Company's Subsidiaries' officers or directors in their
capacities as such.
h. [Reserved].
i. No Undisclosed Events, Liabilities, Developments or
---------------------------------------------------
Circumstances. No event, liability, development or circumstance has occurred or
- -------------
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its common stock and which
has not been publicly announced.
j. No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
7
<PAGE>
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
l. Employee Relations. Neither the Company nor any of its
------------------
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened.
m. Intellectual Property Rights. To the best of their knowledge, the
----------------------------
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. To the best of their knowledge, none of
the Company's trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights necessary to conduct its business have expired or
terminated, or are expected to expire or terminate within two years from the
date of this Agreement. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and the Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
n. Environmental Laws. The Company and its Subsidiaries (i) are in
------------------
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval; except for, in each of the
foregoing cases, the failure to so comply would not reasonably be expected to
have a Material Adverse Effect.
o. Title. The Company and its Subsidiaries have good and marketable
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title in fee simple to all real property and good and marketable title to 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, encumbrances and
defects except such as are described in the SEC Documents or such 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 any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
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p. Insurance. The Company and each of its Subsidiaries are insured
---------
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged and the Company does not have any reason to believe it will not be able
to renew its existing insurance coverage under substantially similar terms for
the next two (2) years.
q. Regulatory Permits. The Company and its Subsidiaries possess all
------------------
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses (except where the failure to so comply would not reasonably be
expected to have a Material Adverse Effect), and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
r. Tax Status. The Company and each of its Subsidiaries has made or
----------
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
s. Transactions With Affiliates. Except as set forth in the SEC
----------------------------
Documents filed at least ten days prior to the date hereof, and except for
transactions which are entered into on arm's length terms pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties unaffiliated with the
Company, and except for grants and payments pursuant to employee benefit plans
approved by the Company's board of directors, none of the officers, directors,
or employees or controlling shareholders of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
t. Eligibility. The Company is currently eligible to register the
-----------
resale of the Common Shares on a registration statement on Form S-3 under the
1933 Act.
9
<PAGE>
4. COVENANTS.
---------
a. Best Efforts. Each party shall use its best efforts timely to
------------
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
-------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyers on
or prior to the Closing Date. The Company shall make all filings and reports
relating the offer and sale of the Securities required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is one
----------------
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Common Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which the Investors shall have sold all the Common
Shares and Warrant Shares (the "Registration Period"), the Company shall file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
d. [Reserved].
e. Right of First Refusal. Subject to the exceptions described
----------------------
below, the Company and its Subsidiaries shall not negotiate or contract with any
party for any equity financing (including any debt financing with an equity
component) or issue any equity securities of the Company or any Subsidiary or
securities convertible or exchangeable into or for equity securities of the
Company or any Subsidiary (including debt securities with an equity component)
in any form ("Future Offerings") during the period beginning on the date hereof
and ending on, and including, the date which is 180 days after the Closing Date,
unless it shall have first delivered to each Buyer or a designee appointed by
such Buyer written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Buyer an option to purchase up to its Aggregate Percentage (as defined below) of
the securities to be issued in such Future Offering, as of the date of delivery
of the Future Offering Notice, in the Future Offering (the limitations referred
to in this sentence are referred to as the "Capital Raising Limitations"). For
purposes of this Section 4(e), "Aggregate Percentage" at any time with respect
to any Buyer shall mean the percentage obtained by dividing (i) the aggregate
number of the Common Shares initially issued at the Closing to such Buyer by
(ii) the aggregate number of the Common Shares sold to the Buyers by the Company
at the Closing in connection with the Offering. A Buyer can exercise its option
to participate in a Future Offering by delivering written notice thereof to
participate to the Company within five (5) business days after receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that
10
<PAGE>
such Buyer will purchase, up to its Aggregate Percentage, and that number of
securities it is willing to purchase in excess of its Aggregate Percentage. In
the event that one or more Buyers fail to elect to purchase up to each such
Buyer's Aggregate Percentage, then each Buyer which has indicated that it is
willing to purchase a number of securities in such Future Offering in excess of
its Aggregate Percentage shall be entitled to purchase its pro rata portion
(determined in the same manner as described in the preceding sentence) of the
securities in the Future Offering which one or more of the Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the period described in this Section 4(e), the
Company shall have 90 days thereafter to sell the securities of the Future
Offering that the Buyers did not elect to purchase, upon terms and conditions,
no more favorable to the purchasers thereof than specified in the Future
Offering Notice. In the event the Company has not sold such securities of the
Future Offering within such 90 day period, the Company shall not thereafter
issue or sell such securities without first offering such securities to the
Buyers in the manner provided in this Section 4(e). The Capital Raising
Limitations shall not apply to (i) a loan from a commercial bank which has only
an incidental equity feature, (ii) any transaction involving the Company's
issuances of securities (A) as consideration in a merger or consolidation, (B)
in connection with a strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or (C) as consideration for the
acquisition of a business, product, license or other assets by the Company,
(iii) the issuance of common stock in a firm commitment, underwritten public
offering, (iv) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (v) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option plan,
restricted stock plan, stock purchase plan or other plan or written compensation
agreement for the benefit of the Company's employees, directors, consultants or
advisors, or (vi) the issuance of securities pursuant to any shareholder rights
plan adopted by the Company prior to the Closing ((i) through (vi) collectively,
the "Exempt Issuances"). The Buyers shall not be required to participate or
exercise their right of first refusal with respect to a particular Future
Offering in order to exercise their right of first refusal with respect to later
Future Offerings.
f. Listing. The Company shall promptly secure the listing of all of
-------
the Registrable Securities (as that term is defined in the Registration Rights
Agreement) upon each national securities exchange, automated quotation system or
bulletin board system, if any, upon which shares of the Company's common stock
are then listed (subject to official notice of issuance) and shall maintain, so
long as any other shares of common stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall use its bests efforts to maintain the
Common Stock's authorization for quotation on the Nasdaq National Market, Nasdaq
Small-Cap Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc., (as applicable, the "Principal Market"). Neither the Company nor
any of its Subsidiaries shall take any action which would be reasonably expected
to result in the delisting or suspension of Company common stock on the
Principal Market. The Company shall promptly, but in no event later than the
public disclosure of such information, provide to each Buyer copies of any
notices it receives from the Principal Market regarding the continued
eligibility of Company common stock for listing on such automated quotation
system or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).
11
<PAGE>
g. Reservation of Shares. The Company shall take all action
---------------------
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon exercise of all
outstanding Warrants.
h. [Reserved].
i. Limitation on Filing Registration Statements. The Company shall
--------------------------------------------
not file a registration statement (other than the Registration Statement (as
defined in the Registration Rights Agreement) or a registration statement on
Form S-8) covering the sale or resale of shares of Company common stock with the
SEC during the period beginning on the date hereof and ending on the date which
is 90 days after the Registration Statement has been declared effective by the
SEC.
j. Independent Auditors. The Company shall, until at least three (3)
--------------------
years after the Closing Date, maintain as its independent auditors an accounting
firm authorized to practice before the SEC.
12
<PAGE>
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to the Transfer
Agent, and any subsequent transfer agent, substantially in the form of Exhibit B
---------
hereto (the "Transfer Agent Instructions") and use its best efforts, without
incurring additional fees, to obtain the Transfer Agent's agreement thereto.
Prior to registration of the Common Shares and Warrant Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof will be given by the
Company to its Transfer Agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act or the Buyer provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, promptly instruct its Transfer Agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legend. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell the Common
Shares and Warrants to each Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion by providing each Buyer with
prior written notice thereof:
a. Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Escrow Agent for the
transactions contemplated by this Agreement;
b. The representations and warranties of such Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
13
<PAGE>
conditions required by this Agreement to be performed, satisfied or complied
with by such Buyer at or prior to the Closing Date; and
c. Such Buyer shall have delivered to the Escrow Agent such other
documents relating to the transactions contemplated by this Agreement as the
Escrow Agent may reasonably request.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------
The obligation of each Buyer hereunder to purchase the Common Shares
and Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
a. The Company shall have executed each of the Transaction Documents
and delivered the same to the Escrow Agent;
b. The Company's common stock shall be authorized for quotation on
the Principal Market and trading in Company common stock shall not have been
suspended by the SEC or the Principal Market;
c. The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date;
d. The Company shall have delivered to the Escrow Agent the opinion
of the Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the form of
Exhibit C attached hereto;
- ---------
e. The Company shall have executed and delivered to the Escrow Agent
the Warrants and the certificates representing Common Shares (in such
denominations as such Buyer shall request) for the Common Shares being purchased
by such Buyer at the Closing;
f. The Transfer Agent Instructions, in the form of Exhibit B attached
---------
hereto, shall have been executed by the Company and delivered to the Company's
transfer agent and a copy of the Company executed Transfer Agent Instructions
shall have been delivered to the Escrow Agent;
g. The Company shall have made all filings, other than those
contemplated by the Registration Rights Agreement, under all applicable federal
and state securities laws necessary
14
<PAGE>
to consummate the issuance of the Securities pursuant to this Agreement in
compliance with such laws;
h. The Company shall have delivered to the Escrow Agent such other
documents relating to the transactions contemplated by this Agreement as the
Escrow Agent may reasonably request;
i. Subject to Section 11(l) below, at Closing, the Company shall
reimburse the Buyers for the Buyers' attorneys' fees and expenses (in an amount
not to exceed $10,000.00) incurred by the Buyers concerning the due diligence
review of the contemplated transactions and the Company, and the negotiation and
preparation of the Transaction Documents and the consummation of the
transactions contemplated thereby; and
j. As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
exercise of the Warrants, at least 571,429 shares of Common Stock.
8. INDEMNIFICATION.
---------------
In consideration of each Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of the Securities and all of their stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
15
<PAGE>
9. ANTI-DILUTION ADJUSTMENTS.
-------------------------
a. Dividend, Subdivision, Combination or Reclassification of Company
-----------------------------------------------------------------
Common Stock. If the Corporation shall, at any time or from time to time, (a)
- ------------
declare a dividend on the Company common stock payable in shares of its capital
stock (including Company common stock) or, (b) subdivide the outstanding Company
common stock or, (c) combine the outstanding Company common stock into a smaller
number of shares, or (d) issue any shares of its capital stock in a
reclassification of the Company common stock (excluding any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation), then in each such case, the number
of shares of Company common stock constituting the Common Shares at the time of
the record date for such dividend or of the effective date of such subdivision,
combination or reclassification and the number and kind of Common Shares on such
date shall be proportionately adjusted by virtue of such dividend, subdivision,
combination or reclassification. Any such adjustment to the Common Shares shall
become effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment to the Common Shares shall be made successively whenever any event
listed above shall occur.
b. Issuance of Common Stock or Rights to Purchase Company Common
-------------------------------------------------------------
Stock Below Offering Price. Prior to the earlier of 150 days after the Closing
- --------------------------
Date or the effective date of the Registration Statement (as described in the
Registration Rights Agreement) covering the resale of the Common Shares, if the
Company shall, at any time or from time to time, issue Company common stock or
instruments convertible or exercisable into Company common stock (other than an
Exempt Issuance (as defined in Section 4(e) above)) at a price per common stock
share, a conversion price per common stock share or an exercise price per common
stock share less than $2.10 per common stock share (such lesser price shall be
deemed the "Differential Price"), then the Company shall issue additional shares
of Company common stock to the Buyers equal to the Share Differential Amount.
The Share Differential Amount shall equal the sum of (i) the amount determined
by dividing the Differential Price into the Buyers' aggregate Purchase Price,
less (ii) the number of Common Shares purchased by the Buyer at the Closing. Any
such additional shares of common stock after issuance shall be deemed to be
Common Shares for purposes of this Agreement and shall have the registration
rights set forth in the Registration Rights Agreement.
10. [Reserved.]
16
<PAGE>
11. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be
---------------------------------------
governed by and construed in all respects by the internal laws of the State of
Illinois (except for the proper application of the United States federal
securities laws), without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
----------------------------
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers owning at such time two-thirds of the Common Shares
purchased pursuant to this Agreement, and no provision hereof may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought.
f. Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized
17
<PAGE>
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Data Race Inc.
12400 Network Blvd.
San Antonio, TX 78249-3341
Telephone: (210) 263-2208
Facsimile: (210) 558-0365
Attention: Greg Skalla
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Telephone: (210) 281-7000
Facsimile: (210) 224-2035
Attention: Pat Ryan, Esq. or Sharla Kruger, Esq.
If to the Transfer Agent:
Chase Mellon Shareholder Services, L.L.P.
2323 Bryan St., Suite 2300
Dallas, TX 75201
Telephone: (214) 965-2236
Facsimile: (214) 965-2233
Attention: Mona Vorhees
If to a Buyer, to it at the address and facsimile number set forth on Schedule 1
----------
with copies to such Buyer's representatives as set forth on Schedule 1, or at
----------
such other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party five days prior to the effectiveness of such change.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares from Buyers in a transaction not
involving a public offering. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the Buyers
owning at such time two-thirds of the Common Shares purchased pursuant to this
Agreement. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption.
18
<PAGE>
h. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section
--------
11(l), the agreements and covenants set forth in Sections 4, 5 and 11, the
indemnification provisions set forth in Section 8, the anti-dilution adjustments
and provisions set forth in Section 9 and the liquidated damage provisions set
forth in Section 10 shall survive the Closing. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
j. [Reserved].
k. Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
-----------
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 11(l), the Company shall remain obligated to reimburse the
nonbreaching Buyers for the expenses described in Section 7(i) above.
m. Placement Agent. The Company acknowledges that it has engaged PGN
---------------
Capital Solutions, L.L.C. as placement agent in connection with the sale of the
Common Shares and Warrants, which placement agents may have formally or
informally engaged other agents on their behalf. The Company shall be
responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall have
--------
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall
be entitled to enforce such rights specifically (without posting a bond or other
security), to
19
<PAGE>
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
-----------------
or payments to the Buyers hereunder or pursuant to the Transaction Documents or
the Buyers enforce or exercise their rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
[Signature Page Follows]
20
<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYERS:
DATA RACE INC. CRANSHIRE CAPITAL, L.P.
By: Downsview Capital, Incorporated,
the General Partner
By:______________________________
Name: Gregory T. Skalla By:_________________________________
Title: Senior Vice President, Name: Mitchell Kopin
Chief Financial Officer and Title: President
Secretary
KEYWAY INVESTMENTS, LTD.
By:_________________________________
Name:_______________________________
Title:______________________________
LIONHART INVESTMENTS LTD.
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
SCHEDULE 1: LIST OF INVESTORS
-----------------------------
<TABLE>
<CAPTION>
Investor's Legal
Investor's Name Investor Address Purchase Number of Number of Representatives'
and Facsimile Number Price Common Shares Warrant Shares Address and Facsimile
Number
- ------------------ -------------------- ---------- ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Cranshire Capital, 666 Dundee Road, $1,666,667 793,651 238,096 Katten Muchin & Zavis
L.P. Ste. 1801 525 W. Monroe Street
Northbrook, IL 60092 Chicago, Illinois 60661-3693
Attn: Mitchell Kopin Attention: Anthony J.
(p) 847/562-9030 Ribaudo, Esq.
(f) 847/562-9031 (p) 312/ 902-5521
(f) 312/ 577-8763
Keyway Investments 19 Mount Havelock $1,000,000 476,190 142,857
Ltd. Douglas, Isle of Man
United Kingdom
1M1 2QG
Attn: Martin Peters
(p) 011-44-171-323-2131
(f) 011-44-171-323-0773
Lionhart Investments 19 Camp Rd. $1,333,333 634,920 190,476
Ltd. Heston Court
Wimbeldon, London SW194UW
United Kingdom
Attn: Terry Duffy
(p) 011-44-181-947-6934
(f) 011-44-181-971-0212
</TABLE>
<PAGE>
Schedule 3(e)
-------------
The Company covenants that the Company shall file, within seven business
days after the Closing Date of this Offering, a Form 8-K which describes the
material terms of the Offering and, as exhibits to such 8-K, will include
descriptions and/or copies of the foregoing plans. The representations and
warranties of the Company made pursuant to the Securities Purchase Agreement
shall be qualified by the disclosure contained in this Schedule 3(e).
<PAGE>
EXHIBITS
--------
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Transfer Agent Instructions
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Warrant
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
10, 1999, is entered into by and among Data Race Inc., a Texas corporation, with
headquarters located at 12400 Network Blvd., San Antonio, Texas 78249-3341 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties dated as of December 10, 1999 (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyers 1,904,761
shares of the Company's Common Stock, no par value per share (the "Common
Shares") and (ii) to issue Warrants (the "Warrants") which will be exercisable
to purchase 571,429 shares of Company Common Stock (the "Warrant Shares"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b. "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
<PAGE>
d. "Registrable Securities" means the Common Shares purchased
pursuant to the Securities Purchase Agreement and the Warrant Shares issued or
issuable upon exercise of the Warrants and any shares of capital stock issued or
issuable with respect to the Common Shares, Warrants or Warrant Shares as a
result of any stock split, stock dividend, recapitalization, exchange, anti-
dilution rights or similar event or otherwise, without regard to any limitation
on exercise of the Warrants.
e. "Registration Statement" means a registration statement of the
Company filed under the 1933 Act and pursuant to Rule 415.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, as soon as
----------------------
practicable but in no event later than thirty (30) calendar days after the date
hereof, file with the SEC a Registration Statement or Registration Statements
(as is necessary) on Form S-3 (or if such form is unavailable, such other form
as is available for registration) covering the resale of all of the Registrable
Securities. The initial Registration Statement prepared pursuant hereto shall
register for resale at least that number of Company common stock shares equal to
the number of Registrable Securities as of the date immediately preceding the
date the Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 3(b). The Company shall use its best efforts
to have the Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than one-hundred twenty (120) calendar days
after the date hereof.
b. Piggy-Back Registrations. If at any time prior to the expiration
------------------------
of the Registration Period (as defined in Section 3(a)) the Company proposes to
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its securities
(other than on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans) the Company shall promptly send to each
Investor written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(b) and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(b) below. No right to
registration of Registrable Securities under this Section 2(b) shall be
construed to limit any registration required under Section 2(a). The
obligations of the Company under this Section 2(b) may be waived by the Buyers.
If an offering in connection with which an Investor is entitled to registration
under this Section 2(b) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Company common stock included in such underwritten offering. If a
registration pursuant to this Section 2(b) is to be an underwritten public
offering and the managing underwriter(s) advise the Company in writing, that in
their reasonable good faith opinion, marketing
-2-
<PAGE>
or other factors dictate that a limitation on the number of shares of Company
common stock which may be included in the Registration Statement is necessary to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other holders of securities
entitled to participate in the registration, as of the date hereof, drawn from
them pro rata based on the number each has requested to be included in such
registration.
c. Allocation of Registrable Securities. The initial number of
------------------------------------
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held, or
which could be held, by each Investor at the time the Registration Statement
covering such initial number of Registrable Securities or increase thereof is
declared effective by the SEC. In the event that an Investor sells or otherwise
transfers any of such Person's Registrable Securities, each transferee shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor. Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers shall
-------------
have the right to select one legal counsel to review and oversee any offering
pursuant to this Section 2 ("Legal Counsel"), which shall be Katten Muchin &
Zavis or such other counsel as thereafter designated by the holders of a
majority of Registrable Securities. The Company shall reasonably cooperate with
Legal Counsel in performing the Company's obligations under this Agreement.
e. [Reserved.]
f. Rule 416. The Company and the Investors each acknowledge that
--------
each Registration Statement prepared in accordance hereunder shall include an
indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) if permitted by law, by reason of the anti-
dilution provisions contained in the Securities Purchase Agreement and the
Warrants in accordance with the terms thereof (collectively, the "Rule 416
Securities"). In this regard, although the Company shall not be required to
refer to Rule 416 in the Registration Statement, the Company agrees to use all
reasonable efforts to ensure that the maximum number of Registrable Securities
which may be registered pursuant to Rule 416 under the 1933 Act are covered by
each Registration Statement and, absent guidance from the SEC or other
definitive authority to the contrary, the Company shall use all reasonable
efforts to affirmatively support and to not take any position adverse to the
position that each Registration Statement filed hereunder covers all of the Rule
416 Securities. If the Company determines that the Registration Statement filed
hereunder does not cover all of the Rule 416 Securities, the Company shall
immediately (i) provide to each Investor written evidence setting forth the
basis for the Company's position and the authority therefor and (ii) prepare and
file an
-3-
<PAGE>
amendment to such Registration Statement or a new Registration Statement in
accordance with Section 2(g).
g. Sufficient Number of Shares Registered. In the event the number
--------------------------------------
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities or an Investor's
allocated portion of the Registrable Securities pursuant to Section 2(c) (a
"Deficit Failure"), the Company shall amend the Registration Statement, or file
a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least one hundred percent (100%) of such
Registrable Securities in each case, as soon as practicable, but in any event
not later than fifteen (15) days after the necessity therefor arises. The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities is greater than the number of shares of Company common stock
available for resale under such Registration Statement.
3. RELATED OBLIGATIONS.
-------------------
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) calendar day after the date hereof for the registration
of Registrable Securities pursuant to Section 2(a)) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as possible after such filing (but in no event later
than one-hundred twenty (120) calendar days after the date hereof for the
registration of Registrable Securities pursuant to Section 2(a)), and keep such
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which the
Investors shall have sold all the Registrable Securities (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such
-4-
<PAGE>
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement.
c. The Company shall permit Legal Counsel to review and comment upon
a Registration Statement and all amendments and supplements thereto at least
seven (7) days prior to their filing with the SEC (or such shorter period as
Legal Counsel may agree), and not file any document in a form to which Legal
Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits, (ii) upon the effectiveness of any Registration Statement, fifteen
(15) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the offering,
the Company shall enter into and perform
-5-
<PAGE>
its obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary and reasonable indemnification and
contribution obligations, with the underwriters of such offering.
g. As promptly as practicable after becoming aware of such event, the
Company shall notify Legal Counsel and each Investor in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request). The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
on the same day of such effectiveness and by overnight mail), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
h. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
i. At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
if required by an underwriter, (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and the
Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably necessary for
each Inspector to carry out the purposes of this Agreement, and cause the
Company's officers, directors and employees to supply all information
-6-
<PAGE>
which any Inspector may reasonably request; provided, however, that each
Inspector shall hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
k. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market. The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(l).
m. [Reserved.]
n. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor, the
Company shall (i) immediately incorporate in a prospectus supplement or post-
effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required
-7-
<PAGE>
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) supplement or make amendments to any
Registration Statement if requested by a shareholder or any underwriter of such
Registrable Securities.
p. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
q. [Reserved.]
r. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder and the Company shall use its best efforts to file with
the SEC in a timely manner all reports and documents required of the Company
under the 1933 Act and the 1934 Act (as defined in Section 6(a)).
s. Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
---------
t. [Reserved.]
u. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
v. Notwithstanding anything to the contrary contained in this
Agreement, the Registration Statement shall register only the Registrable
Securities.
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
a. At least seven (7) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor in writing
of the information the Company requires from each such Investor if such Investor
elects to have any of such Investor's Registrable Securities included in such
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself and the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with
-8-
<PAGE>
the preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
c. In the event any Investor elects to participate in an underwritten
public offering pursuant to Section 2, each such Investor agrees to enter into
and perform such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
Legal Counsel, shall be paid by the Company.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and any underwriter (as defined in the 1933 Act) for the
Investors, and the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys'
fees, amounts paid in settlement or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or
-9-
<PAGE>
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it;
(iii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each Person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
or Indemnified Damages to which any Indemnified Party may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages arise out of or are based upon any Violation, in each case to the
extent, and only to the extent, that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further,
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<PAGE>
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to
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<PAGE>
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. LIQUIDATED DAMAGES.
------------------
The Company agrees that the Buyers will suffer damages if the Company
fails to fulfill its obligations pursuant to Sections 2(a), 2(g), 3(a), 3(b),
3(e) or 3(h) of this Agreement (each such event referred to herein as a
"Registration Default") and that it would not be possible to ascertain the
extent of such damages. Accordingly, in the event of such Registration Default,
the Company hereby agrees to pay liquidated damages ("Liquidated Damages") to
each Buyer following the occurrence of such Registration Default in an amount
determined by multiplying (i) $.042 per Common Share then held by such Buyer by
(ii) the percentage derived by dividing (A) the actual number of days elapsed
from the last day of the date of the Registration Default or the prior 30-day
period, as applicable, to the day such Registration Default has been completely
cured by (B) 30, in cash, or at the Buyer's option, but subject to the Company's
reasonable consent, in the number of shares of Company common stock equal to the
quotient of (v) the dollar amount of the Liquidated Damages on the Payment Date
(as defined below) by (w) the closing bid price of the Company's common stock as
of the date of the Registration Default (as quoted in the Principal Market or
the market or exchange where the Company's common stock is then traded). The
Liquidated Damages payable pursuant hereto shall be payable within five (5)
business days from the end of the calendar month commencing on the first
calendar month in which the Registration Default occurs (each, a "Payment
Date"). In the event the Buyer elects to receive the Liquidated Damages amount
in shares of Company common stock, such shares shall also be considered
Registrable Securities and shall have the registration rights set forth in this
Agreement (subject to any limitations with respect to the
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<PAGE>
registration of such shares under the 1933 Act). The Company shall not be
obligated to pay any Liquidated Damages under this Section with respect to
Registration Defaults which may be continuing after the second anniversary of
the date of issuance of the relevant Common Shares. Further, the Company shall
not be obligated to pay to any Buyer any Liquidated Damages to the extent that
any Registration Default is attributable to any material breach by Buyer of this
Agreement or the Securities Purchase Agreement.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; provided, however, that the transferee
or assignee may subsequently transfer or assign all or any portion of the
Registrable Securities if an exemption from registration under the 1933 Act is
applicable to such transfer or assignment; (iv) at or before the time the
Company receives the written notice contemplated by clause (ii) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein; and (v) such transfer shall have been made
in accordance with the applicable requirements of the Securities Purchase
Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (_) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
-------------
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
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<PAGE>
b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Data Race Inc.
12400 Network Blvd.
San Antonio, TX 78249-3341
Telephone: (210 )263-2208
Facsimile: (210) 558-0365
Attention: Greg Skalla
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Telephone: (210) 281-7000
Facsimile: (210) 224-2035
Attention: Pat Ryan, Esq. or Sharla Kruger, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: (312) 902-5521
Facsimile: (312) 577-8763
Attention: Anthony J. Ribaudo, Esq.
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in all respects
by the internal laws of the State of Illinois (except for the proper application
of the United States federal
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<PAGE>
securities laws), without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of Chicago, for
the adjudication of any dispute hereunder. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Securities Purchase Agreement and the Warrants
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement and the Warrants
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
DATA RACE INC. CRANSHIRE CAPITAL, L.P.
By:___________________________ By: Downsview Capital, Incorporated, the
General Partner
Name: Gregory T. Skalla
Title: Senior Vice President, By:____________________________________
Chief Financial Officer Name: Mitchell Kopin
and Secretary Title: President
KEYWAY INVESTMENTS LTD.
By:_____________________________________
Name:___________________________________
Title:__________________________________
LIONHART INVESTMENTS LTD.
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
SCHEDULE OF BUYERS
Investor's Address
Investor Name and Facsimile Number
------------- --------------------
Cranshire Capital, L.P. 666 Dundee Rd., Ste. 1801
Northbrook, Illinois 60092
Attn: Mitchell Kopin
(p) 847/562-9030
(f) 847/562-9031
Keyway Investments Ltd. 19 Mount Havelock
Douglas, Isle of Man
United Kingdom
1M1 2QG
Attn: Martin Peters
(p) 011-44-171-323-2131
(f) 011-44-171-323-0773
Lionhart Investments Ltd. 19 Camp Rd.
Heston Court
Wimbeldon, London SW194UW
United Kingdom
Attn: Terry Duffy
(p) 011-44-181-947-6934
(f) 011-44-181-971-0212
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:____________________
Re: DATA RACE INC.
--------------
Ladies and Gentlemen:
We are counsel to Data Race Inc., a Texas corporation (the "Company"), and
have represented the Company in connection with that certain Securities Purchase
Agreement (the "Purchase Agreement") entered into by and among the Company and
the buyers named therein (collectively, the "Holders") pursuant to which the
Company issued to the Holders shares of its Common Stock, no par value per
share, (the "Common Shares") and Warrants exercisable into its Common Stock (the
"Warrant Shares"). Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "Registration
Rights Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the Common Shares and Warrant Shares, under the Securities
Act of 1933, as amended (the "1933 Act"). In connection with the Company's
obligations under the Registration Rights Agreement, on December ___, 1999, the
Company filed a Registration Statement on Form S-3 (File No. _____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:__________________
cc: [LIST NAMES OF HOLDERS]
<PAGE>
Exhibit 10.3
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN
FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH
OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE
SECURITIES LAWS.
DATA RACE INC.
Warrant To Purchase Common Stock
Warrant No.: 1999-4 Number of Shares: 238,096
Date of Issuance: December 10, 1999
Data Race Inc., a Texas corporation (the "Company"), hereby certifies that, for
Ten United States Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Cranshire Capital,
L.P., the registered holder hereof or its permitted assigns, is entitled,
subject to the terms set forth below, to purchase from the Company upon
surrender of this Warrant, at any time or times on or after the date hereof, but
not after 11:59 P.M. Central Time on the Expiration Date (as defined herein)
238,096 fully paid nonassessable shares of Common Stock (as defined herein) of
the Company (the "Warrant Shares") at the purchase price per share provided in
Section 1(b) below.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
-----------------------------
Warrants (the "Warrants") issued pursuant to the terms of that certain
Securities Purchase Agreement dated as of December 10, 1999, among the Company
and the Buyers referred to therein (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this
-----------
Warrant shall have the following meanings:
<PAGE>
(i) "Common Stock" means (i) the Company's common stock, no
par value per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(ii) "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Warrants.
(iii) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(iv) "Exempt Issuance" means (A) a loan from a commercial bank
which has only an incidental equity feature, (B) any transaction involving the
Company's issuances of securities (1) as consideration in a merger or
consolidation, (2) in connection with a strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (3) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (C) the issuance of common stock in a firm commitment,
underwritten public offering, (D) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (E) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or written
compensation agreement for the benefit of the Company's employees, directors,
consultants or advisors, or (F) the issuance of securities pursuant to any
shareholder rights plan adopted by the Company prior to the Closing (as defined
in the Securities Purchase Agreement).
(v) "Expiration Date" means the date two (2) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"Holiday"), the next date that is not a Holiday.
(vi) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(vii) "Other Securities" means (i) the other Warrants and (ii)
the shares of Common Stock issued from time to time pursuant to the Securities
Purchase Agreement.
(viii) "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(ix) "Principal Market" means the Nasdaq National Market.
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<PAGE>
(x) "Securities Act" means the Securities Act of 1933, as
amended.
(xi) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xii) "Warrant Exercise Price" shall be $3.00 per common share,
subject to adjustment as hereinafter provided.
Section 2. Exercise of Warrant.
-------------------
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any business day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
---------
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer, and (iii) the surrender to a common carrier for delivery to the
Company as soon as practicable following such date, this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable, and in no event later than two business days, after the
Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction). Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii) above, the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
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<PAGE>
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under the Securities Purchase Agreement,
pay as additional damages in cash to such holder on each day the issuance of
such Common Stock certificate or new Warrant, as the case may be, is not timely
effected an amount equal to .25% of the product of (A) the sum of the number of
shares of Common Stock not issued to the holder on a timely basis and to which
the holder is entitled and/or, the number of shares represented by the portion
of this Warrant which is not being converted, as the case may be, and (B) the
average of the closing bid price of the Common Stock for the three consecutive
trading days immediately preceding the last possible date which the Company
could have issued such Common Stock or Warrant, as the case may be, to the
holder without violating this Section 2.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
----------------------------
agrees as follows:
(a) This Warrant is, and any Warrant issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
-4-
<PAGE>
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall pay any and all taxes which may be
-----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
---------------------------------------
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
-------------------------
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
Section 7. Ownership and Transfer.
----------------------
-5-
<PAGE>
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder shall have
delivered to the Company an opinion of counsel, in generally acceptable form, to
the effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration;
provided that (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) neither the Company nor any other
person is under any obligation to register the Warrants under the Securities Act
or any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
dated December 10, 1999 by and between the Company and the Buyers listed on the
signature page thereto (the "Registration Rights Agreement") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
-6-
<PAGE>
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
---------------------------------------------------------
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
--------------------------------------------------------------
Issuance of Common Stock. If and whenever on or after the date of issuance of
- ------------------------
this Warrant, the Company issues or sells, or in accordance with Section 8(b) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Exempt Issuance or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
Warrant Exercise Price in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and (y)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such issue or sale, by (2)
the product derived by multiplying the (I) Applicable Price by (II) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For
--------------------------------------------------
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants
-------------------
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
of any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8(b)(i) to the extent that such adjustment is based solely on
the fact that the Convertible
-7-
<PAGE>
Securities issuable upon exercise of such Option are convertible into or
exchangeable for Common Stock at a price which varies with the market price of
the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8(b)(ii) to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
--------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon the exercise of any Option or upon exercise, conversion or
exchange of any Convertible Security is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Warrant Exercise Price then in
effect will be readjusted to the Warrant Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding
-8-
<PAGE>
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof) never been issued.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
--------------------------------------------------
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the amount received by the Company therefor before deduction of reasonable
commissions, underwriting discounts or allowances or other similar reasonable
expenses incurred by the Company. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the market
price of such securities for the twenty (20) consecutive trading days
immediately preceding the date of receipt. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.
(ii) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will 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.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
--------------------------------------------------------
Combination of Common Stock. If the Company at any time after the date of
- ---------------------------
issuance of this Warrant subdivides
-9-
<PAGE>
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Warrant Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately decreased.
(e) Distribution of Assets. If the Company shall declare or make any
----------------------
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, property or
securities of a subsidiary) (a "Distribution"), at any time after the issuance
of this Warrant, then, in each such case:
(i) the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing bid price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing bid price on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment will
-10-
<PAGE>
increase the Warrant Exercise Price or decrease the number of shares of Common
Stock obtainable as otherwise determined pursuant to this Section 8.
(g) Notices.
-------
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
--------------------------------------------------
Consolidation, Merger or Sale.
- -----------------------------
(a) If at any time after the date hereof, the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holder of this Warrant
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will use its best efforts to
secure from the Person purchasing such assets or the successor resulting from
such Organic Change (in each case, the "Acquiring Entity") written agreement (in
form and substance satisfactory to the holders of Warrants representing a
majority of the shares of Common Stock obtainable upon exercise
-11-
<PAGE>
of the Warrants then outstanding) to deliver to each holder of Warrants in
exchange for such Warrants, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant
and satisfactory to the holders of the Warrants (including, an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of the
Warrants, if the value so reflected is less than the Warrant Exercise Price in
effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall use its best efforts
to make appropriate provision (in form and substance satisfactory to the holders
of Warrants representing a majority of the shares of Common Stock obtainable
upon exercise of the Warrants then outstanding) to insure that each of the
holders of the Warrants will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Warrants, such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in exchange for
the number of shares of Common Stock which would have been acquirable and
receivable upon the exercise of such holder's Warrant as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the exerciseability of this Warrant).
(c) In the event the Company proposes to effect an Organic Change,
then in addition to any other rights the holder may have, the holder shall have
the right to effect a Cashless Exercise (as defined below), by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof. A "Cashless Exercise"
shall mean that, in lieu of paying the Warrant Exercise Price in cash, the
holder shall surrender this Warrant for that number of Warrant Shares determined
by subtracting from the number of Warrant Shares otherwise issuable to the
holder upon such exercise, an amount of Warrant Shares (the "Surrendered
Shares") having a closing bid price (as reported by Bloomberg) on the date
immediately preceding the date of the exercise notice equal to the Aggregate
Exercise Price (as defined in Section 2) of the Warrant Shares for which this
Warrant is being exercised; and thereafter the Surrendered Shares shall no
longer be available for issuance hereunder.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
--------------------------------------------
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
------
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
-12-
<PAGE>
If to the Company:
Data Race Inc.
12400 Network Blvd.San Antonio, TX 78249-3341
Telephone: (210) 263-2208
Facsimile: (210) 558-0365
Attention: Greg Skalla
With copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Telephone: (210) 281-7000
Facsimile: (210) 224-2035
Attention: Pat Ryan, Esq. or Sharla Kruger, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. [Reserved.]
Section 13. Date. The date of this Warrant is December 10, 1999. This
----
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no such
action may increase the Warrant Exercise Price of the Warrants or decrease the
number of shares or class of stock obtainable upon exercise of any Warrants
without the written consent of the holder of such Warrant.
-13-
<PAGE>
Section 15. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be governed by the internal laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of Illinois.
[Signature Page Follows]
-14-
<PAGE>
This Warrant has been duly executed by the Company as of the date first set
forth above.
DATA RACE INC.
By:_____________________________________
Name: Gregory T. Skalla
Title: Senior Vice President, Chief
Financial Officer and Secretary
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
DATA RACE INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Data Race
Inc., a Texas corporation (the "Company"), evidenced by the attached Warrant
(the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. Payment of Warrant Exercise Price. The holder shall pay the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
2. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date:____________________, ________
Name of Registered Holder
By:________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Data Race Inc., a Texas corporation,
represented by warrant certificate no. _____, standing in the name of the
undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated:_________, 199_
_________________________________
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT 10.4
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN
FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH
OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE
SECURITIES LAWS.
DATA RACE INC.
Warrant To Purchase Common Stock
Warrant No.: 1999-5 Number of Shares: 142,857
Date of Issuance: December 10, 1999
Data Race Inc., a Texas corporation (the "Company"), hereby certifies that, for
Ten United States Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Keyway Investments
Ltd., the registered holder hereof or its permitted assigns, is entitled,
subject to the terms set forth below, to purchase from the Company upon
surrender of this Warrant, at any time or times on or after the date hereof, but
not after 11:59 P.M. Central Time on the Expiration Date (as defined herein)
142,857 fully paid nonassessable shares of Common Stock (as defined herein) of
the Company (the "Warrant Shares") at the purchase price per share provided in
Section 1(b) below.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
-----------------------------
Warrants (the "Warrants") issued pursuant to the terms of that certain
Securities Purchase Agreement dated as of December 10, 1999, among the Company
and the Buyers referred to therein (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this
-----------
Warrant shall have the following meanings:
<PAGE>
(i) "Common Stock" means (i) the Company's common stock, no
par value per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(ii) "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Warrants.
(iii) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(iv) "Exempt Issuance" means (A) a loan from a commercial bank
which has only an incidental equity feature, (B) any transaction involving the
Company's issuances of securities (1) as consideration in a merger or
consolidation, (2) in connection with a strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (3) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (C) the issuance of common stock in a firm commitment,
underwritten public offering, (D) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (E) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or written
compensation agreement for the benefit of the Company's employees, directors,
consultants or advisors, or (F) the issuance of securities pursuant to any
shareholder rights plan adopted by the Company prior to the Closing (as defined
in the Securities Purchase Agreement).
(v) "Expiration Date" means the date two (2) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"Holiday"), the next date that is not a Holiday.
(vi) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(vii) "Other Securities" means (i) the other Warrants and (ii)
the shares of Common Stock issued from time to time pursuant to the Securities
Purchase Agreement.
(viii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(ix) "Principal Market" means the Nasdaq National Market.
-2-
<PAGE>
(x) "Securities Act" means the Securities Act of 1933, as
amended.
(xi) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xii) "Warrant Exercise Price" shall be $3.00 per common
share, subject to adjustment as hereinafter provided.
Section 2. Exercise of Warrant.
-------------------
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any business day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
---------
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer, and (iii) the surrender to a common carrier for delivery to the
Company as soon as practicable following such date, this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable, and in no event later than two business days, after the
Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction). Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii) above, the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) business days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
-3-
<PAGE>
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under the Securities Purchase Agreement,
pay as additional damages in cash to such holder on each day the issuance of
such Common Stock certificate or new Warrant, as the case may be, is not timely
effected an amount equal to .25% of the product of (A) the sum of the number of
shares of Common Stock not issued to the holder on a timely basis and to which
the holder is entitled and/or, the number of shares represented by the portion
of this Warrant which is not being converted, as the case may be, and (B) the
average of the closing bid price of the Common Stock for the three consecutive
trading days immediately preceding the last possible date which the Company
could have issued such Common Stock or Warrant, as the case may be, to the
holder without violating this Section 2.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
----------------------------
agrees as follows:
(a) This Warrant is, and any Warrant issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
-4-
<PAGE>
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall pay any and all taxes which may be
-----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
---------------------------------------
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
-------------------------
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
Section 7. Ownership and Transfer.
----------------------
-5-
<PAGE>
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder shall have
delivered to the Company an opinion of counsel, in generally acceptable form, to
the effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration;
provided that (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) neither the Company nor any other
person is under any obligation to register the Warrants under the Securities Act
or any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
dated December 10, 1999 by and between the Company and the Buyers listed on the
signature page thereto (the "Registration Rights Agreement") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
-6-
<PAGE>
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
---------------------------------------------------------
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
--------------------------------------------------------------
Issuance of Common Stock. If and whenever on or after the date of issuance of
- ------------------------
this Warrant, the Company issues or sells, or in accordance with Section 8(b) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Exempt Issuance or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
Warrant Exercise Price in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and (y)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such issue or sale, by (2)
the product derived by multiplying the (I) Applicable Price by (II) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For
--------------------------------------------------
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants
-------------------
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
of any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8(b)(i) to the extent that such adjustment is based solely on
the fact that the Convertible
-7-
<PAGE>
Securities issuable upon exercise of such Option are convertible into or
exchangeable for Common Stock at a price which varies with the market price of
the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8(b)(ii) to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
--------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon the exercise of any Option or upon exercise, conversion or
exchange of any Convertible Security is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Warrant Exercise Price then in
effect will be readjusted to the Warrant Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding
-8-
<PAGE>
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof) never been issued.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
--------------------------------------------------
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the amount received by the Company therefor before deduction of reasonable
commissions, underwriting discounts or allowances or other similar reasonable
expenses incurred by the Company. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the market
price of such securities for the twenty (20) consecutive trading days
immediately preceding the date of receipt. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.
(ii) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will 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.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
--------------------------------------------------------
Combination of Common Stock. If the Company at any time after the date of
- ---------------------------
issuance of this Warrant subdivides
-9-
<PAGE>
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Warrant Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately decreased.
(e) Distribution of Assets. If the Company shall declare or make any
----------------------
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, property or
securities of a subsidiary) (a "Distribution"), at any time after the issuance
of this Warrant, then, in each such case:
(i) the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing bid price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing bid price on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment will
-10-
<PAGE>
increase the Warrant Exercise Price or decrease the number of shares of Common
Stock obtainable as otherwise determined pursuant to this Section 8.
(g) Notices.
-------
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
--------------------------------------------------
Consolidation, Merger or Sale.
- -----------------------------
(a) If at any time after the date hereof, the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holder of this Warrant
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will use its best efforts to
secure from the Person purchasing such assets or the successor resulting from
such Organic Change (in each case, the "Acquiring Entity") written agreement (in
form and substance satisfactory to the holders of Warrants representing a
majority of the shares of Common Stock obtainable upon exercise
-11-
<PAGE>
of the Warrants then outstanding) to deliver to each holder of Warrants in
exchange for such Warrants, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant
and satisfactory to the holders of the Warrants (including, an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of the
Warrants, if the value so reflected is less than the Warrant Exercise Price in
effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall use its best efforts
to make appropriate provision (in form and substance satisfactory to the holders
of Warrants representing a majority of the shares of Common Stock obtainable
upon exercise of the Warrants then outstanding) to insure that each of the
holders of the Warrants will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Warrants, such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in exchange for
the number of shares of Common Stock which would have been acquirable and
receivable upon the exercise of such holder's Warrant as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the exerciseability of this Warrant).
(c) In the event the Company proposes to effect an Organic Change,
then in addition to any other rights the holder may have, the holder shall have
the right to effect a Cashless Exercise (as defined below), by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof. A "Cashless Exercise"
shall mean that, in lieu of paying the Warrant Exercise Price in cash, the
holder shall surrender this Warrant for that number of Warrant Shares determined
by subtracting from the number of Warrant Shares otherwise issuable to the
holder upon such exercise, an amount of Warrant Shares (the "Surrendered
Shares") having a closing bid price (as reported by Bloomberg) on the date
immediately preceding the date of the exercise notice equal to the Aggregate
Exercise Price (as defined in Section 2) of the Warrant Shares for which this
Warrant is being exercised; and thereafter the Surrendered Shares shall no
longer be available for issuance hereunder.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
--------------------------------------------
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
------
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
-12-
<PAGE>
If to the Company:
Data Race Inc.
12400 Network Blvd.San Antonio, TX 78249-3341
Telephone: (210) 263-2208
Facsimile: (210) 558-0365
Attention: Greg Skalla
With copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Telephone: (210) 281-7000
Facsimile: (210) 224-2035
Attention: Pat Ryan, Esq. or Sharla Kruger, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. [Reserved.]
Section 13. Date. The date of this Warrant is December 10, 1999. This
----
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no such
action may increase the Warrant Exercise Price of the Warrants or decrease the
number of shares or class of stock obtainable upon exercise of any Warrants
without the written consent of the holder of such Warrant.
-13-
<PAGE>
Section 15. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be governed by the internal laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of Illinois.
[Signature Page Follows]
-14-
<PAGE>
This Warrant has been duly executed by the Company as of the date first set
forth above.
DATA RACE INC.
By:_________________________________
Name: Gregory T. Skalla
Title: Senior Vice President, Chief
Financial Officer and Secretary
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
DATA RACE INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Data Race
Inc., a Texas corporation (the "Company"), evidenced by the attached Warrant
(the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. Payment of Warrant Exercise Price. The holder shall pay the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
2. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date:____________ ___, ______________
Name of Registered Holder
By:________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Data Race Inc., a Texas corporation,
represented by warrant certificate no. _____, standing in the name of the
undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, 199_
______________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
Exhibit 10.5
WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN
FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH
OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE
SECURITIES LAWS.
DATA RACE INC.
Warrant To Purchase Common Stock
Warrant No.: 1999-6 Number of Shares: 190,476
Date of Issuance: December 10, 1999
Data Race Inc., a Texas corporation (the "Company"), hereby certifies that, for
Ten United States Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lionhart
Investments Ltd., the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Central Time on the Expiration Date (as defined
herein) 190,476 fully paid nonassessable shares of Common Stock (as defined
herein) of the Company (the "Warrant Shares") at the purchase price per share
provided in Section 1(b) below.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
-----------------------------
Warrants (the "Warrants") issued pursuant to the terms of that certain
Securities Purchase Agreement dated as of December 10, 1999, among the Company
and the Buyers referred to therein (the "Securities Purchase Agreement").
(b) Definitions. The following words and terms as used in this
-----------
Warrant shall have the following meanings:
<PAGE>
(i) "Common Stock" means (i) the Company's common stock, no
par value per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
(ii) "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Warrants.
(iii) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.
(iv) "Exempt Issuance" means (A) a loan from a commercial bank
which has only an incidental equity feature, (B) any transaction involving the
Company's issuances of securities (1) as consideration in a merger or
consolidation, (2) in connection with a strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (3) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (C) the issuance of common stock in a firm commitment,
underwritten public offering, (D) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (E) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or written
compensation agreement for the benefit of the Company's employees, directors,
consultants or advisors, or (F) the issuance of securities pursuant to any
shareholder rights plan adopted by the Company prior to the Closing (as defined
in the Securities Purchase Agreement).
(v) "Expiration Date" means the date two (2) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"Holiday"), the next date that is not a Holiday.
(vi) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(vii) "Other Securities" means (i) the other Warrants and (ii)
the shares of Common Stock issued from time to time pursuant to the Securities
Purchase Agreement.
(viii) "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(ix) "Principal Market" means the Nasdaq National Market.
-2-
<PAGE>
(x) "Securities Act" means the Securities Act of 1933, as
amended.
(xi) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
(xii) "Warrant Exercise Price" shall be $3.00 per common share,
subject to adjustment as hereinafter provided.
Section 2. Exercise of Warrant.
-------------------
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any business day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
---------
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer, and (iii) the surrender to a common carrier for delivery to the
Company as soon as practicable following such date, this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable, and in no event later than two business days, after the
Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction). Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii) above, the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
-3-
<PAGE>
(c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under the Securities Purchase Agreement,
pay as additional damages in cash to such holder on each day the issuance of
such Common Stock certificate or new Warrant, as the case may be, is not timely
effected an amount equal to .25% of the product of (A) the sum of the number of
shares of Common Stock not issued to the holder on a timely basis and to which
the holder is entitled and/or, the number of shares represented by the portion
of this Warrant which is not being converted, as the case may be, and (B) the
average of the closing bid price of the Common Stock for the three consecutive
trading days immediately preceding the last possible date which the Company
could have issued such Common Stock or Warrant, as the case may be, to the
holder without violating this Section 2.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
----------------------------
agrees as follows:
(a) This Warrant is, and any Warrant issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
-4-
<PAGE>
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall pay any and all taxes which may be
-----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
---------------------------------------
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
-------------------------
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
-5-
<PAGE>
Section 7. Ownership and Transfer.
----------------------
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder shall have
delivered to the Company an opinion of counsel, in generally acceptable form, to
the effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration;
provided that (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) neither the Company nor any other
person is under any obligation to register the Warrants under the Securities Act
or any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
dated December 10, 1999 by and between the Company and the Buyers listed on the
signature page thereto (the "Registration Rights Agreement") and the initial
holder of this Warrant (and certain assignees thereof) is entitled to the
registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
-6-
<PAGE>
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
---------------------------------------------------------
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
--------------------------------------------------------------
Issuance of Common Stock. If and whenever on or after the date of issuance of
- ------------------------
this Warrant, the Company issues or sells, or in accordance with Section 8(b) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Exempt Issuance or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
Warrant Exercise Price in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and (y)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such issue or sale, by (2)
the product derived by multiplying the (I) Applicable Price by (II) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
--------------------------------------------------
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants any
-------------------
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 8(b)(i) to the extent that such adjustment is based solely on
the fact that the Convertible
-7-
<PAGE>
Securities issuable upon exercise of such Option are convertible into or
exchangeable for Common Stock at a price which varies with the market price of
the Common Stock.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8(b)(ii) to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.
(iii) Change in Option Price or Rate of Conversion. If the
--------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon the exercise of any Option or upon exercise, conversion or
exchange of any Convertible Security is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Warrant Exercise Price then in
effect will be readjusted to the Warrant Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding
-8-
<PAGE>
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof) never been issued.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
--------------------------------------------------
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the amount received by the Company therefor before deduction of reasonable
commissions, underwriting discounts or allowances or other similar reasonable
expenses incurred by the Company. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the market
price of such securities for the twenty (20) consecutive trading days
immediately preceding the date of receipt. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding. The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.
(ii) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will 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.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
--------------------------------------------------------
Combination of Common Stock. If the Company at any time after the date of
- ---------------------------
issuance of this Warrant subdivides
-9-
<PAGE>
(by any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Warrant Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately decreased.
(e) Distribution of Assets. If the Company shall declare or make any
----------------------
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, property or
securities of a subsidiary) (a "Distribution"), at any time after the issuance
of this Warrant, then, in each such case:
(i) the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing bid price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing bid price on the trading day
immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment will
-10-
<PAGE>
increase the Warrant Exercise Price or decrease the number of shares of Common
Stock obtainable as otherwise determined pursuant to this Section 8.
(g) Notices.
-------
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
--------------------------------------------------
Consolidation, Merger or Sale.
- -----------------------------
(a) If at any time after the date hereof, the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holder of this Warrant
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will use its best efforts to
secure from the Person purchasing such assets or the successor resulting from
such Organic Change (in each case, the "Acquiring Entity") written agreement (in
form and substance satisfactory to the holders of Warrants representing a
majority of the shares of Common Stock obtainable upon exercise
-11-
<PAGE>
of the Warrants then outstanding) to deliver to each holder of Warrants in
exchange for such Warrants, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant
and satisfactory to the holders of the Warrants (including, an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of the
Warrants, if the value so reflected is less than the Warrant Exercise Price in
effect immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall use its best efforts
to make appropriate provision (in form and substance satisfactory to the holders
of Warrants representing a majority of the shares of Common Stock obtainable
upon exercise of the Warrants then outstanding) to insure that each of the
holders of the Warrants will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Warrants, such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in exchange for
the number of shares of Common Stock which would have been acquirable and
receivable upon the exercise of such holder's Warrant as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the exerciseability of this Warrant).
(c) In the event the Company proposes to effect an Organic Change,
then in addition to any other rights the holder may have, the holder shall have
the right to effect a Cashless Exercise (as defined below), by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof. A "Cashless Exercise"
shall mean that, in lieu of paying the Warrant Exercise Price in cash, the
holder shall surrender this Warrant for that number of Warrant Shares determined
by subtracting from the number of Warrant Shares otherwise issuable to the
holder upon such exercise, an amount of Warrant Shares (the "Surrendered
Shares") having a closing bid price (as reported by Bloomberg) on the date
immediately preceding the date of the exercise notice equal to the Aggregate
Exercise Price (as defined in Section 2) of the Warrant Shares for which this
Warrant is being exercised; and thereafter the Surrendered Shares shall no
longer be available for issuance hereunder.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
--------------------------------------------
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
------
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
-12-
<PAGE>
If to the Company:
Data Race Inc.
12400 Network Blvd.San Antonio, TX 78249-3341
Telephone: (210) 263-2208
Facsimile: (210) 558-0365
Attention: Greg Skalla
With copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Telephone: (210) 281-7000
Facsimile: (210) 224-2035
Attention: Pat Ryan, Esq. or Sharla Kruger, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. [Reserved.]
Section 13. Date. The date of this Warrant is December 10, 1999. This
----
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no such
action may increase the Warrant Exercise Price of the Warrants or decrease the
number of shares or class of stock obtainable upon exercise of any Warrants
without the written consent of the holder of such Warrant.
-13-
<PAGE>
Section 15. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be governed by the internal laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of Illinois.
[Signature Page Follows]
-14-
<PAGE>
This Warrant has been duly executed by the Company as of the date first set
forth above.
DATA RACE INC.
By:____________________________________
Name: Gregory T. Skalla
Title: Senior Vice President, Chief
Financial Officer and Secretary
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
DATA RACE INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Data Race
Inc., a Texas corporation (the "Company"), evidenced by the attached Warrant
(the "Warrant"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.
1. Payment of Warrant Exercise Price. The holder shall pay the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
2. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date:_____________ ___, _______
Name of Registered Holder
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Data Race Inc., a Texas corporation,
represented by warrant certificate no. _____, standing in the name of the
undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, 199_
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
