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As filed with the Securities and Exchange Commission on January 13, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
DATA RACE, INC.
(Exact name of Registrant as specified in its charter)
12400 Network Boulevard
San Antonio, Texas 78249
(210) 263-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
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Texas 3661 74-2272363
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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_________________________
James G. Scogin
DATA RACE, Inc.
12400 Network Boulevard
San Antonio, Texas 78249
(210) 263-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
J. Patrick Ryan, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
_________________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
____________________
CALCULATION OF REGISTRATION FEE
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Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Offering Price Per Aggregate Offering Registration Fee
Share (1) Price (1)
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Common Stock, no par value 2,476,190 $2.91 $7,205,713 $1,903
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(1) Pursuant to Rule 457(c), the offering price and registration fee are
computed on the basis of the average of the high and low prices of the common
stock, as reported by the Nasdaq National Market on January 5, 2000.
____________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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Subject to Completion
January , 2000
Up to 2,476,190 Shares
DATA RACE, INC.
Common Stock
Our common stock is traded on the Nasdaq National Market under the symbol
"RACE." On January 5, 2000, the closing price of our common stock was $3.125.
These shares of common stock are being sold by the shareholders listed
under the heading "Selling Shareholders." We will not receive any of the
proceeds from the sales of the shares by the selling shareholders.
Investing in our common stock involves many risks. See "Risk Factors"
beginning on page 2.
______________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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Page
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About DATA RACE, Inc...................................... 2
Risk Factors.............................................. 2
Forward-Looking Statements................................ 8
Use of Proceeds........................................... 8
Selling Shareholders...................................... 8
Plan of Distribution...................................... 10
Legal Opinions............................................ 11
Experts................................................... 11
Where You Can Find More Information....................... 12
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ABOUT DATA RACE, INC.
We design, manufacture and market communications products. Our products
carry data, voice, network and fax traffic between a company's offices and its
workers who are away from their office. We market our products through a small
direct sales force and through national and regional distribution partners.
Our principal executive offices are located at 12400 Network Boulevard, San
Antonio, Texas 78249, and our telephone number is (210) 263-2000. You can access
our web site at http://www.datarace.com.
RISK FACTORS
An investment in the common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. We
believe the following risks represent the known, material risks facing our
company, in addition to the risks which typically face any company in our
industry. If any of the following risks actually occur, our business, financial
condition and operating results could be materially adversely affected. In that
case, the trading price of our common stock could decline, and you could lose a
part or all of your investment.
Our Future Success Depends on the Success of Unproven Be There!/VocalWare
Products
Our success depends almost entirely on the success of our Be There!/VocalWare
product line. The failure of our Be There!/VocalWare products to achieve success
would likely have a material adverse effect on our business and our ability to
continue operations. We are currently devoting the vast majority of our
resources to the Be There!/VocalWare product line. The Be There! system has had
very limited success and has failed to generate significant revenue since it was
released in 1997. The majority of our historical revenue has come from products
other than Be There!/VocalWare. The revenue from these other products has been
declining for several years and we believe the trend will continue. The market
may not accept our Be There!/VocalWare products for a variety of reasons. Our
inability to penetrate our target markets and increase Be There!/VocalWare sales
would adversely affect our business and operations.
Our Success is Dependent on Developing a Relationship with a Strategic Partner
Our business strategy is heavily dependent on our ability to establish a
strategic relationship with one or more partners who can enhance our market
presence and credibility and who can provide needed capital. Our inability to
develop such strategic relationships could have a material adverse effect on our
business and prospects.
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We Will Likely Need Additional Capital to Sustain Operations
We may be required to suspend some or all of our operations if we cannot obtain
additional capital when needed. It is possible that sources of capital, such as
investors, lenders or strategic partners, may perceive our recent history of
losses, current financial condition, or lack of significant Be There!/VocalWare
product sales as too great a risk to bear. As a result, we may not be able to
obtain additional capital on favorable terms, if at all. Further, if we issue
equity securities, shareholders may experience additional dilution or the new
equity securities may have rights and preferences senior to the common stock.
Even if our sales grow, we may require additional capital to hire additional
personnel and increase inventory levels. We cannot predict the timing and amount
of our future capital requirements.
We Have a History of Operating Losses and Expect to Have Continued Losses
We have suffered substantial recurring losses, and our Be There! products have
not generated significant revenue. We may never return to profitability or
generate future revenue levels sufficient to support our operations. In recent
years we have funded operations from the sale of equity securities. We expect to
continue to incur significant product development, sales and marketing, and
administrative expenses and, as a result, will need to generate significant
revenue to achieve profitability.
We Must Expand Sales and Distribution Capabilities to Increase Sales
We must expand our direct and indirect sales and marketing operations to
increase market awareness of our Be There!/VocalWare products and increase
revenue. We cannot be certain that we will be successful in these efforts and
our failure to do so could adversely affect our business. Our products require a
sophisticated sales effort targeted at senior management of our prospective
customers. Lack of adequate capital, our financial condition, and competition
for qualified personnel all affect our ability to expand our direct sales force.
These factors, as well as our credibility in the market place, also hinder our
ability to increase our indirect distribution channels.
The Market for Our Be There!/VocalWare Products May Not Develop as We
Anticipated
The Be There!/VocalWare products have not yet been and may never be widely
accepted in the market. We can not be assured that we will establish a market
for Be There!/VocalWare products or establish our credibility in that market.
The market may elect to embrace alternative products or service solutions to the
need for communication between the corporate headquarters and workers who are
away from their headquarters. The potential market for our Be There!/VocalWare
products may be affected by various factors, including changes in market trends
and market needs and changes in technology. The actual rate of growth and size
of the market may not reach expected levels. Our business will be adversely
affected if the market does not develop or we are not able to penetrate it as we
hope.
Rapid Technological Change Could Adversely Affect Our Business
The rapid pace of technological change may prevent us from developing and
marketing new products, enhancing our existing products, or responding
effectively to emerging industry standards or new product introductions by
others. Our future success will be largely dependent on our ability to enhance
our existing products and to develop and introduce successful new products.
Rapidly changing technology, emerging industry standards, product proliferation
and short product life cycles characterize the market for our products. As the
technical complexity of new products increases, it may become increasingly
difficult to introduce new products quickly and according to schedule. Delays in
developing or shipping new or enhanced products could adversely affect our
operating results.
Competition from Companies Having Greater Resources Could Adversely Affect Us
The communications industry is intensely competitive. The competitive pressures
we face could materially and adversely affect our business, financial condition
or operating results. Several of our existing and potential competitors have far
more extensive financial, engineering, product development, manufacturing, and
marketing resources than we have. As a result, these competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote much greater resources to the development, promotion,
and sale of their products and services than we can. Many of these competitors
have far greater brand recognition, which places us at a competitive
disadvantage. In addition, some competitors have a lower cost structure that
gives them a competitive advantage on the basis of price. There is a growing
array of solutions for communication between the
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corporate headquarters and remote workers, presenting a variety of alternatives
to our Be There!/VocalWare products. We expect new competing alternatives to
arise as new technologies develop.
Our Limited Customer Base Could Adversely Affect Our Operating Business
We have a limited number of customers for our products and a loss of a key
customer or a reduction or delay in orders from the customer could materially
and adversely affect operating results. In addition, although we have not yet
recorded significant revenue from our Be There!/VocalWare products, we are
currently attempting to market them to large corporations, as well as to smaller
businesses. If we do succeed in attracting large customers, the revenue from Be
There!/VocalWare products could fluctuate significantly according to the
purchasing cycle of those limited number of large customers. Our largest
customer, Sabratek, which represented 15% of our total revenue in fiscal 1999 is
experiencing financial difficulties and has filed for protection under Chapter
11 of the federal bankruptcy law. This could affect our collection on their
accounts receivable. We do not generally have and may not obtain minimum product
purchase commitments from our customers. Cancellation of orders by important
customers could have a substantial effect on our revenue.
Our Business Could Suffer if We Lose Key Personnel or Cannot Attract Qualified
Personnel
The loss of key personnel could have a material adverse effect on our business.
Our success is dependent largely on the skills, experience and performance of
key management, sales and technical personnel. We are especially dependent on
our president and chief executive officer and other senior officers, and our Be
There! products sales executives. We are also dependent on key technical
personnel to introduce new products and to remain in the forefront of
technological advances. All of our senior executives and other employees are
employed on an "at-will" basis. We do not have any insurance on our employees.
Our future success will also depend on our ability to attract highly skilled
personnel. Competition for qualified personnel is intense in our industry and we
may not be able to retain our key employees or attract and retain other
qualified personnel.
The Inability to Protect Our Proprietary Technology Could Reduce Our Competitive
Advantage
Intellectual property laws of the United States and foreign countries may not be
adequate to protect our proprietary rights. Because the Company's success
depends in part on its technological expertise and proprietary technologies, the
loss of its proprietary rights could have a material adverse effect on our
business. We rely on trade secret protection and, to a lesser extent, on patents
and copyrights to protect our proprietary technologies. These steps may not be
adequate to deter misappropriation or infringement of our proprietary
technologies. Competitors may also independently develop technologies that are
similar or superior to our technology. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States.
Intellectual Property Disputes Could Be Costly and Disruptive and Affect the
Validity of Our Patents
We may be involved in intellectual property litigation which could adversely
affect our intellectual property rights, could be costly, and could divert
management's attention away from the business. We believe that the
communications industry is a competitive environment where intellectual property
disputes are likely to arise. We may be required to bring or defend against
litigation to enforce our patents, to protect our trademarks, trade secrets, and
other intellectual property rights, to defend against infringement claims, to
resolve disputes under technology license arrangements, and to determine the
scope and validity of our proprietary rights or those of others. In addition,
intellectual property disputes may be initiated against us for tactical purposes
to gain competitive advantage or overcome competitive disadvantage, even if the
merits of a specific dispute are doubtful. Our limited resources may limit our
ability to bring or defend against intellectual property litigation. Adverse
determinations in litigation, including litigation we initiate, could result in
the loss of our proprietary rights, subject us to significant liabilities,
require us to seek licenses from third parties, or prevent us from manufacturing
or selling our products. In addition, any litigation can be expensive and divert
management resources. Any of these consequences could materially adversely
affect our business, financial condition and operating results.
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Our Dependence on Third Party Suppliers Increases Potential Shipment Delays and
Other Risks
Our dependence on third party suppliers could adversely affect our business,
customer relationships, or operating results. We manufacture our products using
components or subassemblies bought from third party suppliers. Some of these
components, such as critical microchips, are available only from a single
supplier. We do not have any guaranteed supply arrangements. If we could not
obtain a sufficient supply of components from current sources, we could be
unable to obtain alternative sources or alter product designs to use alternative
components. We have experienced and may again experience supply shortages, which
delay product shipments. In addition, we may also be unable to control the cost,
quality and reliability of the components we use to manufacture our products.
Our Dependence on Third Party Manufacturers Increases Potential Manufacturing
Problems and Other Risks
Our dependence on third party manufacturers could adversely affect our business,
customer relationships, or operating results. We use third party manufacturers
to assist in assembling our products. Because of this reliance on third party
manufacturers, we can not always exercise direct control over manufacturing
quality and costs. We may also have problems with production schedules of our
products because of other demands placed on the third party manufacturers.
Our Financial Condition and Operating Results Could be Adversely Affected If We
Do Not Manage Inventory
Our business and financial condition could be materially adversely affected if
we do not effectively manage purchasing activities in the face of uncertain
revenue levels. In the past we have substantially increased our inventory levels
to meet anticipated shipment requirements. Increased levels of inventory could
adversely affect our liquidity or increase the risk of inventory write offs.
We Could Be Adversely Affected If Our Products Fail to Meet FCC and Other
Regulatory Standards
The failure of our products to conform to the regulations established by the
Federal Communications Commission or similar foreign regulatory body or to meet
applicable testing requirements could adversely affect our business. The FCC and
other foreign regulators regulate aspects of our products. Our products must
typically be tested before they are sold. Foreign authorities often establish
telecommunications standards different from those in the United States, making
it difficult and more time consuming to obtain the required regulatory
approvals. A significant delay in obtaining regulatory approvals could delay the
introduction of our products into the market and adversely affect operating
results. In addition, changes in regulations or requirements applicable to our
products could affect the demand for our products or result in the need to
modify products, either of which could involve substantial costs or delays in
sales and adversely affect our operating results.
Loss of Our Nasdaq National Market Listing Would Impair Liquidity in the Common
Stock and Adversely Affect Our Financial Condition
The delisting of our common stock from the Nasdaq National Market would have a
material adverse effect on the liquidity of our common stock and on our
financial condition. Our common stock may be delisted if we do not maintain (a)
at least $4 million in net tangible assets and a stock price of at least $1.00,
or (b) maintain a market capitalization of at least $50 million and a stock
price of at least $5.00. There are also other requirements to maintain listing.
Our recurring losses and volatile stock price have from time to time caused us
to fail to satisfy the continued listing requirements. Delisting would likely
impair our ability to raise additional capital and also jeopardize secondary
trading exemptions from state "blue sky" laws, further affecting liquidity of
the common stock. In addition, delisting could obligate us to pay substantial
monetary penalties to the holders of our outstanding preferred stock. Our
failure to pay those penalties could also result in redemption of the preferred
stock.
Future Sales of Shares Could Adversely Affect Our Stock Price and Impair Our
Ability to Raise Capital
The sale or availability for sale of a significant number of shares of common
stock in the public market could adversely affect the market price of the common
stock, which is already volatile. In addition, the sale of these shares could
impair our ability to raise additional equity capital. We have also previously
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registered for resale shares of common stock including preferred stock and
warrants, which have not been sold into the public market. We may elect to
reserve and issue additional shares in the future.
Our Stock Price is Highly Volatile
The market price of our common stock in the past has been highly volatile, and
for the foreseeable future will likely continue to be highly volatile. This is
caused in part by the relatively low aggregate market value of our publicly
traded shares. Events or circumstances may cause a much greater percentage
change in the market price of our shares than the market price of a company with
a higher aggregate market value. There are many events or circumstances,
including those highlighted in these risk factors, which could cause the market
price of our stock to fluctuate. Many of those events or circumstances are
outside our control. In addition, stock prices for many technology companies
fluctuate widely for reasons unrelated to their business, financial condition or
operating results.
Our Business May Be Adversely Affected by Class Action Litigation Due to Stock
Price Volatility
The filing of securities class action litigation against companies often occurs
following periods of volatility in the market price of a company's securities.
We have in the past and may in the future be a target of securities litigation.
Securities litigation could have a material adverse effect on our business if it
is filed against us because it could result in substantial costs and a diversion
of management's attention and resources. It may also adversely affect our
ability to raise capital, our sales efforts, and our ability to attract a
strategic partner.
Anti-Takeover Measures Could Prevent or Delay a Change in Control of Our Company
Our shareholder rights plan could have the effect of delaying, deferring, or
preventing a change of control of the company and might make it difficult to
replace incumbent management. In addition, provisions of our articles of
incorporation may have the effect of discouraging unsolicited proposals to
acquire control over us. Our board of directors can, without obtaining
shareholder approval, issue shares of preferred stock having rights that could
adversely affect the voting power of holders of the common stock, including the
right to vote as a class on any proposed change of control. In addition, Texas
corporate laws, including the Texas Business Combination Law, could also have
the effect of hindering or delaying a takeover bid for the company. These laws
may inhibit takeover bids and decrease the chance of shareholders realizing a
premium to the then current market price of the common stock as a result of a
takeover bid. The Business Combination Law prohibits a publicly traded Texas
corporation from engaging in a broad range of business combinations with a
person who, together with affiliates and associates, owns or did own 20% or more
of the corporation's voting stock, for a period of three years after the date of
the transaction in which the person first became a 20% owner, unless the
business combination is approved in a prescribed manner.
We Could be Adversely Affected by Year 2000 Problems
We are exposed to the risk that the year 2000 issue could cause system failures
or miscalculations which could cause disruptions of operations, including, among
other things, a temporary inability to process financial transactions or engage
in similar normal business activities. We may be required to modify or replace
portions of our software and hardware so that those systems will properly
utilize dates beyond December 31, 1999. If necessary modifications and
replacements are not made, are not completed on time, or are insufficient to
prevent systems failures or other disruptions, the year 2000 issue could have a
material adverse impact on our operations. As of January 5, 2000, the Company
has not experienced any problems associated with year 2000 issues.
The risk for us exists primarily in the following areas:
. disruption of computer systems used by us to run our business including
information systems, equipment and facilities;
. disruption of computer systems used by our suppliers, including suppliers
of component parts and manufacturing services, as well as suppliers of
necessary energy, telecommunications and transportation needs;
. potential warranty or other claims from our customers based on year 2000
problems with our products; and
. potential for reduced spending by other companies on our products as a
result of significant information systems spending on year 2000 compliance.
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In addition, the possibility of interruption exists in the event that the
information systems of our suppliers, distributors, resellers and other
strategic marketing partners are not year 2000 compliant. The inability of our
suppliers, distributors, resellers and other strategic marketing partners to
complete their year 2000 resolution process in a timely fashion could materially
impact us. We can not predict the effect of non-compliance by these other
parties. In addition, disruptions in the economy generally resulting from the
year 2000 issues could also materially adversely impact us. We could be subject
to litigation for computer systems failure. We can not estimate the amount of
potential liability and lost revenue from year 2000 problems.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements that are based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and variations
of these words and similar expressions are intended to identify the forward-
looking statements. These statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any forward-looking statements. These risks and uncertainties
include those noted in "Risk Factors" above and in the documents incorporated by
reference.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling shareholders
of the shares of common stock covered by this prospectus.
SELLING SHAREHOLDERS
This prospectus covers the resale of the common stock issued and the common
stock issuable upon exercise of the warrants issued to the selling shareholders
in a December 1999 $4 million private placement of common stock and warrants.
Summary of December 1999 Private Placement
Issuance of Common Stock and Warrants
On December 10, 1999, we completed a private placement of 1,904,761 shares
of our common stock and warrants to purchase 571,429 shares of our common stock
to three accredited investors: Cranshire Capital, L.P., Keyway Investments Ltd.,
and Lionhart Investments Ltd. The aggregate price of the securities was
approximately $4,000,000. In connection with the private placement, we entered
into a securities purchase agreement and a registration rights agreement with
the three investors. The following table summarizes the number of shares and
warrants issued and the purchase price paid.
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Investor Shares of Common Stock Warrants Purchase Price
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Cranshire Capital, L.P. 793,651 238,096 $1,666,667
Keyway Investments Ltd. 476,190 142,857 $1,000,000
Lionhart Investments Ltd. 634,920 190,476 $1,333,333
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Material Terms of the Securities Purchase Agreement
In the securities purchase agreement we granted the investors a right of
first refusal to acquire additional securities in any financing transactions we
undertake prior to June 7, 2000. If we issue additional shares of our common
stock prior to earlier of May 8, 2000 or the effective date of the registration
statement of which this prospectus forms a part, then antidilution provisions
contained in the securities purchase agreement may require us to issue
additional shares of common stock to the investors so as to prevent dilution of
the investors' investment in our common stock. In addition, we agreed not to
file with the SEC any other registration statements covering the sale or resale
of shares of our common stock for a period of 90 days following the effective
date of the registration statement of which this prospectus forms a part.
Material Terms of the Warrants
The warrants entitle the holders to purchase our common stock at a price of
$3.00 per share, subject to customary antidilution adjustments through December
10, 2001. The exercise price was determined based on the average closing bid
price of our common stock over the five trading days preceding the issuance of
the warrants.
Material Terms of the Registration Rights Agreement
In the registration rights agreement we agreed to file the registration
statement of which this prospectus forms a part, covering the resale of the
common stock issued in the private placement and the shares of common stock
issuable upon exercise of the warrants issued in the private placement. We
agreed to pay all of the registration expenses. We must also pay penalties if
the registration statement is not declared effective by the SEC by April 8,
2000. These penalties may be paid in cash or, at the option of the investors, in
shares of our common stock.
Placement Agent Fees
PGN Capital Solutions, L.L.C. assisted us in arranging the sale of
securities to the participating investors. As compensation for the services
provided, we paid PGN Capital Solutions a cash fee equal to $240,000 or 6% of
the gross proceeds we received from the investors.
Selling Shareholder Table -- Beneficial Ownership and Shares Offered for Sale
The following table lists the names of the selling shareholders, the number
of shares of common stock beneficially owned by each selling shareholder on
January 5, 2000, and the number of shares, which may be offered for sale by this
prospectus. Each selling shareholder provided to us the information regarding
its share ownership. Because the selling shareholders may offer all, some or
none of their common stock, we can not give a definitive estimate as to the
number of shares that will be held by the selling shareholders after the
offering and we prepared the following table based on the assumption that the
selling shareholders sell all of the shares of common stock covered by this
prospectus. At January 5, 2000, there were 22,602,924 shares of common stock
outstanding.
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Shares Beneficially Owned
After the Offering
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Shares Shares
Beneficially Owned Being Percent of
Selling Shareholder Prior to Offering Offered Number Outstanding
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Cranshire Capital, L.P. 1,121,361(1) 1,031,747 89,614 *
Keyway Investments Ltd. 1,115,032(2) 619,047 495,985 2.2%
Lionhart Investments Ltd. 1,038,692(2) 825,396 213,296 *
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* Less than 1%.
(1) Includes 281,985 shares issuable upon exercise of warrants.
(2) Includes 142,857 shares issuable upon exercise of warrants.
(3) Includes 403,772 shares issuable upon exercise of warrants.
PLAN OF DISTRIBUTION
This prospectus covers the resale of shares of common stock by the
selling shareholders and their pledgees, donees, assignees and other successors
in interest. The selling shareholders may sell their shares on the Nasdaq
National Market, in the over-the-counter market or through any other facility on
which the shares are traded, or in private transactions. These sales may be at
market prices or at negotiated prices. The selling shareholders may use the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker or
dealer solicits purchasers;
. block trades in which the broker or dealer attempts to sell the shares
as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
. purchases by a broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus;
. privately negotiated transactions;
. any combination of these methods of sale; or
. any other legal method.
The selling shareholders may engage in short sales of the common stock
and deliver shares to close out their short positions. The selling shareholders
may also enter into put or call options or other transactions with broker-
dealers or others which require delivery to those persons of shares covered by
this prospectus.
Brokers, dealers or other agents participating in the distribution of
the shares of common stock may receive compensation in the form of discounts or
commissions from the selling shareholders, as well as the purchaser if they act
as agent for the purchaser. The discount or commission in a particular
transaction could be more than the customary amount. We know of no existing
arrangements between any selling shareholder and any underwriter, broker, dealer
or agent relating to the sale or distribution of the shares.
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The selling shareholders and any brokers or dealers that participate in the
sale of the shares may be deemed to be "underwriters" within the meaning of the
Securities Act. Any discounts, commissions or other compensation received by
these persons and any profit on the resale of the shares by them as principals
might be deemed to be underwriters' compensation. The selling shareholders may
agree to indemnify any broker, dealer or agent that participates in the sale of
the shares against various liabilities, including liabilities under the
Securities Act.
At the time a particular offer of shares is made, to the extent required we
will file a supplement to this prospectus which identifies the number of shares
being offered, the name of the selling shareholder, the name of any
participating broker or dealer, the amount of discounts and commissions, and any
other material information.
The selling shareholders and any other person participating in a
distribution will be subject to the applicable provisions of the Exchange Act
and its rules and regulations. For example, the anti-manipulative provisions of
Regulation M may limit the ability of the selling shareholders or others to
engage in stabilizing and other market making activities.
The selling shareholders may also sell their shares pursuant to Rule 144
under the Securities Act, rather than pursuant to this prospectus, so long as
they meet the criteria and conform to the requirements of the rule.
We will not receive any of the proceeds from the sale of the shares by the
selling shareholders. We will pay the registration and other offering expenses
related to this offering, but the selling shareholders will pay all underwriting
discounts and brokerage commissions incurred in connection with the offering.
Pursuant to the registration rights agreement for the June 1999 private
placement of common stock and warrants, we have agreed to indemnify the selling
shareholders against various liabilities, including liabilities under the
Securities Act.
In order to comply with some states' securities laws, if applicable, the
shares will be sold in those states only through registered or licensed brokers
or dealers. In addition, in some states the shares may not be sold unless they
have been registered or qualified for sale or an exemption from registration or
qualification is available and is satisfied.
LEGAL OPINIONS
Our special counsel, Akin, Gump, Strauss, Hauer, & Feld, L.L.P., San
Antonio, Texas, has issued a legal opinion regarding the legality of the shares
of our common stock offered by this prospectus.
EXPERTS
The financial statements of Data Race, Inc. as of June 30, 1999 and 1998,
and for each of the years in the three year period ended June 30, 1999, have
been incorporated by reference in this prospectus and in the registration
statement of which this prospectus forms a part in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
11
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, and Chicago. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from commercial document
retrieval services and at the SEC's web site at http://www.sec.gov. In addition,
you can read and copy our reports, proxy statements and other information at the
offices of The Nasdaq National Market, Report Section, 1735 K Street, N.W.,
Washington, D.c. 20006, on which our common stock is listed.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents instead of having to repeat the information in
this prospectus. The information incorporated by reference is considered to be
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
the selling shareholders sell all the shares.
. Annual Report on Form 10-K for the fiscal year ended June 30, 1999;
. Quarterly Report on Form 10-Q for the quarter ended September 30, 1999;
. Current Report on Form 8-K filed December 17, 1999; and
. Registration Statement on Form 8-A filed with the SEC on October 5,
1992, which contains a description of the terms of our common stock, as
well as any amendment or report filed later for the purpose of updating
the description.
You can request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
DATA RACE, Inc.
Attn: Corporate Secretary
12400 Network Blvd.
San Antonio, Texas 78249
(210) 263-2000
You should rely only on the information contained in this prospectus or any
supplement and in the documents incorporated by reference. We have not
authorized anyone else to provide you with different information. The selling
shareholders will not make an offer of these shares in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any supplement or in the documents incorporated by reference is accurate on
any date other than the date on the front of those documents.
This prospectus is part of a registration statement we filed with the SEC
(Registration No. 333- ). More information about the shares sold by the
selling shareholders is contained in that registration statement and the
exhibits filed along with the registration statement. Because information about
contracts referred to in this prospectus is not always complete, you should read
the full contracts which are incorporated by reference in this prospectus. You
may read and copy the full registration statement and its exhibits at the SEC's
public reference rooms or their web site.
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses (other than underwriting discounts and commissions) in
connection with the issuance and distribution of the common stock registered
hereby are as follows:
SEC registration fee..................................... $ 1,903
Nasdaq Listing of Additional Shares filing fee........... 17,500
Legal fees and expenses.................................. 10,000*
Accounting fees and expenses............................. 2,500*
Miscellaneous............................................ $ 3,097*
-------
Total............................................... $35,000*
=======
_______________
* Estimated.
Item 15. Indemnification of Directors and Officers.
Article 2.02-1 of the Texas Business Corporation Act provides for
indemnification of directors and officers in certain circumstances. In addition,
the Texas Miscellaneous Corporation Law provides that a corporation may amend
its Articles of Incorporation to provide that no director shall be liable to the
corporation or its shareholders for monetary damages for an act or omission in
the director's capacity as a director, provided that the liability of a director
is not eliminated or limited for: (i) any breach of the director's duty of
loyalty to the corporation or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law; (iii) any transaction from which such director derived an improper personal
benefit; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
We amended our Articles of Incorporation and added Article Ten adopting
such limitations on a director's liability. Our Articles of Incorporation also
provide in Article Ten, for indemnification of directors or officers in
connection with the defense or settlement of suits brought against them in their
capacities as directors or officers of the company, except in respect of
liabilities arising from gross negligence or willful misconduct in the
performance of their duties.
Article VIII of our bylaws provides for indemnification of any person made
a party to a proceeding by reason of such person's status as a director, officer
or employee of the company, except in respect of liabilities arising from
negligence or misconduct in the performance of their duties.
We have obtained an insurance policy which provides for indemnification of
officers and directors of the company and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibits
<S> <C>
3.1 Articles of Amendment to and Restatement of the Articles of Incorporation of
the Company, filed December 27, 1991. (a)
3.2 Articles of Correction to Articles of Amendment to and Restatement of the
Articles of Incorporation of the Company, filed August 13, 1992. (a)
3.3 Articles of Amendment to the Articles of Incorporation of the Company, filed
August 21, 1992. (a)
3.4 Statement of Resolution Establishing Series B Participating Cumulative
Preferred Stock. (b)
3.5 Statement of Designation, Preferences and Rights of Series D Convertible
Preferred Stock. (c)
3.6 Statement of Designation, Preferences and Rights of Series E Convertible
Preferred Stock. (c)
3.7 Articles of Amendment to the Articles of Incorporation of the Company,
filed January 21, 1999. (e)
3.8 Statement of Designation, Preferences and Rights of Series F Convertible
Preferred Stock. (e)
3.9 Bylaws of the Company and Amendments to Bylaws. (a)(d)
5. Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (g)
10.1 Securities Purchase Agreement, dated December 10, 1999, between the
Company, Cranshire Capital, L.P., Kewyay Investments Ltd., and
Lionhart Investments Ltd. (f)
10.2 Registration Rights Agreement, dated December 10, 1999, between the
Company, Cranshire Capital, L.P., Kewyay Investments Ltd., and
Lionhart Investments Ltd. (f)
10.3 Warrants for December 1999 Private Placement (f)
23.1 Consent of KPMG LLP. (g)
23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in opinion
filed as Exhibit 5)
24. Power of Attorney. (included as part of the signature page to this registration
statement)
</TABLE>
________________________________
(a) Filed as an exhibit to Form S-1 Registration Statement
No. 33-51170, effective October 7, 1992.
(b) Filed as an exhibit to Form 10-K Annual Report for the fiscal
year ended June 30, 1997.
(c) Filed as an exhibit to Form 8-K Current Report filed August 4,
1998.
II-2
<PAGE>
(d) Filed as an exhibit to Form 10-Q Quarterly Report for the quarter
ended December 31, 1996.
(e) Filed as an exhibit to Form S-3 Registration Statement
No. 333-71319, effective April 20, 1999.
(f) Filed as an exhibit to Form 8-K Current Report filed December 17,
1999.
(g) Filed herewith.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement, or any material change to such information in the
Registration Statement; provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information
required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the
II-3
<PAGE>
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall
be deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such new
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio, State of Texas, on January 6, 2000.
DATA RACE, INC.
By: /s/ Dr. W. B. Barker
---------------------
Dr. W. B. Barker
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of DATA RACE, Inc., hereby constitute and appoint Dr. W.B. Barker and
James G. Scogin, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him and his name,
place and stead, in any and all capacities, to execute any and all amendments
(including post-effective amendments) to this Registration Statement, and any
and all Registration Statements filed pursuant to Rule 462 or Rule 429 under the
Securities Act of 1933, as amended, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Dr. W. B. Barker President, Chief Executive Officer and January 6, 2000
- -------------------------- Director
Dr. W. B. Barker
/s/ James G. Scogin Chief Financial Officer, Treasurer and January 6, 2000
- --------------------------
James G. Scogin Secretary (Principal Financial and
Accounting Officer)
/s/ Jeffrey P. Blanchard Chairman of the Board of Directors January 6, 2000
- --------------------------
Jeffrey P. Blanchard
/s/ Matthew A. Kenny Director January 6, 2000
- --------------------------
Matthew A. Kenny
/s/ George R. Grumbles Director January 6, 2000
- --------------------------
George R. Grumbles
/s/ Dwight E. Lee Director January 6, 2000
- --------------------------
Dwight E. Lee
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
Exhibits
3.1 Articles of Amendment to and Restatement of the Articles of
Incorporation of the Company, filed December 27, 1991. (a)
3.2 Articles of Correction to Articles of Amendment to and Restatement of
the Articles of Incorporation of the Company, filed August 13, 1992.
(a)
3.3 Articles of Amendment to the Articles of Incorporation of the Company,
filed August 21, 1992. (a)
3.4 Statement of Resolution Establishing Series B Participating Cumulative
Preferred Stock. (b)
3.5 Statement of Designation, Preferences and Rights of Series D
Convertible Preferred Stock. (c)
3.6 Statement of Designation, Preferences and Rights of Series E
Convertible Preferred Stock. (c)
3.7 Articles of Amendment to the Articles of Incorporation of the Company,
filed January 21, 1999. (e)
3.8 Statement of Designation, Preferences and Rights of Series F
Convertible Preferred Stock. (e)
3.9 Bylaws of the Company and Amendments to Bylaws. (a)(d)
5. Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (g)
10.1 Securities Purchase Agreement, dated December 10, 1999, between the
Company, Cranshire Capital, L.P., Kewyay Investments Ltd., and
Lionhart Investments Ltd. (f)
10.2 Registration Rights Agreement, dated December 10, 1999, between the
Company, Cranshire Capital, L.P., Kewyay Investments Ltd., and
Lionhart Investments Ltd. (f)
10.3 Warrants for December 1999 Private Placement (f)
23.1 Consent of KPMG LLP. (g)
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
opinion filed as Exhibit 5)
24. Power of Attorney. (included as part of the signature page to this
registration statement)
_______________________________
(a) Filed as an exhibit to Form S-1 Registration Statement No. 33-51170,
effective October 7, 1992.
(b) Filed as an exhibit to Form 10-K Annual Report for the fiscal year
ended June 30, 1997.
(c) Filed as an exhibit to Form 8-K Current Report filed August 4, 1998.
(d) Filed as an exhibit to Form 10-Q Quarterly Report for the quarter
ended December 31, 1996.
(e) Filed as an exhibit to Form S-3 Registration Statement No. 333-71319,
effective April 20, 1999.
(f) Filed as an exhibit to Form 8-K Current Report filed December 17,
1999.
(g) Filed herewith.
<PAGE>
EXHIBIT 5
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
(210) 281-7000
January 6, 2000
DATA RACE, Inc.
12400 Network Blvd.
San Antonio, Texas 78249
Gentlemen:
We have acted as counsel to DATA RACE, Inc., a Texas corporation (the
"Company"), in connection with the registration by the Company under the
Securities Act of 1933, as amended (the "Act"), pursuant to the Company's
registration statement on Form S-3 (the "Registration Statement"), covering the
sale from time to time by the selling shareholders named in the Registration
Statement (the "Selling Shareholders") of an aggregate of up to 2,476,190 shares
of the Company's Common Stock (the "Common Stock"), consisting of 1,904,761
outstanding shares of Common Stock (the "Outstanding Shares"), and 571,429
shares of Common Stock issuable upon exercise of outstanding stock purchase
warrants (collectively, the "Warrants").
We have, as counsel, examined such corporate records, certificates and
other documents and reviewed such questions of law as we have deemed necessary,
relevant or appropriate to enable us to render the opinion expressed below. In
rendering such opinion, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures and the authenticity of all documents
examined by us. As to various questions of fact material to such opinion, we
have relied upon representations of the Company.
We have further assumed that:
a) all applicable state securities laws will have been complied with in
connection with each Warrant exercise;
b) at the time of the issuance of the shares of Common Stock upon the
exercise of the Warrants, the Company will have sufficient authorized
and unissued shares of Common Stock available for issuance;
c) the Warrants will be exercised in accordance with the applicable
warrant agreements; and
<PAGE>
d) the shares of Common Stock issuable upon exercise of the Warrants
will, upon issuance, be evidenced by appropriate certificates properly
executed and delivered.
Based upon the foregoing, and subject to such assumptions and
qualifications, we are of the opinion that:
1. The Outstanding Shares are duly authorized, validly issued, fully paid
and nonassessable.
2. When issued to the holders of the Warrants upon the exercise thereof
in accordance with the respective warrant agreements (including the
payment of the exercise price specified therein), the shares of Common
Stock issuable upon exercise of the Warrants will be duly authorized,
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference of this firm under the caption
"Legal Opinions" in the Prospectus contained therein. This opinion is to be used
only in connection with the issuance of the Common Stock while the Registration
Statement is in effect.
Very truly yours,
/s/ AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Data Race, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
San Antonio, Texas
January 6, 2000
