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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of June 12,
2000, 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 1,572,738 shares 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 471,822
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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
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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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(the "Offering") by the Company of its common stock and warrants 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,
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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
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(the "Purchase Price") of the Common Shares and the related Warrants at the
Closing shall be $6,000,000.
b. Closing Date. The date and time of the Closing (the "Closing
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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 location mutually
agreed upon by the Buyers and the Company.
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 Strategic Investment
Counsel, LLC, c/o Anthony J. Ribaudo, Esq., located at 666 Dundee Road, Suite
1901, Northbrook, Illinois 60062, 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"
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as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the Securities
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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
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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
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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
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APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN 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
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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
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(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
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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
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"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
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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 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 of 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
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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 and Warrants are duly
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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. 471,822 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
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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)
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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 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
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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
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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 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).
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f. Absence of Certain Changes. Since the most recent 1934 Act filing
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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,
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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.
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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
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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
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affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any
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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 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
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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
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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
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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
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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.
p. Insurance. The Company and each of its Subsidiaries are insured
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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
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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
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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
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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
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resale of the Common Shares on a registration statement on Form S-3 under the
1933 Act.
4. COVENANTS.
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a. Best Efforts. Each party shall use its best efforts timely to
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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
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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
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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
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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
10
<PAGE>
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 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.
11
<PAGE>
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).
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
13
<PAGE>
performed, satisfied and complied in all material respects with the covenants,
agreements and 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; and
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.
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 $5.45 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
17
<PAGE>
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) 263-2000
Facsimile: (210) 558-0356
Attention: Jim Scogin
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.
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
18
<PAGE>
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption.
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
19
<PAGE>
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 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: /s/ James G. Scogin
Name: James G. Scogin By: /s/ Mitchell Kopin
Title: SVP - Chief Financial Officer Name: Mitchell Kopin
Title: President
KEYWAY INVESTMENTS, LTD.
By: /s/ Dave Moore
Name: Dave Moore
Title: Director
LIONHART INVESTMENTS LTD.
By: /s/ Terrence P. Duffy
Name: Terrence P. Duffy
Title: Director
EURAM CAP STRAT. "A" FUND LIMITED
By: JMJ Capital, Inc., the
Investment Manager
By: /s/ Mitchell P. Kopin
Name: Mitchell P. Kopin
Title: President
*Signature Page Continues*
<PAGE>
ICN CAPITAL LTD.
By: /s/ Dave Moore
Name: Dave Moore
Title: Director
G-BAR LIMITED PARTNERSHIP
By: /s/ Matthew Gray
Name: Matthew Gray
Title: Vice President
<PAGE>
SCHEDULE 1: LIST OF INVESTORS
-----------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Investor Contact Information Purchase Price Number of Number of Legal Representative
Common Shares Warrant Shares
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cranshire Capital, L.P. c/o JMJ Capital, Inc. $3,250,000 851,900 255,570 Strategic Investment
666 Dundee Rd., Ste. 1901 Counsel, LLC
Northbrook, IL 60062 666 Dundee Rd., Ste. 1901
Attn: Mitchell P. Kopin Northbrook, IL 60062
(p)847/562-9030 Attn: Anthony J. Ribaudo,
(f)847/562-9031 Esq.
(p)847/564-9293
(f)847/564-5497
------------------------------------------------------------------------------------------------------------------------------------
Keyway Investments Ltd. 19 Mount Havelock $1,000,000 262,123 78,637
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. $ 500,000 131,062 39,319
Heston Court
Wimbeldon, London
SW194UW
United Kingdom
Attn: Terry Duffy
(p) 011-44-181-947-6934
(f) 011-44-181-971-0212
------------------------------------------------------------------------------------------------------------------------------------
EURAM Cap Strat. "A" Fund C/o JMJ Capital, Inc. $1,000,000 262,123 78,637
Limited 666 Dundee Rd., Ste. 1901
Northbrook, IL 60062
Attn: Mitchell P. Kopin
(p)847/562-9030
(f)847/562-9031
------------------------------------------------------------------------------------------------------------------------------------
ICN Capital Ltd. 19 Mount Havelock $ 100,000 26,212 7,864
Douglas, Isle of Man
United Kingdom
1M1 2QG
Attn: Ann Nicholson
(p)011-44-1624-623911
(f)011-44-1624-677313
------------------------------------------------------------------------------------------------------------------------------------
G-Bar Limited Partnership 440 S. LaSalle St., Ste. 650 $ 150,000 39,318 11,795
Chicago, IL 60605
Attn: Av Gray
(p)312/362-4211
(f)312/362-4208
------------------------------------------------------------------------------------------------------------------------------------
TOTAL $6,000,000 1,572,738 471,822
------------------------------------------------------------------------------------------------------------------------------------
</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
