As filed with the Securities and Exchange Commission on July 25, 2001
Registration No. 333-57166
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
DATA RACE, INC.
(Exact name of Registrant as specified in its charter)
6509 Windcrest Drive
Plano, Texas 75024
(972) 265-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
_________________________
Texas 3661 74-2272363
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
_________________________
James G. Scogin
DATA RACE, Inc.
6509 Windcrest Drive
Plano, Texas 75024
(972) 265-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
James S. Ryan, III
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
_________________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
_________________________
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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Title of each class of Amount to be Proposed Maximum Proposed Maximum Amount of
securities to be registered Registered (1) Offering Price Per Aggregate Offering Registration Fee (3)
Share (2) Price (2)
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Common Stock, no par value 49,589,158 $0.055 $2,727,404 $636
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(1) Includes shares of common stock that are issuable upon conversion of
convertible debt and upon the exercise of warrants.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), using the average of the high and low prices as
traded over the counter for the Registrant's common stock on July 23, 2001.
(3) This registration statement previously covered 3,352,382 shares of common
stock for which a registration fee of $576.19 was paid. Pursuant to Rule 457(a)
of the Securities Act, the registration fee for the 46,236,776 additional shares
of common stock included in this Amendment No. 1 is $636.
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.
Prospectus (Subject to Completion)
Dated July 25, 2001
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Up to 49,589,158 Shares
DATA RACE, INC.
Common Stock
Our common stock is traded over the counter under the symbol "RACE." On
July 23, 2001, the closing price of our common stock was $0.06.
The selling shareholders listed on page 8 may offer and sell up to
49,589,158 shares of Data Race, Inc. ("Data Race") common stock under this
prospectus. The selling shareholders may offer and sell the Data Race common
stock in one or more transactions, including block transactions, over the
counter, or any other markets or exchanges on which the common stock is eligible
for trading or quoting, at prevailing market prices or at privately negotiated
prices. 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 (the "SEC") 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.
_______________
The date of this prospectus is __________, 2001.
TABLE OF CONTENTS
Page
------
About DATA RACE........................................................... 1
Risk Factors.............................................................. 2
Forward-Looking Statements................................................ 8
Use of Proceeds........................................................... 8
Selling Shareholders...................................................... 8
Plan of Distribution...................................................... 20
Legal Opinions............................................................ 22
Experts................................................................... 22
Where You Can Find More Information....................................... 23
ABOUT DATA RACE
Data Race provides a line of communication products to meet the needs of
out-of-office workers. VocalWare, our main product, provides out-of-the-office
employees with simultaneous access to a company's telephone, fax, Internet, e-
mail, and corporate database resources over a normal dial-up telephone line or a
number of broadband access media.
Data Race conducts business as IP AXESS. At the annual shareholder meeting
held on November 9, 2000, our shareholders approved the formal change of our
corporate name to IP AXESS, Inc. Our principal executive offices are located at
6509 Windcrest, Plano, Texas 75024, and our telephone number is (972) 265-4000.
You can access our web site at http://www.ipaxess.com.
----------------------
Recent Developments
Termination of Nasdaq Listing
Effective July 11, 2001, our common stock was delisted by The Nasdaq National
Market due to our failure to pay overdue annual and additional listing fees in
the amount of $44,125 and our inability to meet the minimum bid price
requirements for continued listing. Our common stock continues to be traded in
the over the counter market under the symbol "RACE".
Resignation of Chief Executive Officer
Michael McDonnell resigned his positions as President and Chief Executive
Officer of Data Race and as a member of our Board of Directors on July 11, 2001.
James G. Scogin, our chief financial officer since December 1999, has succeeded
Mr. McDonnell as President. See "Risk Factors - Our Business Could Suffer if We
Lose Key Personnel or Cannot Attract Qualified Personnel".
Shareholder Litigation
In May 2001, Data Race, two of our executive officers and one of our significant
shareholders were sued in the United States District Court for the Northern
District of Illinois, Eastern Division, by Robert Plotkin, a Chicago-based
attorney, and several of Mr. Plotkin's relatives and family trusts, who are all
shareholders of the Company. The complaint alleges that the plaintiffs were
induced to purchase shares of our common stock based upon alleged
misrepresentations and omissions of material fact. Discovery has not commenced,
but we believe the lawsuit is without merit and intend to vigorously defend Data
Race against these allegations.
Recent Financing Transactions
Since March 2001 and excluding the equity line of financing discussed below, we
have raised approximately $3.9 million in additional capital in an effort to
sustain our operations until we can obtain long-term financing. See "Risk
Factors - We Will Need Additional Capital to Sustain Operations" and "Selling
Shareholders".
Equity Line of Financing
On July ___, 2001, we entered into a Common Stock Purchase Agreement creating an
equity line of financing with Grenville Finance Ltd., a British Virgin Islands
corporation. The equity line allows us to sell up to $30 million of our common
stock to Grenville Finance, subject to certain conditions. Our ability to
access the $30 million currently is limited by, among other things, limitation
on the maximum amount that can be drawn under the equity line at any one time,
our stock price, the number of shares of common stock we are authorized to issue
under the terms of our Articles of Incorporation, and shareholder approval
requirements. We also issued a common stock purchase warrant to Grenville
Finance entitling them to purchase up to ___ shares of our common stock at an
exercise price of $___ per share for a term of three years. We have agreed
contractually to register the sale of the shares of our common stock issuable
under the equity line and upon exercise of the warrant with the SEC no later
than _______, 2001. There can be no assurance that we will be able to access
additional funds under the equity line of financing.
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, the
trading price of our common stock could decline, and you could lose a part or
all of your investment.
Risks Related to this Offering
The Exercise of the Outstanding Warrants and the Conversion of the Convertible
Debt May Substantially Dilute the Interests of Other Security Holders
We are registering 49,589,158 shares of common stock, including 38,630,584
shares of common stock issuable under convertible debentures, convertible
promissory notes and warrants issued to certain of our investors. The
conversion price on the debentures and convertible promissory notes and the
exercise prices of the warrants could be lower than the trading price of our
common stock from time to time (see "Selling Shareholders"). In particular, the
conversion price of the convertible debentures is a "floating" price generally
equal to the lesser of (i) $0.154 per share, with respect to $500,000 of the
debentures, $___ per share, with respect to $240,000 of the debentures, $___ per
share, with respect to $130,000 of the debentures, and $___ per share, with
respect to $130,000 of the debentures; and (ii) 50% of the average of the five
lowest closing bid prices during the 25 trading days immediately prior to the
date upon which the debenture is converted. This generally ensures that the
convertible debentures may be converted at a discount from the market price of
our common stock, as the same may change from time to time (See "Selling
Shareholders - Summary of June 2001 Private Placement - Material Terms of the
Convertible Debentures"). The potential or actual issuance of shares under the
convertible debentures, convertible promissory notes and upon exercise of
warrants could have (and in the case of the convertible debentures, almost
certainly will have) a dilutive impact on other shareholders and could have a
negative impact on the market price.
2
The Conversion by the Holders of Convertible Securities May Result in
Substantial Dilution to the Third Party Holders of our Common Stock Because
Holders May Ultimately Convert and Sell the Full Amount Issuable on Conversion
Future purchasers of our common stock and existing shareholders could experience
substantial dilution as our investors convert their convertible debt or exercise
their warrants and then resell the common stock. In particular, because the
conversion price of the debentures is below market value of the common stock, we
expect the debenture holders to ultimately convert the entire principal amount
and sell the common stock. The issuance of shares of common stock upon the
conversion of debentures will have a dilutive impact on our shareholders.
The Sale of Material Amounts of Our Common Stock upon Conversion of Our
Convertible Debentures Could Reduce the Price of Our Common Stock and Encourage
Short Sales
The common stock price may decrease if the holders of the convertible debt elect
to convert and resell their shares of common stock. In particular, as the price
of our common stock decreases, if the holders of the convertible debentures
elect to convert, we will be required to issue more shares of our common stock
for any given dollar amount invested by the holders of the debentures. This may
encourage short sales, which could place further downward pressure on the price
of our common stock.
We Do Not Know the Precise Number of Shares of Common Stock That We May Have to
Issue upon the Conversion of the Convertible Debentures Because the Conversion
Price Is Linked to the Future Market Price of the Common Stock
The shares issuable upon conversion of the convertible debentures are linked to
a percentage discount to the market price of our common stock at the time of the
conversion. We do not know the precise maximum number of common stock shares
that may be issued upon conversion. The lower the price of our common stock at
the time of conversion, the more shares of common stock that we will be required
to issue upon conversion, which will further dilute holders of common stock and
cause the common stock price to decline further.
Risks Relating to Data Race Generally
We Have a History of Operating Losses and Expect to Have Continued Losses
We have suffered substantial recurring losses, and sales our VocalWare products
have not resulted in significant revenue. For the fiscal year ended June 30,
2000, we incurred operating losses of approximately $8.8 million on
approximately $316,000 of VocalWare sales and for the nine months ended March
31, 2001 we incurred approximately $11.5 million in operating losses on
approximately $52,000 in VocalWare sales. For the nine months ended March 31,
2001, we have incurred approximately $11.1 million in operating expenses, which
include engineering and product development, sales and marketing, and general
and administrative costs. Although we have made reductions in workforce and
associated expenses since March 31, 2001, we may never return to profitability
or attain 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 will need to generate significant revenue to achieve
profitability.
3
We Will Need Additional Capital to Sustain Operations
We may be required to suspend some or all of our operations if we cannot obtain
additional long-term financing. 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 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. Finally, there can be no assurance that we will be
able to access additional funds under our equity line of financing with
Grenville Finance Ltd. (See "About Data Race - Current Developments - Equity
Line of Financing").
Our Future Success Depends on the Success of Recently Introduced VocalWare
Products
Our success depends almost entirely on the success of our VocalWare product
line. The 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
VocalWare products or establish our credibility in that market. The market may
elect to embrace alternative products or service solutions to satisfy the need
for communication between the corporate headquarters and workers who are away
from their headquarters. The Be There! system which was the predecessor to
VocalWare had very limited success and 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, and we are no longer manufacturing
or selling those other products. In March 2000, we sold our network multiplexer
business segment to concentrate all our efforts on the VocalWare product line.
Our inability to penetrate our target markets and increase VocalWare sales would
adversely affect our business and operations.
Our Dependence on Third Party Manufacturers and Third Party Component Suppliers
Increases Potential Manufacturing Problems and Adversely Affect Our Customer
Relationships and Operating Results
In fiscal year 2000 we outsourced all of our manufacturing of our products.
Because of this reliance on third party manufacturers we cannot always exercise
direct control over manufacturing quality and costs. We use third party
component suppliers to provide components for our manufacturing of our products.
Because of this reliance on third party component suppliers, we can experience
delays in the manufacturing of our products based on external demands the third
party component suppliers may face in component allocations, component shortages
and component suppliers financial viability. We may also have problems with
production schedules of our products because of other demands placed on the
third party manufacturers and component suppliers.
We May Not Be Able to Respond Effectively to Rapid Technological Change in Our
Industry
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
4
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.
We May Not Be Able to Compete Effectively with Companies Having Greater
Resources
The communications industry is intensely competitive. 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 for product acceptance with an
established competitor. In addition, some competitors have a lower cost
structure that gives them a competitive advantage on the basis of price due to
their financial condition and purchasing power. There is a growing array of
solutions for communication between the corporate headquarters and remote
workers, presenting a variety of alternatives to our VocalWare products. We
expect new competing alternatives to arise as new technologies develop. There
can be no assurance that consumers will choose our solution.
Our Business Could Suffer if We Lose Key Personnel or Cannot Attract Qualified
Personnel
Our success is dependent largely on the skills, experience and performance of
key management, sales and technical personnel. We are especially dependent on
our senior officers and VocalWare products sales executives. Michael McDonnell
resigned his positions as President and Chief Executive Officer of Data Race and
as a member of our Board of Directors on July 11, 2001, and we do not yet know
the extent to which his departure will adversely affect our business. James G.
Scogin, our chief financial officer since December 1999, has succeeded Mr.
McDonnell as President and Mr. Scogin has no prior experience as the president
or chief executive officer of a company. We have also reduced our staff to eight
full time employees to reduce our monthly cash expenditures. We do not yet know
the extent to which this reduction in staff will adversely affect our business.
We are also dependent on key technical personnel to introduce new products and
to remain in the forefront of technological advances. Due to the complexity of
our product, the loss of key personnel affects us in the time it would take to
replace the personnel and train them in our product, if we could replace them at
all. None of our senior executives or other employees have employment contracts
with us and may leave our employ at any time. 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.
5
We Depend upon Our Proprietary Technology and We May Not Be Able to Adequately
Protect It
Intellectual property laws of the United States and foreign countries may not be
adequate to protect our proprietary rights. Because our success depends in part
on our technological expertise and proprietary technologies, the loss of our
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. We have in the past and may in the future 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 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. 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.
Our Levels of Inventory Could Adversely Affect Our Liquidity and Viability or
Increase the Risk of Inventory Write-Offs
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
without corresponding sales could adversely affect our cash flow and increase
the risk of inventory write-offs pertaining to slow moving or obsolete product.
Failure of Our Products to Meet FCC and other Regulatory Standards Could Delay
the Introduction of New Products or Require Us to Modify Existing Products
The failure of our products to conform to the regulations established by the
Federal Communications Commission or similar foreign regulatory bodies or to
meet applicable testing requirements could adversely affect our business. The
FCC and 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.
6
Our Stock Price is Highly Volatile
The market price of our common stock in the past has been highly volatile, and
likely will 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.
See "About Data Race - Recent Developments - Shareholder 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.
7
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.
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 or the conversion of convertible
debt issued to the respective selling shareholders in three separate private
placements consummated during the period from March through August of 2001.
This prospectus also covers the resale of the common stock issuable upon the
exercise of four warrants issued in June of 2001. In some cases, the exercise
price of the warrants or the conversion price of the convertible debt were less
than the market price of our common stock at the time we completed the private
placement. The conversion prices and exercise prices were determined following
an arms-length negotiation with the investors.
Summary of March 2001 Private Placement
Issuance of Common Stock and Warrants
On March 2, 2001, we completed a private placement. We sold 3,047,620 shares of
our common stock and warrants to purchase 304,762 shares of our common stock to
three accredited investors: Protius Overseas Limited, Keyway Investments Ltd.
and Lionhart Investments Ltd. The aggregate price of the securities sold was
$2,000,000. We entered into a securities purchase agreement, a registration
rights agreement, and warrants with the three investors. The following table
summarizes the number of shares and warrants issued and the purchase price paid
at the closing of the private placement.
8
Shares of Common
Stock Initially
Shares of Issuable Upon
Investor Common Stock Exercise of Warrants Purchase Price
--------- ------------- --------------------- --------------
Protius Overseas Limited 1,828,572 182,857 $1,200,000
Keyway Investments Ltd. 76,191 7,619 $ 50,000
Lionhart Investments Ltd. 1,142,857 114,286 $ 750,000
The following table summarizes the aggregate number of shares issued or issuable
under the securities purchase agreement and the aggregate number of shares
issuable upon exercise of the warrants as a result of the amendments described
below.
Shares of Common
Stock Issuable Upon
Investor Shares of Common Stock Exercise of Warrants(1)
-------- ---------------------- -----------------------
Protius Overseas Limited 3,542,262 303,089
Keyway Investments Ltd. 671,676 12,629
Lionhart Investments Ltd. 3,542,262 189,431
(1) Protius, Keyway and Lionhart each agreed not to exercise any portion of
their respective warrants unless and until our shareholders approve the increase
of the number of shares of common stock which we are authorized to issue to
130,000,000 shares.
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 before December 27, 2001. We also agreed, subject to the exceptions
provided in the securities purchase agreement, 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 210 days following the effective date of the
registration statement of which this prospectus forms a part. These investors
waived these rights as they apply to the other private placements described in
this prospectus. We further agreed to reduce to $0.9875 the exercise price of
the warrants to purchase an aggregate of 1,043,251 shares of our common stock
issued under our June 1999 and December 1999 private placements and to extend
the term of those warrants an extra two years to December 10, 2003. Subject to
the exceptions provided in the securities purchase agreement, if we issue
additional shares of our common stock at a price per common stock share less
than $0.65625 before the earlier of November 27, 2001 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 in order
to prevent dilution of the investors' investment in our common stock. The
investors agreed to waive this antidilution protection as it applies to the
other private placements described in this prospectus in exchange for, among
other things, the issuance of additional shares described in the above table.
The securities purchase
9
agreement also contains customary representations, warranties, covenants and
indemnification provisions.
Material Terms of the Warrants
The warrants entitle the holders to purchase our common stock at an initial
exercise price of $0.9875 per share, subject to certain antidilution
adjustments, through March 2, 2006. These investors agreed to waive the
antidilution adjustment as it applies to the other private placements described
in this prospectus in exchange for, among other things, the reduction of the
exercise price of their warrants from $0.9875 per share to $0.596 per share and
the increase in the number of shares that may be acquired upon exercise of the
warrants as described in the above table. The initial 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. A holder of a warrant
generally may not exercise the warrant to the extent that, at the time of the
exercise, the sum of (i) the number of shares of our common stock beneficially
owned by the holder plus (ii) the number of shares to be issued upon exercise
would equal or exceed 4.9% of the number of shares of our common stock then
issued and outstanding. The holder may terminate this restriction, however,
upon 61 days notice to Data Race.
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 also agreed to pay
liquidated damages to the investors if the SEC did not declare a registration
statement effective with respect to the resale of their common stock by May 31,
2001, and as of the date of this prospectus we owe approximately $40,000 in the
aggregate to Protius, Lionhart and Keyway.
Summary of May 2001 Private Placement
Issuance of Secured Convertible Promissory Notes and Warrants
On May 11, 2001, we completed another private placement. We sold (i) two
secured convertible promissory notes in the aggregate original principal amount
of $700,000, bearing interest at a rate of 10% per year and convertible into an
aggregate of 2,333,333 shares of our common stock and (ii) warrants to purchase
an aggregate of 1,416,666 shares of our common stock to two accredited
investors, First Capital Group of Texas II, L.P. and ICN Capital Ltd. The
aggregate price of the securities sold was $701,416. We entered into a
securities purchase agreement, a registration rights agreement, secured
convertible promissory notes, a security agreement and warrants with the two
investors. The warrant granted to First Capital Group of Texas II, L.P.
entitles them to purchase 583,333 shares of our common stock and the warrant
granted to ICN Capital Ltd. entitles them to purchase 833,333 shares of our
common stock. Each warrant provided for the purchase of our common stock at an
initial exercise price of $0.30 per share through May 11, 2006. The exercise
price is subject to adjustment upon the occurrence of certain events. The
investors agreed to waive the antidilution adjustment as it applies to the other
private placements described in this prospectus in exchange for, among other
things, the reduction of the exercise price of their warrants from $0.30 per
share to $0.075 per share. The
10
following table summarizes the number of shares of our common stock initially
issuable upon conversion of the notes and exercise of the warrants and the
purchase price paid to us at closing pursuant to the transaction.
Shares of Common
Stock Initially
Issuable upon Shares of Common Stock
Conversion of Stock Issuable upon
Investor Promissory Notes Exercise of Warrants Purchase Price
-------- ----------------- -------------------- ---------------------
First Capital Group of
Texas II, L.P. 1,166,666(1) 583,333(2) $350,583
ICN Capital Ltd. 1,166,666 833,333(3) $350,833
(1) First Capital agreed not to convert any portion of its secured
convertible promissory note unless and until our shareholders approve the
increase of the number of shares of common stock which we are authorized to
issue to 130,000,000 shares.
(2) First Capital agreed not to exercise any portion of its warrant unless
and until our shareholders approve the increase of the number of shares of
common stock which we are authorized to issue to 130,000,000 shares.
(3) ICN agreed not to exercise any portion of its warrant unless and until
our shareholders approve the increase of the number of shares of common stock
which we are authorized to issue to 130,000,000 shares.
The following table summarizes the aggregate number of shares issuable upon
conversion of the secured convertible promissory notes (without regard to the
limitations on conversion in ICN's secured convertible promissory note (See -
"Material Terms of the Securities Purchase Agreement, Secured Convertible
Promissory Notes and Security Agreement")) as a result of the amendment to the
conversion price to $0.075 as described below.
Shares of Common
Stock Issuable upon
Conversion of
Investor Promissory Notes
-------- ----------------
First Capital Group of
Texas II, L.P. 4,666,666(1)
ICN Capital Ltd. 4,666,666
(1) First Capital agreed not to convert any portion of its secured
convertible promissory note unless and until our shareholders approve the
increase of the number of shares of common stock which we are authorized to
issue to 130,000,000 shares.
11
Material Terms of the Securities Purchase Agreement, Secured Convertible
Promissory Notes and Security Agreement
In the securities purchase agreement, we granted the investors a right of first
refusal to acquire additional securities in any financing transactions meeting
certain criteria that we undertake before March 7, 2002. We also agreed,
subject to the exceptions provided in the securities purchase agreement, 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 210 days following the effective
date of the registration statement of which this prospectus forms a part. These
investors waived these rights as they apply to the other private placements
described in this prospectus. The securities purchase agreement also contains
certain customary representations, warranties, covenants and indemnification
provisions. Each of the notes is in the original principal amount of $350,000
and bears interest at the rate of 10% per year. The full amount of principal
and all accrued interest is due and payable on May 11, 2002. Matured unpaid
principal and interest shall bear interest at the rate of 18% per year. Each
holder of a note can choose to convert all or a portion of the principal amount
of the note (together with any accrued but unpaid interest) into shares of our
common stock at any time before May 11, 2002. Each note is convertible into a
number of shares of our common stock determined by dividing the amount of
principal and interest to be converted by an initial conversion price of $0.30.
The conversion price is subject to adjustment upon the occurrence of certain
events. The investors agreed to waive the antidilution adjustment as it applies
to the other private placements described in this prospectus in exchange for,
among other things, the reduction of the conversion price of their notes from
$0.30 per share to $0.075 per share. ICN has agreed generally not convert its
note or exercise its warrant to the extent that, at the time of the conversion
or exercise, the sum of (i) the number of shares of our common stock
beneficially owned by ICN plus (ii) the number of shares to be issued upon
conversion or exercise would equal or exceed 9.9% of the number of shares of our
common stock then issued and outstanding. ICN may terminate this restriction,
however, upon 61 days notice to Data Race. We also granted the noteholders the
right (in the event that we issue, before May 11, 2002, shares of our capital
stock or securities convertible into or exercisable for shares of our capital
stock for aggregate consideration of $5,000,000 or more), to convert the notes
into the new securities issued at a conversion price generally equal to the
price per share paid for the new securities. The maturity of the notes
accelerates (at the option of the holders of at least two-thirds of the
aggregate principal amount outstanding under the notes) in the event of a
default under the notes or in the event that Data Race effects a financing
transaction meeting certain criteria, sells substantially all of its assets, or
is acquired in a transaction meeting certain criteria. An event of default under
the notes has occurred as a result of the delisting of our common stock from The
Nasdaq National Market (See "About Data Race - Recent Developments - Termination
of Nasdaq Listing"). First Capital has waived its rights to accelerate its
promissory note as a result of the delisting of our common stock. As of the
date of this prospectus, ICN has not notified us of their intent to accelerate
their note, although there can be no assurance that this will not occur. Our
obligations under the notes are secured by a lien on all of our personal
property, including accounts receivable, inventory and certain other property.
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 issuable upon conversion of the notes and the shares of common
stock issuable upon exercise of the warrants issued in the private
12
placement. We agreed to pay all of the registration expenses. We must also pay
damages if we breach certain of our obligations under the registration rights
agreement, and we currently are past the deadline for registering the resale of
the common stock. As of the date of this prospectus we owe approximately $3,500
in damages to ICN. First Capital has waived its right to receive any accrued
liquidated damages.
Summary of June 2001 Issuance of Warrants
On June 6, 2001, we entered into a warrant exercise agreement with five holders
of our warrants: Cranshire Capital, L.P., EURAM Cap Strat. "A" Fund Limited,
Keyway Investments Ltd., Lionhart Investments Ltd., and ICN Capital Ltd. We
agreed to amend the exercise price of the warrants held by the holders to $0.12
per share, and the holders exercised the warrants for 1,673,343 shares of our
common stock at an aggregate exercise price of approximately $200,000. We also
issued new warrants to the holders that are exercisable in the aggregate for
1,673,343 shares of our common stock at an initial exercise price of $0.25 per
share. The exercise price is subject to adjustment upon the occurrence of
certain events. The investors agreed to waive the antidilution adjustment to
the extent it otherwise would apply to the other private placements described in
this prospectus in exchange for, among other things, the reduction of the
exercise price of their warrants from $0.25 per share to $0.075 per share and
the increase in the number of shares issuable upon exercise of the warrants as
set forth in the table below. A holder of a warrant generally may not exercise
the warrant to the extent that, at the time of the exercise, the sum of (i) the
number of shares of our common stock beneficially owned by the holder plus (ii)
the number of shares to be issued upon exercise would equal or exceed 9.9% of
the number of shares of our common stock then issued and outstanding. The
holder may terminate this restriction, however, upon 61 days notice to Data
Race. The following table summarizes the transaction by investor, giving effect
to the increase in the number of shares issuable upon exercise of the
warrants:
Shares Issuable
Shares Acquired Upon Exercise of
Upon Exercise of Exercise Purchase New Warrants
Investor Warrants Price Granted(1)
-------- ----------- ------- ------------
Cranshire Capital, L.P. 706,961 $84,835 2,356,537
EURAM Cap Strat. "A" Fund Limited 78,637 $ 9,436 262,123
Keyway Investments Ltd. 436,790 $52,414 1,455,967
Lionhart Investments Ltd. 443,091 $53,170 1,476,970
ICN Capital Ltd. 7,864 $ 943 26,213
(1) Cranshire, EURAM, Keyway, Lionhart and ICN each agreed not to exercise
any portion of their respective warrants unless and until our shareholders
approve the increase of the number of shares of common stock which we are
authorized to issue to 130,000,000 shares.
13
Summary of June 2001 Private Placement
Issuance of Convertible Debentures and Warrants
On June 12, 2001, we entered into an agreement with respect to another private
placement consummated in four separate closings. We sold (i) four convertible
debentures in the aggregate original principal amount of $1,000,000, bearing
interest at a rate of 6% per year and convertible into shares of our common
stock at the conversion price described below and (ii) warrants to purchase an
aggregate of 1,000,000 shares of our common stock to two accredited investors,
Alpha Capital AG and Stonestreet L.P. The aggregate price of the securities
sold was $1,000,000. We received $500,000 of the purchase price on June 18,
2001, $240,000 of the purchase price on ______, 2001, $130,000 of the purchase
price on _____, 2001 and $130,000 of the purchase price on _____, 2001. We
entered into a convertible debentures and warrants purchase agreement, a
registration rights agreement, convertible debentures and warrants with the two
investors. Each warrant entitled the holder to purchase 500,000 shares of our
common stock at an initial exercise price of $0.14 per share, subject to
adjustment, through June 18, 2004. The following table summarizes the number of
shares of our common stock issuable upon conversion of the debentures (based
upon the market price of our stock as of July 23, 2001) and exercise of the
warrants and the aggregate purchase price paid to us at the two closings
pursuant to the transaction.
Shares of Common
Stock Issuable upon Shares of Common
Conversion of Stock Issuable upon
Investor Debentures Exercise of Warrants Purchase Price
-------- ------------------- -------------------- --------------
Alpha Capital AG 16,498,614(1)(2)(3) 500,000(3) $500,000
Stonestreet L.P. 16,014,103(1)(3)(4)(5) 500,000(3)(4) $500,000
(1) Each debenture generally is convertible at a "floating" price equal to
the lesser of (i) 50% of the average of the five lowest closing bid prices
during the 25 trading days immediately prior to the date upon which the
debenture is converted or (ii) $0.154 per share (with respect to $500,000 of the
debentures), $_____ per share (with respect to $240,000 of the debentures),
$_____ per share (with respect to $130,000 of the debentures), and $_____ per
share (with respect to $130,000 of the debentures). This conversion price is
subject to adjustment for certain events, and subject to certain limitations and
privileges (see - "Material Terms of the Convertible Debentures"). The
calculation of 32,512,717 shares issuable upon conversion of the debentures was
obtained by using an assumed conversion price of $0.029 per share, which was the
average of the five lowest closing bid prices during the 25 trading days
immediately prior to July 24, 2001 and after giving effect to and including the
issuance of 3,202,373 shares pursuant to the conversion of $150,000 principal
amount of debentures as described in footnotes (2) and (5) below.
(2) Includes 981,373 shares of our common stock issued upon the conversion
of $50,000 of principal and $50 of accrued interest on June 27, 2001 at a
conversion price of $0.051 per share.
(3) Alpha Capital agreed not to convert its convertible debentures or
exercise its warrant for more than 12,500,000 shares in the aggregate unless and
until our shareholders
14
approve the increase of the number of shares of common stock which we are
authorized to issue to 130,000,000 shares.
(4) Stonestreet agreed not to convert its convertible debentures or
exercise its warrant for more than 12,500,000 shares in the aggregate unless and
until our shareholders approve the increase of the number of shares of common
stock which we are authorized to issue to 130,000,000 shares.
(5) Includes 1,706,044 shares of our common stock issued upon conversion of
$80,000 of principal and $184 of accrued interest on June 29, 2001 at a
conversion price of $0.047 per share and 514,956 shares of our common stock
issued upon conversion of $20,000 of principal and $83 of accrued interest on
July 10, 2001 at a conversion price of $0.047 per share.
Material Terms of the Convertible Debentures and Warrants Purchase Agreement
We granted the investors a right of first refusal to acquire additional
securities in any financing transactions meeting certain criteria that we
undertake before the date that is 300 days following the effective date of the
registration statement of which this prospectus forms a part. Each investor can
require us to use half of the net proceeds from any sale of our securities for
cash (including under our equity line) to redeem the convertible debentures. We
also generally are prohibited from selling our securities below certain prices
until 300 days after the effective date of the registration statement of which
this prospectus forms a part, subject to certain exceptions. These investors
waived these rights as they apply to the other private placements described in
this prospectus. The convertible debentures and warrants purchase agreement
generally prohibits us from merging or consolidating Data Race with another
entity, or selling more than 50% of our assets, without the prior written
consent of the investors. We also generally are required to submit to our
shareholders for approval the issuance of the shares of our common stock
issuable upon the conversion of the convertible debentures and the exercise of
the warrants by August 17, 2001. If approval is not obtained, the investors
generally may require us to delist our common stock from the principal trading
exchange or market on which the common stock is traded or redeem the debentures.
Jeffrey P. Blanchard, our Chairman, James G. Scogin, our President, Jeffrey C.
Kissell, our Senior Vice President of Product and Business Development, and
Michael McDonnell, our recently resigned president and chief executive officer,
collectively have voting power with respect to 1,435,994 outstanding shares of
our common stock in the aggregate (4.1% of the aggregate common stock
outstanding as of July 11, 2001) and have executed a voting agreement that
contractually requires them to vote in favor of the proposal. The convertible
debentures and warrants purchase agreement also contractually required us to
enter into an equity line of credit by June 22, 2001 (See "About Data Race -
Recent Developments - Equity Line of Financing"). We are required to pay the sum
of $80,000 (representing 8% of the aggregate purchase price) to Hadrian
Investments Limited for placement agent fees. The convertible debentures and
warrants purchase agreement also contains other representations, warranties,
covenants and indemnification provisions customary for agreements of its type.
Material Terms of the Convertible Debentures
Each of the convertible debentures bears interest at the rate of 6% per year,
payable quarterly commencing October 1, 2001. The full amount of principal and
all accrued interest is due and payable on June 18, 2004, with respect to the
$500,000 principal amount of debentures issued at
15
the first closing; on _____, 2004, with respect to the $240,000 principal amount
of debentures issued on ____, 2001; on _____, 2004, with respect to the $130,000
principal amount of debentures issued on ____, 2001; and on _____, 2004, with
respect to the $130,000 principal amount of debentures issued on ____, 2001. The
principal amounts outstanding with respect to each debenture may not be prepaid
without the consent of the holder. Notwithstanding the foregoing, the debentures
may be redeemed by us at our option through the payment to the holders of an
amount equal to the principal amount of the debenture plus a premium ranging
between 20% and 30% of the principal amount, depending upon the date of the
redemption. Each holder of a debenture can choose to convert all or a portion of
the principal amount of the note (together with any accrued but unpaid interest)
into shares of our common stock at any time before the applicable maturity date.
Each debenture is convertible into a number of shares of our common stock
determined by dividing the amount of principal and interest to be converted by a
"floating" price generally equal to the lesser of (i) 50% of the average of the
five lowest closing bid prices during the 25 trading days immediately prior to
the date upon which the debenture is converted or (ii) $0.154 per share (with
respect to $500,000 of the debentures), $_____ per share (with respect to
$240,000 of the debentures), $_____ per share (with respect to $130,000 of the
debentures), and $_____ per share (with respect to $130,000 of the debentures),
subject in each case to certain adjustments. Each of these investors agreed not
to convert their respective convertible debentures or exercise their respective
warrants for more than 25,000,000 shares in the aggregate (12,500,000 shares
each) unless and until our shareholders approve the increase of the number of
shares of common stock which we are authorized to issue to 130,000,000 shares.
The failure of our shareholders to approve the increase in the authorized shares
before the earlier to occur of (i) 60 days after the effective date of the
registration statement of which this prospectus forms a part or (ii) December 1,
2001, constitutes an event of default under the debentures. In the event that
the issuance of shares of our common stock upon the conversion of the debentures
would cause us to violate the listing requirements of the principal trading
exchange or market on which our common stock is then traded, the holder of the
debenture may elect to either (i) convert the debenture at a conversion price of
$0.14 per share or (ii) require us to pay the holder cash in an amount equal to
the product of (A) the highest closing bid price during the period commencing on
the day the debenture was converted and ending on the trading day payment is
delivered, multiplied by (B) the number of shares of common stock that would
have been delivered upon conversion had the issuance not violated the listing
requirements. A holder of a debenture generally may not convert the debenture to
the extent that, at the time of the conversion, the sum of (i) the number of
shares of our common stock beneficially owned by the holder plus (ii) the number
of shares to be issued upon conversion would equal or exceed 9.9% of the number
of shares of our common stock then issued and outstanding, including other
shares of our common stock issuable upon conversion of the holder's debenture.
The holder may terminate this restriction, however, upon 61 days notice to Data
Race. In the event that we sell any shares of our common stock (or certain
securities convertible into or exercisable for shares of our common stock) at a
price less than the conversion price of a debenture, then the conversion price
of the debenture generally shall be adjusted to equal the lower price (subject
to certain exceptions). In the event that a debenture is converted and we issue
the shares of common stock later than the time permitted in the debenture, we
may be required to make substantial late fee payments to the holder that
increase based upon the how late we issue the shares and without a cap on the
late fee that must be paid. The maturity of the debentures could accelerate at
the option of the holder in the event of a default under the debentures or in
the event that Data Race sells more than half of its assets, or is acquired in a
transaction meeting certain criteria.
16
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 (i) the resale of 200%
of the shares of common stock issuable upon conversion of the debentures and
(ii) the resale of 100% of the shares of common stock issuable upon exercise of
the warrants issued in the private placement. These investors generally waived
the requirement that we register the resale of 200% of the shares of common
stock issuable upon conversion of the debentures if we agreed to (i) register
under the registration statement of which this prospectus forms a part the
resale of an aggregate of 25,000,000 shares issued or issuable upon conversion
of the debentures and (ii) register, within 15 days after the date our
shareholders approve an increase in the number of shares of common stock which
we are authorized to issue, the remaining shares which we otherwise would be
obligated to register. We must also pay penalties if we breach certain of our
obligations under the registration rights agreement. These penalties may be
paid in cash or, at our option, in shares of our common stock.
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 July 9,
2001, and the number of shares which may be offered for sale by this prospectus.
Each selling shareholder provided us with its share ownership information.
Because the selling shareholders may offer all, some or none of their common
stock, we cannot give a definitive estimate of the number of shares that will be
held by the selling shareholders after the offering. We prepared the following
table based on the assumption that the selling shareholders will sell all of the
shares of common stock covered by this prospectus. At July 11, 2001, we had
34,869,707 shares of common stock outstanding.
Shares Beneficially Owned
After the Offering
------------------------------
Shares Beneficially Aggregate Shares
Owned Before Registered and Percent of
Selling Shareholder Offering Eligible for Offer Number Outstanding
------------------- -------- ------------------ --------- -----------
Protius Overseas Limited (1) 3,542,262(3) 3,845,351(2)(22) 0 0%
Keyway Investments Ltd. (4) 671,676(5) 2,140,272(2)(22) 0 0%
Lionhart Investments Ltd. (6) 3,542,262(7) 5,208,663(2)(22) 0 0%
First Capital Group of Texas II,
L.P. (8) 1,375,697(9) 5,249,999(23) 1,375,697 3.9%
ICN Capital Ltd. (10) 3,996,909(11)(12) 5,526,213(12)(22) 0 0%
Alpha Capital AG(13) 16,998,614(14) 12,500,000(15) 0 0%
Stonestreet L.P.(16) 16,514,103(17) 12,500,000(15) 0 0%
Cranshire Capital, L.P.(18) 0(19) 2,356,537(12)(22) 0 0%
EURAM CAP Strat "A" Fund Limited
(20) 0(21) 262,123(12)(22) 0 0%
(1) Gordon J. Mundy has full voting and investment control over all Data
Race securities owned by Protius Overseas Limited.
17
(2) The number of shares with respect to which the investor may acquire
beneficial ownership pursuant to the exercise of their respective warrants
generally is contractually limited such that the investor's beneficial ownership
may not exceed 4.9% of the shares of our common stock outstanding. The number
of shares set forth under "Aggregate Shares Registered and Eligible for Offer"
in the above table shows the aggregate number of shares of our common stock that
such party owns or may acquire and offer for sale without giving effect to this
contractual limitation.
(3) Excludes 303,089 shares of common stock issuable upon the exercise of a
warrant. Protius agreed not to exercise any portion of its warrant unless and
until our shareholders approve the increase of the number of shares of common
stock which we are authorized to issue to 130,000,000 shares.
(4) Paul Moore has full voting and investment control over all Data Race
securities owned by Keyway Investments Ltd.
(5) Excludes 1,468,596 shares of common stock issuable upon the exercise of
warrants. Keyway agreed not to exercise any portion of its warrants unless and
until our shareholders approve the increase of the number of shares of common
stock which we are authorized to issue to 130,000,000 shares.
(6) Walter Reich has full voting and investment control over all Data Race
securities owned by Lionhart Investments Ltd.
(7) Excludes 1,666,401 shares of common stock issuable upon the exercise of
warrants. Lionhart agreed not to exercise any portion of its warrants unless
and until our shareholders approve the increase of the number of shares of
common stock which we are authorized to issue to 130,000,000 shares.
(8) Jeffrey P. Blanchard, the Chairman of the Board of Data Race, owns 50%
of the membership interests and is the Managing Member of First Capital Group
Management Company, LLC ("FCG Management") which owns a 1% general partner
interest in First Capital Group Investment Partners, L.P. ("FCG Investment
Partners"). Mr. Blanchard owns a 59.4% limited partner interest in FCG
Investment Partners. FCG Investment Partners owns a 1% general partner interest
in First Capital Group of Texas II, L.P. ("FCGT II"). In addition, FCG
Management performs management and advisory services for FCGT II.
(9) Excludes (i) 4,666,666 shares that are issuable upon conversion of a
secured convertible promissory note; and (ii) 583,333 shares of common stock
issuable upon the exercise of a warrant. First Capital agreed not to convert
any portion of its note or exercise any portion of its warrant unless and until
our shareholders approve the increase of the number of shares of common stock
which we are authorized to issue to 130,000,000 shares. Excludes 52,950 shares
with respect to which Mr. Blanchard has voting or investment power, and 49,375
shares subject to options held by Mr. Blanchard.
(10) Pam Young has full voting and investment control over all Data Race
securities owned by ICN Capital Limited.
18
(11) Includes 3,996,909 shares that are issuable upon conversion of a
secured convertible promissory note. Excludes (i) 669,757 shares that would be
issuable upon conversion of the secured convertible promissory note but for the
limitation on conversion contained in the note (See - "Summary of May 2001
Private Placement - Material Terms of the Securities Purchase Agreement, Secured
Convertible Promissory Notes and Security Agreement") and (ii) 859,546 shares of
common stock issuable upon the exercise of warrants. ICN Capital agreed not to
exercise any portion of its warrants unless and until our shareholders approve
the increase of the number of shares of common stock which we are authorized to
issue to 130,000,000 shares.
(12) The number of shares with respect to which the investor may acquire
beneficial ownership pursuant to the exercise of their respective warrants
generally is contractually limited such that the investor's beneficial ownership
may not exceed 9.9% of the shares of our common stock outstanding. The number of
shares set forth under "Aggregate Shares Registered and Eligible for Offer" in
the above table shows the aggregate number of shares of our common stock that
such party owns or may acquire and offer for sale without giving effect to this
contractual limitation.
(13) Anne Nicholson has full voting and investment control over all Data
Race securities owned by Alpha Capital AG.
(14) Includes (i) 15,517,241 shares that are issuable upon conversion of a
convertible debenture (using an assumed conversion price of $0.029 per share,
which was the average of the five lowest closing bid prices during the 25
trading days immediately prior to July 24, 2001); and (ii) 500,000 shares of
common stock issuable upon the exercise of a warrant. The number of shares with
respect to which the investor may acquire beneficial ownership pursuant to the
exercise of their warrant or the conversion of their convertible debenture is
contractually limited such that the investor's beneficial ownership may not
exceed 9.9% of the shares of our common stock outstanding. The number of shares
set forth under "Shares Beneficially Owned Before Offering" in the above table
shows the aggregate number of shares of our common stock that such party owns or
may acquire and offer for sale without giving effect to this contractual
limitation.
(15) We have contractually agreed to register under the registration
statement of which this prospectus forms a part the resale of an aggregate of
25,000,000 shares of our common stock issued or issuable to Alpha Capital and
Stonestreet upon the conversion of their convertible debentures.
(16) Michael Finkelstein has full voting and investment control over all
Data Race securities owned by Stonestreet L.P.
(17) Includes (i) 13,793,103 shares that are issuable upon conversion of a
convertible debenture (using an assumed conversion price of $0.029 per share,
which was the average of the five lowest closing bid prices during the 25
trading days immediately prior to July 24, 2001); and (ii) 500,000 shares of
common stock issuable upon the exercise of a warrant. The number of shares with
respect to which the investor may acquire beneficial ownership pursuant to the
exercise of their warrant or the conversion of their convertible debenture is
contractually limited such that the investor's beneficial ownership may not
exceed 9.9% of the shares of our common stock outstanding. The number of shares
set forth under "Shares Beneficially Owned Before Offering" in the above table
shows the aggregate number of shares of our common stock that such party owns or
may acquire and offer for sale without giving effect to this contractual
limitation.
(18) Mitchell P. Kopin has full voting and investment control over all Data
Race securities owned by Cranshire Capital, L.P.
(19) Excludes 2,356,537 shares of common stock issuable upon the exercise
of a warrant. Cranshire agreed not to exercise any portion of its warrant unless
and until our shareholders approve the increase of the number of shares of
common stock which we are authorized to issue to 130,000,000 shares.
(20) Mitchell P. Kopin has full voting and investment control over all Data
Race securities owned by EURAM CAP Strat "A" Fund Limited.
19
(21) Excludes 262,123 of shares of common stock issuable upon the exercise
of a warrant. EURAM agreed not to exercise any portion of its warrant unless and
until our shareholders approve the increase of the number of shares of common
stock which we are authorized to issue to 130,000,000 shares.
(22) Includes shares of common stock issuable upon the exercise of one or
more warrants that may not be exercised unless and until our shareholders
approve the increase of the number of shares of common stock which we are
authorized to issue to 130,000,000 shares.
(23) Includes shares of common stock issuable upon the conversion of a
secured convertible promissory note that may not be converted, and exercise of a
warrant that may not be exercised, in each case unless and until our
shareholders approve the increase of the number of shares of common stock which
we are authorized to issue to 130,000,000 shares.
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 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 under 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.
The selling shareholders and any brokers or dealers that participate in the
sale of the shares may be considered underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Any discounts,
commissions or other compensation received by
20
these persons and any profit on the resale of the shares by them as principals
might be considered 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 Securities
Exchange Act of 1934, as amended (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 under Rule 144 under
the Securities Act, rather than under 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 the offering. In the respective
registration rights agreements for the March 2001 private placement of common
stock and warrants, the May 2001 private placement of secured convertible
promissory notes and warrants, and the June 2001 private placement of
convertible debentures and warrants, we have agreed to indemnify the selling
shareholders against various liabilities, including liabilities under the
Securities Act.
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 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.
21
LEGAL OPINIONS
Our special counsel, Jackson Walker L.L.P., Dallas, Texas, has issued a
legal opinion relating to the legality of the shares of our common stock offered
by this prospectus. [to be filed by amendment]
EXPERTS
The financial statements of Data Race as of June 30, 2000 and 1999, and for
each of the years in the three year period ended June 30, 2000, 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, which report is also incorporated by
reference in this prospectus and in the registration statement, and upon the
authority of KPMG LLP as experts in accounting and auditing.
22
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.
------------------
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 Exchange Act until the selling
shareholders sell all the shares.
. Annual report on Form 10-K for the fiscal year ended June 30, 2000;
. Quarterly report on Form 10-Q for the quarter ended September 30, 2000;
. Quarterly report on Form 10-Q for the quarter ended December 31, 2000;
. Quarterly report on Form 10-Q for the quarter ended March 31, 2001;
. Current report on Form 8-K filed November 28, 2000;
. Current report on Form 8-K filed January 12, 2001;
. Current report on Form 8-K filed March 7, 2001, as amended by the Form
8-K/A filed March 8, 2001;
. Current report on Form 8-K filed July 24, 2001;
. Current report on Form 8-K filed July ___, 2001; 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
6509 Windcrest Drive
Plano, Texas 75024
(972) 265-4000
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
23
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 that we filed under
Registration No. 333-57166 with the SEC. More information about the shares sold
by the selling shareholders is contained in that registration statement and the
exhibits filed with the registration statement. The description of the
transactions with the selling shareholders contained in this prospectus is
general in nature and qualified in its entirely by reference to the full
contracts. The full contracts referred to in this prospectus 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 its web
site.
24
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 ........................................ $ 636
Legal fees and expenses ..................................... 150,000*
Accounting fees and expenses ................................ 2,500*
Printers Expense............................................. 3,500*
-------------
Total .................................................. $ 156,636*
=============
_______________
* 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 the 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 the
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 Data Race, 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 the person's status as a director, officer or
employee of Data Race, 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 Data Race and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
25
Item 16. Exhibits
Exhibits
3.1 Articles of Amendment to and Restatement of the Articles of
Incorporation of Data Race, filed December 27, 1991. (a)
3.2 Articles of Correction to Articles of Amendment to and
Restatement of the Articles of Incorporation of Data Race, filed
August 13, 1992. (a)
3.3 Articles of Amendment to the Articles of Incorporation of Data
Race, filed August 21, 1992. (a)
3.4 Statement of Resolution Establishing Series B Participating
Cumulative Preferred Stock. (b)
3.5 Articles of Amendment to the Articles of Incorporation of Data
Race, filed January 21, 1999. (d)
3.6 Bylaws of Data Race and Amendments to Bylaws. (a)(c)
5.1 Opinion of Jackson Walker L.L.P. (i)
10.1 Securities Purchase Agreement dated March 2, 2001 among Data
Race, Protius Overseas Limited, Keyway Investments Ltd., and
Lionhart Investments Ltd. (e)
10.2 Registration Rights Agreement dated March 2, 2001 among Data
Race, Protius Overseas Limited, Keyway Investments Ltd., and
Lionhart Investments Ltd. (e)
10.3 Warrants for March 2001 Private Placement (e)
10.4 Letter Agreement dated March 2, 2001 regarding amendment of
warrants issued in connection with June 1999 private
placement. (e)
10.5 Letter Agreement dated March 2, 2001 regarding amendment of
warrants issued in connection with December 1999 private
placement. (e)
10.6 Securities Purchase Agreement dated May 11, 2001 among Data Race,
First Capital Group of Texas II, L.P., and ICN Capital Ltd. (f)
10.7 Registration Rights Agreement dated May 11, 2001 among Data Race,
First Capital Group of Texas II, L.P., and ICN Capital Ltd. (f)
10.8 Warrants for May 2001 Private Placement (f)
10.9 10% Secured Convertible Promissory Notes dated May 11, 2001
executed in favor of First Capital Group of Texas II, L.P., and
ICN Capital Ltd., respectively (f)
10.10 Security Agreement dated May 11, 2001 executed in favor of First
Capital Group of Texas II, L.P., and ICN Capital Ltd.,
respectively (f)
10.11 Warrant Exercise Agreement dated June 6, 2001 among Data Race,
Keyway Investments Ltd., Lionhart Investments Ltd., ICN Capital
Ltd., EURAM Cap Strat. "A" Fund Limited and Cranshire Capital,
L.P. (f)
26
10.12 Form of Warrant issued under Warrant Exercise Agreement dated
June 6, 2001 (f)
10.13 Convertible Debentures and Warrants Purchase Agreement dated June
12, 2001 among Data Race, Alpha Capital AG and Stonestreet L.P.
(f)
10.14 Registration Rights Agreement dated June 12, 2001 among Data
Race, Alpha Capital AG and Stonestreet L.P. (f)
10.15 Form of Warrant issued pursuant to Convertible Debentures and
Warrants Purchase Agreement (f)
10.16 Form of 6% Convertible Debenture issued pursuant to Convertible
Debentures and Warrants Purchase Agreement (f)
10.17 Letter Agreement dated July 19, 2001 among Data Race, Alpha
Capital AG and Stonestreet L.P. amending Convertible Debentures
and Warrants Purchase Agreement and related documents (f)
10.18 Waiver letter dated July 19, 2001 among Data Race, Protius
Overseas Limited, Keyway Investments Ltd., Lionhart Investments
Ltd., First Capital Group of Texas II, L.P., ICN Capital Ltd.,
Alpha Capital AG, Stonestreet L.P., EURAM Cap Strat. "A" Fund
Limited and Cranshire Capital, L.P. (f)
10.19 Common Stock Purchase Agreement dated as of June 13, 2001 by and
between Data Race and Grenville Finance Ltd. (g)
10.20 Registration Rights Agreement dated as of June 13, 2001 by and
between Data Race and Grenville Finance Ltd. (g)
10.21 Warrant for Equity Line of Financing (g)
23.1 Consent of KPMG LLP. (h)
23.2 Consent of Jackson Walker L.L.P. (included in opinion filed as
Exhibit 5.1)
24.1 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 10-Q Quarterly Report for the quarter
ended December 31, 1996.
(d) Filed as an exhibit to Form S-3 Registration Statement No. 333-
71319, effective April 20, 1999.
(e) Filed as an exhibit to Form 8-K Current Report filed March 7,
2001.
(f) Filed as an exhibit to Form 8-K Current Report filed July 24,
2001.
(g) Filed as an exhibit to Form 8-K Current Report filed July ___,
2001.
(h) Filed herewith.
(i) To be filed by amendment.
27
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 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
28
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.
29
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 Plano, State of Texas, on July 24, 2001.
DATA RACE, INC.
By: /s/ James G. Scogin
-------------------------------
James G. Scogin, President
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 James G. Scogin his
true and lawful attorney-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.
30
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.
Name Title Date
---- ----- ----
/s/ James G. Scogin President, Chief Financial Officer, July 24, 2001
-------------------------------- Treasurer and Secretary (Principal
James G. Scogin Executive, Financial and Accounting Officer)
/s/ Jeffrey P. Blanchard Chairman of the Board of Directors July 24, 2001
--------------------------------
Jeffrey P. Blanchard
/s/ Matthew A. Kenny Director July 18, 2001
--------------------------------
Matthew A. Kenny
/s/ George R. Grumbles Director July 24, 2001
--------------------------------
George R. Grumbles
/s/ Tom Bishop Director July 18, 2001
--------------------------------
Tom Bishop
/s/ Byron W. Smith Director July 24, 2001
--------------------------------
Byron W. Smith
/s/ General Harold Adams Director July 19, 2001
--------------------------------
General Harold Adams
31
INDEX TO EXHIBITS
Exhibits
3.1 Articles of Amendment to and Restatement of the Articles of
Incorporation of Data Race, filed December 27, 1991. (a)
3.2 Articles of Correction to Articles of Amendment to and
Restatement of the Articles of Incorporation of Data Race, filed
August 13, 1992. (a)
3.3 Articles of Amendment to the Articles of Incorporation of Data
Race, filed August 21, 1992. (a)
3.4 Statement of Resolution Establishing Series B Participating
Cumulative Preferred Stock. (b)
3.5 Articles of Amendment to the Articles of Incorporation of Data
Race, filed January 21, 1999. (d)
3.6 Bylaws of Data Race and Amendments to Bylaws. (a)(c)
5.1 Opinion of Jackson Walker L.L.P. (i)
10.1 Securities Purchase Agreement dated March 2, 2001 among Data
Race, Protius Overseas Limited, Keyway Investments Ltd., and
Lionhart Investments Ltd. (e)
10.2 Registration Rights Agreement dated March 2, 2001 among Data
Race, Protius Overseas Limited, Keyway Investments Ltd., and
Lionhart Investments Ltd. (e)
10.3 Warrants for March 2001 Private Placement (e)
10.4 Letter Agreement dated March 2, 2001 regarding amendment of
warrants issued in connection with June 1999 private
placement. (e)
10.5 Letter Agreement dated March 2, 2001 regarding amendment of
warrants issued in connection with June 1999 private
placement. (e)
10.6 Securities Purchase Agreement dated May 11, 2001 among Data Race,
First Capital Group of Texas II, L.P., and ICN Capital Ltd. (f)
10.7 Registration Rights Agreement dated May 11, 2001 among Data Race,
First Capital Group of Texas II, L.P., and ICN Capital Ltd. (f)
10.8 Warrants for May 2001 Private Placement (f)
10.9 10% Secured Convertible Promissory Notes dated May 11, 2001
executed in favor of First Capital Group of Texas II, L.P., and
ICN Capital Ltd., respectively (f)
10.10 Security Agreement dated May 11, 2001 executed in favor of First
Capital Group of Texas II, L.P., and ICN Capital Ltd.,
respectively (f)
10.11 Warrant Exercise Agreement dated June 6, 2001 among Data Race,
Keyway Investments Ltd., Lionhart Investments Ltd., ICN Capital
Ltd., EURAM Cap Strat. "A" Fund Limited and Cranshire Capital,
L.P. (f)
10.12 Form of Warrant issued under Warrant Exercise Agreement dated
June 6, 2001 (f)