Exhibit 10.31
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of July
26, 2001 by and between Data Race, Inc., a corporation organized and existing
under the corporate law of the State of Texas (the "Company") and Grenville
Finance Ltd. (the "Purchaser"), a British Virgin Islands corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Purchaser from
time to time as provided herein, and Purchaser shall purchase, up to $30,000,000
of Common Stock and the Warrant; and
WHEREAS, such investments will be made by the Purchaser as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
Section 1.1. Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company may sell and issue to the Purchaser
and the Purchaser shall be obligated to purchase from the Company, up to an
aggregate of, $30,000,000 of Common Stock (the "Commitment Amount") and the
Warrant, subject to the terms herein.
Section 1.2. Purchase Price and Initial Closing. The Company agrees to
issue and sell to the Purchaser and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit
B hereto, (the "Initial Closing") shall take place at the offices of Xxxxxxx
Xxxxxx & Green, P.C., 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (i) within
fifteen (15) days from the date hereof, or (ii) such other time and place or on
such date as the Purchaser and the Company may agree upon (the "Initial Closing
Date"). Each party shall deliver all documents, instruments and writings
required to be delivered by such party pursuant to this Agreement at or prior to
the Initial Closing.
Section 1.3. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable pursuant to this Agreement for late delivery of the Draw
Down Shares and the Registration Rights Agreement for a suspension of the
Registration Statement or the Purchaser's right to resell the Draw Down Shares
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (a) the amount of loss or damages likely
to be incurred is incapable or is difficult to precisely estimate, (b) the
amount specified in such provisions bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be incurred
by the Purchaser in connection with the failure of the Company to deliver the
Draw Down Shares in a timely manner or the suspension of the Purchaser's rights
to resell the Draw Down Shares under the Registration Statement, and (c) the
parties are sophisticated businesses and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representation and Warranties of the Company. Except as set
forth in the SEC Documents or on the Disclosure Schedule prepared by the Company
and attached hereto, or as contemplated by this Agreement, the Company hereby
makes the following representations and warranties to the Purchaser:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated validly existing and in good standing under
the laws of the State of Texas and has all requisite corporate authority to
own, lease and operate its properties and assets and to carry on its
business as now being conducted. The Company does not have any active
subsidiaries and does not own more than fifty percent (50%) of or control
any other business entity except as set forth in the SEC Documents. The
Company is duly qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not
have a Material Adverse Effect.
(b) Authorization, Enforcement. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under the Transaction Documents and to issue the Draw Down
Shares pursuant to their respective terms, (ii) the execution and delivery
of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action and no further consent or authorization
of the Company or its Board of Directors or stockholders is required, and
(iii) the Transaction Documents have been duly executed and delivered by
the Company and at the Initial Closing shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
consists of 70,000,000 shares of Common Stock of which 29,986,153 shares
are issued
and outstanding, and no shares of preferred stock. All of the outstanding
shares of the Company's Common Stock have been duly and validly authorized
and are fully paid and non-assessable except as set forth in the SEC
Documents. No shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of
capital stock of the Company. There are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound
to issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the
Company. The Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt securities.
The Company is not a party to, and it has no knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of
the Company. The Company has made available to the Purchaser true and
correct copies of the Company's articles or certificate of incorporation as
in effect on the date hereof (the "Charter"), and the Company's bylaws as
in effect on the date hereof (the "Bylaws"). The Company has not received
any notice from the Principal Market questioning or threatening the
continued inclusion of the Common Stock on such market.
(d) Issuance of Shares. The Warrant Shares to be issued under this
Agreement have been duly authorized by all necessary corporate action and,
when paid for and issued in accordance with the terms hereof and the
Warrant, the Warrant Shares shall be validly issued and outstanding, fully
paid and non-assessable, and the Purchaser shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not and will not (i) violate any
provision of the Company's Charter or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party, (iii) create or
impose a lien, charge or encumbrance on any property of the Company under
any agreement or any commitment to which the Company is a party or by which
the Company is bound or by which any of its respective properties or assets
are bound, or (iv) result in a violation of any federal, state, local or
other foreign statute, rule, regulation, order, judgment or decree
(including any federal or state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset
of the Company or any of its subsidiaries are bound or affected, except, in
all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually or
in the aggregate, have a Material Adverse Effect. The business of the
Company and its subsidiaries is not being conducted in violation of any
laws, ordinances or regulations of any governmental entity, except for
violations which singularly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under any federal,
state or local law, rule or regulation to obtain any consent, authorization
or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement, or
issue and sell the Shares in accordance with the terms hereof (other than
any filings which may be required to be made by the Company with the SEC or
state securities administrators and any registration statement which may be
filed pursuant hereto); provided, however, that for purpose of the
representations made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Exchange Act, and,
the Company is current with all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d) of the Exchange Act. The Company has
delivered or made available to the Purchaser, through the XXXXX system or
otherwise, true and complete copies of the SEC Documents filed with the SEC
since December 31, 1998. The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder applicable to such documents, and, as of their
respective filing dates, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements under GAAP and the published rules and regulations of the SEC
or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may
not include footnotes or may be condensed or summary statements), and
fairly present in all material respects the financial position of the
Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries. The SEC Documents or the Disclosure Schedule
attached hereto sets forth each subsidiary of the Company, showing the
jurisdiction of its incorporation or organization and showing the
percentage of the Company's ownership of the outstanding stock or other
interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interests having ordinary
voting power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned directly
or indirectly by the Company and/or any of its other subsidiaries. All of
the issued and outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and are fully paid
and non-assessable. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or
binding upon any subsidiary for the purchase or acquisition of any shares
of capital stock of any subsidiary or any other securities convertible
into, exchangeable for or evidencing the rights to subscribe for any shares
of such capital stock. Neither the Company nor any subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of the capital stock of any subsidiary or any
convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is a
party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any subsidiary.
(h) No Material Adverse Effect. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10-KSB), whichever is most current, no Material Adverse
Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents or on the Disclosure Schedule attached
hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC
Documents or on the Disclosure Schedule attached hereto, neither the
Company nor any of its subsidiaries has any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or unsecured,
absolute, accrued, contingent or otherwise) that would be required to be
disclosed on a balance sheet of the Company or any subsidiary (including
the notes thereto) in conformity with GAAP which are not disclosed in the
SEC Documents, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since such date and
which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since the date of the
financial statement contained in the most recently filed Form 10- Q (or
10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the SEC Documents.
(k) Indebtedness. The SEC Documents or the Disclosure Schedule
attached hereto sets forth as of the date hereof all outstanding secured
and unsecured Indebtedness of the Company or any subsidiary, or for which
the Company or any subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (A) any liabilities for borrowed money
or amounts owed in excess of $500,000 (other than trade accounts payable
incurred in the ordinary course of business), (B) all guaranties,
endorsements and contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(C) the present value of any lease payments in excess of $500,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good
and marketable title to all of its real and personal property reflected in
the SEC Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC
Documents or such that do not cause a Material Adverse Effect. All said
real property leases of the Company and each of its subsidiaries are valid
and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or to
be taken pursuant hereto or thereto. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of
their respective properties or assets, which action, suit, claim,
investigation or proceeding would have a Material Adverse Effect. There are
no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or
any subsidiary except those orders, judgments, injunctions, awards or
decrees which would not have a Material Adverse Effect.
(n) Compliance with Law. The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of their
respective businesses as now being conducted by them unless the failure to
possess such franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. The Company and each subsidiary has filed all Tax Returns
which it is required to file under applicable laws; all such Tax Returns
are true and accurate in all material respects, and have been prepared in
compliance with all applicable laws; except as set forth in the SEC
Documents the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and
since December 31, 1999, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are to its knowledge adequate to
cover any Tax liabilities of the Company if its current tax year were
treated as ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is
or may be subject to taxation by that jurisdiction. Except as set forth in
the SEC Documents, there are no foreign, federal, state or local tax audits
or administrative or judicial proceedings pending or being conducted with
respect to the Company or any subsidiary; no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company or
any subsidiary from any foreign, federal, state or local taxing authority.
Except as set forth in the SEC Documents, there are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A)
has not executed or entered into a closing agreement pursuant to ss. 7121
of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; and (B) has not agreed to
or is required to make any adjustments pursuant to ss. 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by the Company or
any of its subsidiaries or has any knowledge that the IRS has proposed any
such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue
Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of the
Internal Revenue Code.
The Company has not made an election under ss.341 (f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not
made any payments, is not obligated to make payments nor is it a party to
an agreement that could obligate it to make any payments that would not be
deductible under ss. 280G of the Internal Revenue Code.
For purposes of this Section 2.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or
use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
(p) Certain Fees. Except for the fees paid to Hadrian Investments
Limited pursuant to the Escrow Agreement, no brokers, finders or financial
advisory fees or commissions will be payable by the Company or any
subsidiary with respect to the transactions contemplated by this Agreement.
(q) Operation of Business. The Company and each of the subsidiaries
owns or possesses all patents, trademarks, service marks, trade names,
copyrights, licenses and authorizations as set forth in the SEC Documents
or the Disclosure Schedule attached hereto, and all rights with respect to
the foregoing, which to its knowledge would be reasonably necessary for the
conduct of its business as now conducted without any conflict with the
rights of others.
(r) Books and Records. The records and documents of the Company and
its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries,
the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary.
(s) Material Agreements. The Company and each of its subsidiaries has
in all material respects performed all the obligations required to be
performed by them to date under the foregoing agreements, have received no
notice of default and, to the best of the Company's knowledge are not in
default under any Material Agreement now in effect, the result of which
would cause a Material Adverse Effect. Except as set forth in the SEC
Documents, no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits
or shall limit the payment of dividends on the Company's Common Stock.
(t) Transactions with Affiliates. There are no loans, leases,
agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions exceeding $100,000 between
(A) the Company, any subsidiary or any of their respective customers or
suppliers on the one hand, and (B) on the other hand, any officer,
employee, consultant or director of the Company, or any of its
subsidiaries, or any person owning 5% or more of the capital stock of the
Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director
or stockholder, or a member of the immediate family of such officer,
employee, consultant, director or stockholder.
(u) Securities Laws. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy the Shares or
similar securities to, or solicit offers with respect thereto from, or
enter into any preliminary conversations or negotiations relating thereto
with, any person (other than the Purchaser), so as to bring the issuance
and sale of the Shares under the registration provisions of the Securities
Act and applicable state securities laws. Neither the Company nor any of
its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Shares.
(v) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees. Neither the Company nor any subsidiary is in breach of any
employment contract, agreement regarding proprietary information,
noncompetition agreement, nonsolicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating
to the right of any officer, to be employed or engaged by the Company or
such subsidiary. Since the date of the December 31, 2000 Form 10-K (or
10-KSB), no officer, consultant or key employee of the Company or any
subsidiary whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge
of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(w) Absence of Certain Developments. Since the date of the financial
statement contained in the most recently filed Form 10-Q (or 10-QSB) or
Form 10-K (or 10KSB), whichever is most current, neither the Company nor
any subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary
course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the
Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or
purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights, or disclosed any
proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchaser or
its representatives;
(vii) suffered any material losses (except for anticipated
losses consistent with prior quarters) or waived any rights of
material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(x) entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries.
(x) Governmental Approvals. Except for the filing of any notice prior
or subsequent to any Settlement Date that may be required under applicable
federal or state securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or
post-effective amendment pursuant to this Agreement, no authorization,
consent, approval, license, exemption of, filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Shares, or for the performance by the
Company of its obligations under this Agreement.
(aa) Acknowledgment Regarding Purchaser's Purchase of Shares. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of
arm's length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereunder. The Company further represents to the Purchaser
that the Company's decision to enter into this Agreement has been based
solely on (a) the Purchaser's representations and warranties in Section
2.2, and (b) the independent evaluation by the Company and its own
representatives and counsel.
Section 2.2. Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under
the laws of the British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to
purchase the Shares being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and at the Initial Closing shall constitute
valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws
relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in a
violation of the Purchaser's charter documents or bylaws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument to which the Purchaser is a party, or result in a
violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser). The Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof.
(d) Financial Risks. The Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Shares and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries as it
has deemed necessary or appropriate to conduct its due diligence
investigation. The Purchaser is capable of evaluating the risks and merits
of an investment in the Shares by virtue of its experience as an investor
and its knowledge, experience, and sophistication in financial and business
matters and the Purchaser is capable of bearing the entire loss of its
investment in the Shares.
(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) General. The Purchaser understands that the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in
order to determine the suitability of the Purchaser to acquire the Shares.
ARTICLE 3
COVENANTS
The Company covenants with the Purchaser as follows:
Section 3.1. The Shares. As of the date of each applicable Draw Down, the
Company will have authorized and reserved, free of preemptive rights, a
sufficient number of authorized but unissued shares of its Common Stock to cover
the Draw Down Shares to be issued in connection with such Draw Down requested
under this Agreement. The Draw Down Shares to be issued under this Agreement,
when paid for and issued in accordance with the terms hereof, shall be duly and
validly issued and outstanding, fully paid and non-assessable, and the Purchaser
shall be entitled to all rights accorded to a holder of Common Stock. Anything
in this Agreement to the contrary notwithstanding, (i) at no time will the
Company request a Draw Down which would result in the issuance of an aggregate
number of shares of Common Stock pursuant to this Agreement which exceeds 19.9%
of the number of shares of Common Stock issued and outstanding on the Initial
Closing Date without obtaining stockholder approval of such excess issuance, or
such other amount as would require stockholder approval under rules of the
Principal Market or otherwise without obtaining stockholder approval of such
excess issuance, and (ii) the Company may not make a Draw Down to the extent
that, after such purchase by the Purchaser, the sum of the number of shares of
Common Stock beneficially owned by the Purchaser and its affiliates would result
in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act.
Section 3.2. Securities Compliance. If applicable, the Company shall notify
the Principal Market, in accordance with its rules and regulations, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares and the Warrant
to the Purchaser or subsequent holders.
Section 3.3. Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Purchaser has disposed of all of the
Shares.
Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Xxxxxxx Xxxxxx & Green, P.C. (the "Escrow
Agent") in the form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 3.5. Registration Rights Agreement. The Company and the Purchaser
shall enter into the Registration Rights Agreement in the Form of Exhibit A
hereto. Before the Purchaser shall be obligated to accept a Draw Down request
from the Company, the Company shall have caused a sufficient number of shares of
Common Stock to be registered to cover the Shares to be issued in connection
with such Draw Down.
Section 3.6. Accuracy of Registration Statement.On each Settlement Date,
the Registration Statement and the prospectus therein shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made; and on such
Settlement Date or date of filing the Registration Statement and the prospectus
therein will not include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement and the
prospectus therein in reliance upon and in conformity with the information
furnished in writing to the Company by the Purchaser specifically for inclusion
in the Registration Statement and the prospectus therein.
Section 3.7. Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.8. Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.9. Other Agreements. The Company shall not enter into any
agreement the terms of which would restrict or impair the ability of the Company
to perform its obligations under this Agreement.
Section 3.10. Notice of Certain Events Affecting Registration; Suspension
of Right to Request a Draw Down. The Company will promptly notify the Purchaser
in writing upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any amendments or
supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any statement made in the Registration Statement or
related prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in the Registration Statement, related prospectus or documents so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that the filing of a post-effective amendment to or the
withdrawal of the Registration Statement would be appropriate. The Company shall
not deliver to the Purchaser any Draw Down Notice during the continuation of any
of the foregoing events. The Company shall promptly make available to the
Purchaser any such supplements or amendments to the related prospectus, at which
time, provided that the registration statement and any supplements and
amendments thereto are then effective, the Company may recommence the delivery
of Draw Down Notices.
Section 3.11. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 3.12. Limitation on Future Financing. The Company agrees that,
except as set forth below, it will not enter into any sale of its securities for
cash at a discount to the then current market price (including securities
convertible, exchangeable, adjustable or which may be reset at a discount to the
then current market price) until the earlier of (i) 36 months from the Effective
Date, (ii) sixty (60) days after the entire Commitment Amount has been purchased
by the Purchaser, or (iii) the date this Agreement is terminated pursuant to the
terms herein. The foregoing shall not prevent or limit the Company from engaging
in any sale of securities (i) in a
registered public offering by the Company which is underwritten by one or more
established investment banks (not including an "equity line" type of financing),
(ii) pursuant to a private placement where the investors do not have
registration rights, (iii) pursuant to any compensatory plan for a full-time
employee or key consultant, (iv) in connection with a strategic partnership or
other business transaction, the principal purpose of which is not simply to
raise money, or (v) to which Purchaser gives its prior written consent. Further,
the Purchaser shall have a right of first refusal to undertake and complete such
subsequent transaction in the case of (i), (ii) and (v) above. Such right of
first refusal must be exercised in writing within five (5) Trading Days of the
Purchaser's receipt of notice of the proposed terms of such financing or the
right to participate in such financing shall be waived.
Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares
will be used by the Company and its subsidiaries for general corporate purposes,
including the retirement of outstanding convertible debentures.
The Purchaser covenants with the Company as follows:
Section 3.14. Compliance with Law. The Purchaser agrees that its trading
activities with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed. Without limiting the generality of the
foregoing, the Purchaser agrees that it will, whenever required by federal
securities laws, deliver the prospectus included in the Registration Statement
to any purchaser of Shares from the Purchaser.
ARTICLE 4
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
Section 4.1. Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement Date as though made at that time, except
for representations and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or
complied with by the Purchaser at or prior to the Initial Closing and as of
each Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2. Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to perform its obligations
under this Agreement and to purchase the Shares is subject to the satisfaction
or waiver, at or before the Initial Closing, of each of the conditions set forth
below. These conditions are for the Purchaser's sole benefit and may be waived
by the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and
warranties that speak as of a particular date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and
no investigation by any governmental authority shall have been threatened,
against the Purchaser or the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking
to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser
shall have received an opinion of counsel to the Company, dated as of the
Initial Closing Date, in the form of Exhibit C hereto.
(f) Warrant. On the Initial Closing Date, the Company shall issue to
the Purchaser a warrant to purchase up to a number of shares of Common
Stock equal to $1,000,000 divided by the average of the VWAPs during the 15
Trading Days immediately prior to the Initial Closing (the "Warrant Base
Price"). The Warrant shall have a term from its initial date of exercise of
3 years. The exercise price of the Warrant
shall be 110% of the Warrant Base Price. The Common Stock underlying the
Warrant will be registered in the Registration Statement referred to in
Section 4.3 hereof. The Warrant shall be in the form of Exhibit E hereto.
Section 4.3. Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction at or before each Settlement Date, of each of the
conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied, or the Purchaser shall have waived at the Initial Closing,
the conditions set forth in Section 4.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares, subject to the Draw Down request, shall have been
declared effective by the SEC and shall remain effective on each Settlement
Date.
(c) No Suspension. Trading in the Company's Common Stock shall not
have been suspended by the SEC or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down
Notice), and, at any time prior to such Draw Down Notice, trading in
securities generally as reported on the Principal Market shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported on the Principal Market
unless the general suspension or limitation shall have been terminated
prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform
the Company's obligations shall have occurred, such occurrences to be
determined in accordance with Section 8.9 herein.
(e) Opinion of Counsel. The Purchaser shall have received a
"down-to-date" letter from the Company's counsel, confirming that there is
no change from the counsel's previously delivered opinion, or else
specifying with particularity the reason for any change and an opinion as
to the additional items specified in Exhibit C hereto.
ARTICLE 5
DRAW DOWN TERMS
Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise draw
downs (each a "Draw Down") during the Commitment Period, which Draw Downs
the Purchaser shall be obligated to accept, subject to the terms and
conditions herein.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period. There shall be a minimum of five (5) Trading Days between Draw Down
Pricing Periods. The number of shares of Common Stock purchased by the
Purchaser with respect to each Draw Down shall be determined as set forth
in Section 5.1(e) herein and settled on:
(i) as to the 1st through the 11th Trading Day during the
Draw Down Pricing Period, on or before the 13th Trading Day after such
Draw Down Pricing Period commences; and
(ii) as to the 12th through the 22nd Trading Day during the Draw
Down Pricing Period commences, on or before the 24th Trading Day after
such Draw Down Pricing Period (such settlement periods and such
settlement dates in subsection (i) and this subsection (ii) each
referred to as a "Settlement Period" and a "Settlement Date",
respectively).
(c) In connection with each Draw Down Pricing Period, the Company may
set the Threshold Price in the Draw Down Notice.
(d) The minimum Investment Amount for any Draw Down shall be $100,000
and the maximum Investment Amount as to each Draw Down shall be the lesser
of (i) $1,000,000, and (ii) 15% of the EQY weighted average price field (as
reported on Bloomberg Financial L.P. using the BLPH function) for the
Common Stock for the 30 calendar days immediately prior to the applicable
Commencement Date (defined below) multiplied by the total trading volume in
respect of the Common Stock for such period; Notwithstanding anything
herein to the contrary, in the event the minimum Investment Amount is
greater than the maximum Investment Amount, as to such Draw Down only, the
minimum Investment Amount shall equal the maximum Investment Amount, but in
no event shall the minimum Investment Amount be less than $50,000, such
that if the maximum Investment Amount is less than $50,000, then the
Company shall be precluded from exercising a Draw Down at such time.
(e) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each trading day within the Settlement Period) of (x) 1/22nd
of the Investment Amount, and (y) the Purchase Price on each Trading Day
within the Settlement Period, subject to the following adjustments:
(i) if the VWAP on a given Trading Day is less than the
Threshold Price, then that portion of the Investment Amount to be
paid on the immediately pending Settlement Date shall be reduced
by 1/22nd of the Investment Amount and such Trading Day shall be
withdrawn from the Settlement Period;
(ii) if during any Trading Day during the Settlement Period
trading of the Common Stock on the Principal Market is suspended
for more than three (3) hours, in the aggregate, or if any Trading
Day during the Settlement Period is shortened because of a public
holiday, then that portion of the Investment Amount to be paid on
the immediately pending Settlement Date shall be reduced by 1/22nd
of the Investment Amount and such Trading Day shall be withdrawn
from the Settlement Period; and
(iii) if during any Trading Day during the Settlement Period
sales of Draw Down Shares pursuant to the Registration Statement
are suspended by the Company in accordance with Sections 3(j) or
5(e) of the Registration Rights Agreement for more than three (3)
hours, in the aggregate, during the Settlement Period, then that
portion of the Investment Amount to be paid on the immediately
pending Settlement Date shall be reduced by 1/22nd of the
Investment Amount and such Trading Day shall be withdrawn from the
Settlement Period.
(f) The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 8.4 as to the amount of
the Draw Down (the "Investment Amount") the Company wishes to exercise,
before the first day of the Draw Down Pricing Period (the "Commencement
Date"). If the Commencement Date is to be the date of the Draw Down Notice,
the Draw Down Notice must be delivered to and receipt confirmed by the
Purchaser at least one (1) hour before trading commences on such date. At
no time shall the Purchaser be required to purchase more than the maximum
Investment Amount for a given Draw Down Pricing Period so that if the
Company chooses not to exercise the maximum Investment Amount in a given
Draw Down Pricing Period the Purchaser is not obligated to and shall not
purchase more than the scheduled maximum Investment Amount in a subsequent
Draw Down Pricing Period.
(g) On each Settlement Date, the Shares purchased by the Purchaser
shall be delivered to The Depository Trust Company ("DTC") on the
Purchaser's behalf. Upon the Company electronically delivering whole shares
of Common Stock to the Purchaser or its designees via DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system by 1:00 p.m. EST, the
Purchaser shall wire transfer immediately available funds to the Company's
designated account on such day, less any fees as set forth in the Escrow
Agreement, which fees shall be wired as directed in the Escrow Agreement.
Upon the Company electronically delivering whole shares of Common Stock to
the Purchaser or its designees DTC account via DWAC after 1:00 p.m. EST,
the Purchaser shall wire transfer next day available funds to the Company's
designated account on such day, less any fees as set forth in the Escrow
Agreement, which fees shall be wired as directed in the Escrow Agreement.
In the event that either party elects to use the Escrow Agent, the Shares
shall be credited by the Company to the DTC account designated by the
Purchaser via DWAC upon receipt by the Escrow Agent of payment for the Draw
Down Shares into the Escrow Agent's master escrow account, as further set
forth in the Escrow Agreement. The Escrow Agent shall be directed to pay
the purchase price to the Company, net of $1,000 per Settlement as escrow
expenses to the Escrow Agent and any additional fees as set forth in the
Escrow Agreement. The
Company understands that a delay in the delivery of the Draw Down Shares
into the Purchaser's DTC account beyond 3 Trading Days after the dates set
forth herein or in the Escrow Agreement, as the case may be, could result
in economic loss to the Purchaser. Notwithstanding anything herein to the
contrary, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late delivery after 3
Trading Days from such dates in accordance with the following schedule
(where "No. Trading Days Late" is defined as the number of Trading Days
beyond three 3 Trading Days from the dates set forth herein or in the
Escrow Agreement, as the case may be, on which such Draw Down Shares are to
be delivered into the Purchaser's DTC account via the DWAC system):
------------------------------------------------------------------------------------------------
No. Trading Days Xxxx Xxxx Payment for Each
$5,000 of Draw Down Shares
Being Purchased
------------------------------------------------------------------------------------------------
1 $100
------------------------------------------------------------------------------------------------
2 $200
------------------------------------------------------------------------------------------------
3 $300
------------------------------------------------------------------------------------------------
4 $400
------------------------------------------------------------------------------------------------
5 $500
------------------------------------------------------------------------------------------------
6 $600
------------------------------------------------------------------------------------------------
7 $700
------------------------------------------------------------------------------------------------
8 $800
------------------------------------------------------------------------------------------------
9 $900
------------------------------------------------------------------------------------------------
10 $1,000
------------------------------------------------------------------------------------------------
More than 10 $1,000 +$200 for each Trading Day
Late beyond 10 Trading Days
------------------------------------------------------------------------------------------------
The Company shall pay any payments incurred under this Section 5.1(g)
in immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver the Draw Down Shares to the Company,
including, without limitation, the Purchaser's actual losses occasioned by
any "buy-in" of Common Stock necessitated by such late delivery.
ARTICLE 6
TERMINATION
Section 6.1. Term. The term of this Agreement shall begin on the date
hereof and shall end on the earlier of 36 months from the Effective Date or as
otherwise set forth in Section 6.2.
Section 6.2. Other Termination.
(a) This Agreement shall terminate upon one (1) Trading Day's notice
if (i) an event resulting in a Material Adverse Effect has occurred and has
not been cured for a period of thirty (30) days after giving written notice
thereof, (ii) the Common Stock is de-listed from the Principal Market
unless such de-listing is in connection with the Company's subsequent
listing of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap
Market, the American Stock Exchange, the OTC Bulletin Board or the New York
Stock Exchange, or (iii) the Company files for protection from creditors
under any applicable law.
(b) The Company may terminate this Agreement upon one (1) Trading
Day's notice if the Purchaser shall fail to fund more than one properly
noticed Draw Down within five (5) Trading Days of the end of the applicable
Settlement Period.
Section 6.3. Effect of Termination. In the event of termination of this
Agreement pursuant to Section 6.2 herein, written notice thereof shall forthwith
be given to the other party and the transactions contemplated by this Agreement
shall be terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9,
and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company or the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE 7
INDEMNIFICATION
Section 7.1. General Indemnity.
(a) The Company agrees to indemnify and hold harmless the Purchaser
(and its directors, officers, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Purchaser as a result of
any material inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein.
(b) The Purchaser agrees to indemnify and hold harmless the Company
and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys'
fees, charges and disbursements) incurred by the Company as result of any
material inaccuracy in or breach of the representations, warranties or
covenants made by the Purchaser herein. Notwithstanding anything to the
contrary herein, the Purchaser shall be liable under this Section 7.1(b)
for only that amount as does not exceed the net proceeds to the Purchaser
as a result of the sale of the Shares.
Section 7.2. Indemnification Procedure. Any party entitled to
indemnification under this Article 7 (an "Indemnified Party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article 7 except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
Indemnified Party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the Indemnified Party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. In the event that the indemnifying party
advises an Indemnified Party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the Indemnified Party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the Indemnified Party's costs
(including reasonable attorneys' fees, charges and disbursements) and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder. The
Indemnified Party shall cooperate fully with the indemnifying party in
connection with any settlement negotiations or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party, which relates to such
action or claim. The indemnifying party shall keep the Indemnified Party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article 7 to the contrary, the indemnifying
party shall not, without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld), settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnified Party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim. The
indemnification required by this Article 7 shall be made by periodic payments of
the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, within ten
(10) Trading Days of written notice thereof to the indemnifying party so long as
the Indemnified Party irrevocably agrees to refund such moneys, with interest,
if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
Indemnified Party against the indemnifying party or others, and (b) any
liabilities to which the indemnifying party may be subject.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Fees and Expenses. Except as set forth in the Escrow
Agreement, each of the parties to this Agreement shall pay its own fees and
expenses related to the transactions contemplated by this Agreement. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchaser in connection with any subsequent amendments, modifications or waivers
of this Agreement, the Escrow Agreement or the Registration Rights Agreement or
incurred in connection with the enforcement of this Agreement, the Escrow
Agreement and the Registration Rights Agreement, including, without limitation,
all reasonable attorneys' fees and expenses if such subsequent amendment,
modification or waiver is at the request of the Company. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Shares pursuant hereto.
Section 8.2. Specific Enforcement. The Company and the Purchaser
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain
the entire understanding of the parties with respect to the matters covered in
the Transaction Documents. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought and no condition to
closing any Draw Down in favor of the Purchaser may be waived by the Purchaser.
Section 8.4. Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: 0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxx, Xxxxx 00000
Attn: Xxxxxxx XxXxxxxxx, President & CEO
Tel: (000) 000-0000
Fax: (972) [_______]
With copies to: Xxxxxxx Xxxxxx L.L.P.
(which shall not constitute 000 Xxxx Xxxxxx, Xxxxx 0000
notice) Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxx, III
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Purchaser: x/x Xxxxxxx Xxxxxxxx
X.X. Xxx 000
Road Town, Tortola
British Virgin Islands
Attn: Francois Morax
Fax: 000-000-000-0000
with copies to: Xxxxxxx Xxxxxx & Green P.C.
(which shall not constitute 000 Xxxx Xxxxxx
xxxxxx) Xxx Xxxx, XX 00000-0000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith. Section 8.5. Waivers. No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provisions, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 8.6. Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. The
parties hereto may not amend this Agreement or any rights or obligations
hereunder without the prior written consent of the Company and each Purchaser to
be affected by the amendment.
Section 8.8. No Third Party Beneficiaries.This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions thereof. The Company and
the Purchaser agree to submit themselves to the in personam jurisdiction of the
state and federal courts situated within the Southern District of the State of
New York with regard to any controversy arising out of or relating to this
Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall
be submitted to arbitration under the American Arbitration Association (the
"AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York. To the extent practical, decisions of the
Board of Arbitration shall be rendered no more than thirty (30) calendar days
following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to participate
in the arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including reasonable attorneys' fees, from the non-prevailing party.
Section 8.10. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 8.11. Publicity. Neither the Company nor the Purchaser shall issue
any press release or otherwise make any public statement or announcement with
respect to this Agreement or the transactions contemplated hereby or the
existence of this Agreement, without the prior written consent of the other
party. After the Initial Closing, the Company may issue a press release or
otherwise make a public statement or announcement with respect to this Agreement
or the transactions contemplated hereby or the existence of this Agreement;
provided, however, that prior to issuing any such press release, making any such
public statement or announcement, the Company obtains the prior consent of the
Purchaser, which consent shall not be unreasonably withheld or delayed.
Section 8.12. Severability. The provisions of this Agreement are severable
and, in the event that The Board of Arbitration or any court or officials of any
regulatory agency of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible, so long as such
construction does not materially adversely affect the economic rights of either
party hereto.
Section 8.13. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, each of the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement.
Section 8.14. Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
ARTICLE 9
DEFINITIONS
Section 9.1. Certain Definitions.
(a) "Commencement Date" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(b) "Commitment Amount" shall have the meaning assigned to such term
in Section 1.1 hereof.
(c) "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (i) the date on
which the Purchaser shall have exercised an aggregate amount of Draw Downs
equal to the Commitment Amount, (ii) the date this Agreement is terminated
in accordance with the terms hereof, or (iii) the date occurring thirty-six
(36) months from the Effective Date.
(d) "Common Stock" shall mean the Company's common stock, no par value
per share.
(e) "Disclosure Schedule" shall mean the schedules prepared by the
Company and attached hereto.
(f) "Draw Down" shall have the meaning assigned to such term in
Section 5.1(a) hereof.
(g) "Draw Down Notice" shall have the meaning assigned to such term in
Section 5.1(f) hereof.
(h) "Draw Down Pricing Period" shall mean a period of twenty-two (22)
consecutive Trading Days beginning on the date specified in the Draw Down
Notice (as defined in Section 5.1(f) herein); provided, however, the Draw
Down Pricing Period shall not begin before the day on which receipt of such
notice is confirmed by the Purchaser.
(i) "DTC" shall have the meaning assigned to such term in Section
5.1(g).
(j) "DWAC" shall have the meaning assigned to such term in Section
5.1(g).
(k) "Effective Date" shall mean the date the Registration Statement of
the Company covering the Shares being subscribed for hereby is declared
effective by the SEC.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(m) "GAAP" shall mean the United States Generally Accepted Accounting
Principles as those conventions, rules and procedures are determined by the
Financial Accounting Standards Board and its predecessor agencies.
(n) "Initial Closing" shall have the meaning assigned to such term in
Section 1.2 hereof.
(o) "Initial Closing Date" shall have the meaning assigned to such
term in Section 1.2 hereof.
(p) "Investment Amount" shall have the meaning assigned to such term
in Section 5.1(f) hereof.
(q) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties, or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the
ability of the Company to perform any of its material obligations under
this Agreement or the Registration Rights Agreement or to perform its
obligations under any other Material Agreement.
(r) "Material Agreement" shall mean any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy
of which is required to be filed with the SEC as an exhibit to any of the
SEC Documents.
(s) "Principal Market" shall mean initially the Nasdaq National Market and
shall include the American Stock Exchange, Nasdaq Small-Cap Market, the
OTC Bulletin Board and the New York Stock Exchange if the Company
becomes listed and trades on such market or exchange after the date
hereof.
(t) "Purchase Price" shall mean, with respect to Shares purchased
during each applicable Settlement Period, 82.5% of the VWAP on the date in
question.
(u) "Registration Statement" shall mean the registration statements
under the Securities Act, to be filed with the Securities and Exchange
Commission for the registration of the Shares pursuant to the Registration
Rights Agreement attached hereto as Exhibit A (the "Registration Rights
Agreement).
(v) "SEC" shall mean the Securities and Exchange Commission.
(w) "SEC Documents" shall mean the Company's latest Form 10-K or Form
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the
time in question until such time as the Company no longer has an obligation
to maintain the effectiveness of a Registration Statement as set forth in
the Registration Rights Agreement.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(y) "Settlement" shall mean the delivery of the Draw Down Shares into
the Purchaser's DTC account via DTC's DWAC System in exchange for payment
therefor.
(z) "Settlement Date" shall have the meaning assigned to such term in
Section 5.1(b).
(aa) "Settlement Period" shall have the meaning assigned to such term
in Section 5.1(b).
(bb) "Shares" shall mean, collectively, the shares of Common Stock of
the Company being subscribed for hereunder (the "Draw Down Shares") and the
shares of Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(cc) "Threshold Price" shall mean the price per Share designated by
the Company as the lowest VWAP during any Draw Down Pricing Period at which
the Company shall sell its Common Stock in accordance with this Agreement.
(dd) "Trading Day" shall mean any day on which the Principal Market is
open for business.
(ee) "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement and the Escrow Agreement.
(ff) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the Principal Market as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02
p.m. Eastern Time) using the VAP function on the date in question.
(gg) "Warrant" shall mean the warrant issued to the Purchaser pursuant
to Section 4.2(f) hereof.
[SIGNATURE PAGE FOLLOWS]
[SIGNATURE PAGE TO EQUITY LINE PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of this 26th day of
July, 2001.
DATA RACE, INC.
By:
-------------------------------------------
Xxxxx X. Xxxxxx, President & CFO
Grenville Finance Ltd.
By:
-------------------------------------------
Francois Morax, Authorized Signatory
Schedule 2.1(c)
The following chart demonstrates the outstanding options, warrants and
convertible debentures as of June 11, 2001:
Capital Shares Equivalents as of June 13, 2001
---------------------------------------------------------------
No. of shares No. of shares
----------------------------------
Options outstanding 3,599,699
-------------------
Warrants
--------
June 2001 funding 1,000,000
May 2001 funding 1,416,666
March 2001 private placement 304,762
June 2000 private placement 471,822
December 1999 private placement 571,429
June 1999 private placement 693,888
-----------------------------------------------------------------------
Total warrants outstanding 4,208,568
---------------------
Debentures
----------
June 2001 Convertible Debentures - Convertible at a floating
$1,000,000 principal amount price equal to the lesser of
110% of the closing bid
price of the Company's
common stock on the day
before the applicable
closing or 50% of the
average of the five lowest
closing bid prices
immediately prior to the
date upon which the
debenture is converted
May 2001 Convertible Debentures - $700,000 2,333,333
principal amount with a conversion price of
$0.30 per share
As of June 13, 2001, there were options outstanding to purchase 3,599,699
shares of Common Stock. Also as of June 13, 2001, there were warrants to
purchase 3,458,568 shares of Common Stock outstanding. Warrants to purchase
1,000,000 of those shares were issued (along with the Company's 6% Convertible
Debentures in the aggregate principal amount of $1,000,000) pursuant to the
Convertible Debentures and Warrants Purchase Agreement by and among the Company,
Alpha Capital AG and Xxxxxxxxxxx X.X. Warrants to purchase 1,416,666 of those
shares were issued (along with the Company's 10% Secured Convertible Promissory
Notes in the aggregate
principal amount of $700,000.00, initially convertible into 2,333,333 shares
Common Stock at $0.30 per share) pursuant to the Securities Purchase Agreement
dated May 11, 2001 by and among the Company , First Capital Group of Texas II,
L.P. and ICN Capital Ltd. Warrants to purchase 304,762 of those shares were
issued pursuant to the Securities Purchase Agreement dated March 2, 2001 by and
among the Company, Protius Overseas Limited, Keyway Investments Ltd. and
Lionhart Investments Ltd. Warrants to purchase 471,822 of those shares were
issued pursuant to a Securities Purchase Agreement dated June 12, 2000 by and
among the Company, Cranshire Capital, L.P., Keyway Investments Ltd., Lionhart
Investments Ltd., EURAM Cap Strat. "A" Fund Limited, ICN Capital Ltd. and G-Bar
Limited Partnership. Warrants to purchase 571,429 of those shares were issued
pursuant to the Securities Purchase Agreement dated December 10, 1999 among the
Company, Cranshire Capital, L.P., Keyway Investments Ltd. and Lionhart
Investments Ltd. Warrants to purchase 693,888 of those shares were issued
pursuant to the Securities Purchase Agreement dated June 25, 1999, by and among
the Company, Cranshire Capital, L.P., Keyway Investments Ltd. and Lionhart
Investments Ltd.
All of the Agreements listed in the previous paragraph granted registration
and anti-dilution rights to the investors. There have been other agreements in
the past that granted such registration and anti-dilution rights, but there are
no longer any outstanding Capital Shares Equivalents nor any agreements or
understandings pursuant to which any Capital Shares Equivalents can become
outstanding under those agreements.
2
Schedule 2.1(g)
The Company has a dormant subsidiary, organized under the laws of the
United Kingdom, which is not in good standing.
3
Schedule 2.1(h)
See Schedule 3.12 regarding litigation, as well as Schedule 2.1(c)
regarding recent issuances of securities.
4
Schedule 2.1(i)
5
Schedule 2.1(l)
Pursuant to a Security Agreement dated May 11, 2001 by and among the
Company, First Capital Group of Texas II, L.P. and ICN Capital Ltd., the Company
granted a security interest in and to all personal property of the Company
(other than fixtures) then owned or thereafter acquired.
The Uniform Commercial Code index maintained by the Texas Secretary of
State reflects the following effective filings regarding IP AXESS:
1. UCC Financing Statement Number 01-00014861 filed on January 22, 2001
at 08:00 A.M. The secured party is listed as The Manifest Group, 000
X. Xxxxxxxx, Xxxxxxxx, Xxxxxxxxx 00000-0000.
The Uniform Commercial Code index maintained by the Texas Secretary of
State reflects the following effective filings regarding DATA RACE INC:
1. UCC Financing Statement Number 96-00248283 filed on December 16, 1996
at 08:00 A.M. The secured party is listed as Imperial Bank, 000
Xxxxxxx Xxxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000.
2. UCC Financing Statement Number 00-00523541 filed on June 16, 2000 at
08:00 A.M. The secured party is listed as Ameritech Credit
Corporation, 0000 X. Xxxx Xxxx, Xxxxxxx Xxxxxxx, Xxxxxxxx 00000.
3. UCC Financing Statement Number 00-00540732 filed on July 11, 2000 at
08:00 A.M. The secured party is listed as NEC America, Inc., 000 Xxxxx
X. Xxxx Xxxxxxxxx, Xxxxxxx, Xxx Xxxxxx 00000.
6
Schedule 2.1(m)
The Company represents that it has received a summons to United States
District Court, file stamped May 11, 2001. The case is styled XXXXXX XXXXXXX AS
TRUSTEE FOR XXXXXXX X. XXXXXXX AND XXXXXXX X. XXXXXXX TRUSTS DATED 12/17/95;
XXXXXX XXXXXXX AS BENEFICIARY OF XXXXXX XXXXXXX XXX: XXXXXX XXXXXXX XXX ROLLOVER
DATED 11/10/99; XXXXXX XXXXXXX; XXXXX XXXXXXX; AND XXXXXX XXXXXXX V. IP AXESS,
INC. D/B/A DATA RACE, XXXXXXX XXXXXXXXX AND XXXXX X. XXXXXX AND LIVIAKIS
FINANCIAL COMMUNICATION, INC., AND XXXX XXXXXXXX. The case number is 01C 3505.
Pursuant to the above referenced case, plaintiffs brought a securities
action, alleging that they were induced by misrepresentations and omissions of
material fact, concerning a fraudulent scheme affecting the present business and
future prospects of the Company, to purchase Common Stock between May 12, 2000
and September 1, 2000, inclusive. The complaint also questions the veracity of
the Company's August 18, 2000 press release.
7
Schedule 2.1(n)
The Company is currently not in good standing in Texas, its state of
incorporation, due to its failure to satisfy all state tax requirements.
8
Schedule 2.1(o)
The Company failed to pay its 2001 Texas franchise taxes which were due on
May 14, 2001, and, as of the date hereof, has not paid sales tax in Texas for
either June or July.
9
Schedule 2.1(s)
The Company has received a notice of default with regard to the
Registration Rights Agreement dated March 2, 2001 by and among the Company,
Protius Overseas Limited, Keyway Investments Ltd. and Lionhart Investments Ltd.
notifying the Company that, due to its failure to have the SEC declare a
registration statement effective as to the shares of Common Stock issued or to
be issued pursuant to the Agreement, the Company must pay liquidated damages
according to a formula in an amount approximately equal to 2% of $2,000,000 per
month (broken down into a per day charge).
The Company is also in default regarding the Registration Rights Agreement
dated May 11, 2001 by and among the Company, First Capital Group of Texas II,
L.P. and ICN Capital Ltd., due to its failure to file a registration statement
within 30 calendar days of the date of the Registration Rights Agreement
covering the shares of Common Stock issued or to be issued pursuant to the
Agreement, though the Company has not yet received a notice regarding such
default. The penalties due are approximately equal to 2% of $700,000 per month
(broken down into a per day charge).
10
Schedule 2.1(t)
Xxxxxxx X. Xxxxxxxxx, the Chairman of the Company's board of directors, is
an affiliate of First Capital Group of Texas II, L.P., which entered into that
certain Securities Purchase Agreement dated May 11, 2001 by and among the
Company, First Capital Group of Texas II, L.P. and ICN Capital Ltd., purusant to
which First Capital Group of Texas II, L.P. invested over $350,000 in the
securities of the Company.
Xx. Xxxxxxxxx, 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"). Xx. Xxxxxxxxx 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"), which holds a large block
of our common stock. In addition, FCG Management performs management and
advisory services for FCGT II.
11
Schedule 2.1(v)
Xxxxxxx XxXxxxxxx 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.
Xxxxx X. Xxxxxx, our Chief Financial Officer since December 1999, has succeeded
Xx. XxXxxxxxx as President.
12
Schedule 2.1(w)
See Schedule 2.1(c) regarding issuances of securities, including
convertible debt.
Due to a capital shortage, the Company only paid half of its June 15, 2001
employee payroll.
13
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July26, 2001 between
Grenville Finance Ltd. ("Purchaser") and Data Race, Inc. (the "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the parties shall enter into the Common Stock Purchase Agreement, dated as of
the date hereof, (the "Purchase Agreement") pursuant to which the Purchaser has
committed to purchase up to $30,000,000 of the Company's Common Stock (terms not
defined herein shall have the meanings ascribed to them in the Purchase
Agreement) and the Warrant; and
WHEREAS, the execution and delivery of this Agreement and granting to the
Purchaser of the registration rights set forth herein with respect to the Shares
is a component part of the transaction contemplated under the Purchase
Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means all Shares that (i) have not been sold under the Registration
Statement, (ii) have not been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) have not been otherwise
transferred to persons who may trade such Shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such Shares not bearing a restrictive legend, or (iv)
may not be sold without any time, volume or manner limitations pursuant to Rule
144(k) (or any similar provision then in effect) under the Securities Act. In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be deemed to be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Agreement.
Section 2. Restrictions on Transfer. The Purchaser acknowledges and
understands that in the absence of an effective Registration Statement
authorizing the resale of the Shares as provided herein, the Shares are
"restricted securities" as defined in Rule 144. The Purchaser understands that
no disposition or transfer of the Shares may be made by Purchaser in the absence
of (i) an opinion of counsel to the Purchaser, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.
With a view to making available to the Purchaser the benefits of Rule 144,
the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) to file with the Commission in a timely manner all reports and
other documents required to be filed by the Company pursuant to Section 13
or 15(d) under the
Exchange Act; and, if at any time it is not required to file such reports
but in the past had been required to or did file such reports, it will,
upon the request of the Purchaser, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
Section 3. Registration Rights With Respect to the Shares.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within forty-five (45)
days after the date hereof, a registration statement (on Form S-3 and/or
SB-2, or other appropriate form of registration statement) under the
Securities Act (the "Registration Statement"), at the sole expense of the
Company (except as provided in Section 3(c) hereof), so as to permit a
public offering and resale of the Shares under the Securities Act by
Purchaser.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective within the earlier of (i) one hundred and
twenty (120) days of the date of filing the Registration Statement, or (ii)
five (5) days after receiving written notice of SEC clearance and will
within said five (5) days request acceleration of effectiveness. The
Company will notify Purchaser of the effectiveness of the Registration
Statement within one Trading Day of such event.
(c) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof effective under
the Securities Act until the earliest of (i) the date that all the
Registrable Securities have been disposed of pursuant to the Registration
Statement, (ii) the date that all of the Registrable Securities have been
sold pursuant to the Registration Statement, (iii) the date that all of the
Registrable Securities have been otherwise transferred to persons who may
trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for
such Shares not bearing a restrictive legend, (iv) the date that all of the
Registrable Securities may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) or any similar provision then in effect
under the Securities Act in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Purchaser (the "Effectiveness
Period").
(d) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The
Purchaser shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Shares being registered and
the fees and expenses of its counsel.
(e) The Purchaser and its counsel shall have a reasonable period, not
to exceed ten (10) Trading Days, to review the proposed Registration
Statement or any amendment thereto, prior to filing with the Commission,
and the Company shall provide
2
the Purchaser with copies of any comment letters received from the
Commission with respect thereto within two (2) Trading Days of receipt
thereof.
(f) The Company shall make reasonably available for inspection by
Purchaser, any underwriter participating in any disposition pursuant to the
Registration Statement, and any attorney, accountant or other agent
retained by the Purchaser or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the
Company and its subsidiaries, and cause the Company's officers, directors
and employees to supply all information reasonably requested by the
Purchaser or any such underwriter, attorney, accountant or agent in
connection with the Registration Statement, in each case, as is customary
for similar due diligence examinations; provided, however, that all
records, information and documents that are designated in writing by the
Company, in good faith, as confidential, proprietary or containing any
material non-public information shall be kept confidential by the Purchaser
and any such underwriter, attorney, accountant or agent, unless such
disclosure is made pursuant to judicial process in a court proceeding
(after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought to
be disclosed) or is required by law, or such records, information or
documents become available to the public generally or through a third party
not in violation of an accompanying obligation of confidentiality. If the
foregoing inspection and information gathering would otherwise disrupt the
Company's conduct of its business, such inspection and information
gathering shall, to the maximum extent possible, be coordinated on behalf
of the Purchaser and the other parties entitled thereto by one firm of
counsel designed by and on behalf of the majority in interest of Purchaser
and other parties.
(g) The Company shall qualify any of the Shares for sale in such
states as the Purchaser reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the
Company shall not be required to qualify in any state which will require an
escrow or other restriction relating to the Company and/or the sellers, or
which will require the Company to qualify to do business in such state or
require the Company to file therein any general consent to service of
process.
(h) The Company at its expense will supply the Purchaser with copies
of the Registration Statement and the final prospectus included therein
(the "Prospectus") and other related documents in such quantities as may be
reasonably requested by the Purchaser.
(i) The Company shall not be required by this Section 3 to include the
Purchaser's Shares in any Registration Statement which is to be filed if,
in the opinion of counsel for both the Purchaser and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Purchaser and the
Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144
under the Securities Act.
3
(j) If at any time or from time to time after the effective date of
the Registration Statement, the Company notifies the Purchaser in writing
of the existence of a Potential Material Event (as defined in Section 3(k)
below), the Purchaser shall not offer or sell any Shares or engage in any
other transaction involving or relating to Shares, from the time of the
giving of notice with respect to a Potential Material Event until the
Purchaser receives written notice from the Company that such Potential
Material Event either has been disclosed to the public or no longer
constitutes a Potential Material Event (the "Suspension Period").
Notwithstanding anything herein to the contrary, if a Suspension Period
occurs at any time during any period commencing on a Trading Day a Draw
Down Notice is deemed delivered and ending ten (10) Trading Days following
the end of the corresponding Draw Down Pricing Period, then the Company
must compensate the Purchaser for any net decline in the market value of
any Shares purchased, or committed to be purchased, by the Purchaser
pursuant to such recent Draw Down Pricing Period through the end of such
Suspension Period. Net decline shall be calculated as the difference
between the highest VWAP during the applicable Suspension Period and the
VWAP on the Trading Day immediately following a properly delivered notice
to the Purchaser that such Suspension Period has ended. If a Potential
Material Event shall occur prior to the date the Registration Statement is
filed, then the Company's obligation to file the Registration Statement
shall be delayed without penalty for not more than thirty (30) calendar
days. The Company must give Purchaser notice in writing of the existence of
a Potential Material Event promptly upon knowledge that such an event
exists and, where possible, at least two (2) days prior to the first day of
a Suspension Period, if lawful to do so.
(k) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information that is not ripe for
disclosure in a registration statement, as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company or that
disclosure of such information in the Registration Statement would be
detrimental to the business and affairs of the Company; (ii) any material
engagement or activity by the Company which would, in the good faith
determination of the Chief Executive Officer or the Board of Directors of
the Company, be adversely affected by disclosure in a registration
statement at such time, which determination shall be accompanied by a good
faith determination by the Chief Executive Officer or the Board of
Directors of the Company that the Registration Statement would be
materially misleading absent the inclusion of such information, or (iii)
pursuant to applicable law, the Company is required to file a
post-effective amendment to the Registration Statement because the Company
experiences a fundamental change, must change the plan of distribution to
the Prospectus, or must update the information included in the Prospectus
pursuant to Section 10(a)(3) of the Securities Act.
Section 4. Cooperation with Company. The Purchaser will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company (which shall
include all information regarding the Purchaser and proposed manner of sale of
the Registrable Securities required to be disclosed in the Registration
Statement) and executing and returning all documents reasonably requested in
connection with the registration and sale of the Registrable Securities and
entering into and
4
performing its obligations under any underwriting agreement, if the offering is
an underwritten offering, in usual and customary form, with the managing
underwriter or underwriters of such underwritten offering. The Purchaser shall
consent to be named as an underwriter in the Registration Statement. The
Purchaser acknowledges that in accordance with current Commission policy, the
Purchaser will be named as the underwriter of the Shares in the Registration
Statement.
Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Registrable Securities under the Securities Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible, subject
to the Purchaser's assistance and cooperation as reasonably required:
(a) (i) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the Prospectus as may be
necessary to keep such registration statement effective and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement
whenever the Purchaser of such Registrable Securities shall desire to sell
or otherwise dispose of the same (including prospectus supplements with
respect to the sales of securities from time to time in connection with a
registration statement pursuant to Rule 415 promulgated under the
Securities Act) and (ii) take all lawful action such that each of (A) the
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) the Prospectus, and any amendment
or supplement thereto, does not at any time during the Effectiveness Period
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(b) (i) prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or
delivery of the Prospectus (including any supplements thereto), provide
draft copies thereof to the Purchaser and reflect in such documents all
such comments as the Purchaser (and its counsel) reasonably may propose and
(ii) furnish to the Purchaser such numbers of copies of the Prospectus
including a preliminary prospectus or any amendment or supplement to the
Prospectus, as applicable, in conformity with the requirements of the
Securities Act, and such other documents, as the Purchaser may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities;
(c) comply with the New York blue sky laws with respect to the
Registrable Securities (subject to the limitations set forth in Section
3(g) above), and do any and all other acts and things which may be
reasonably necessary or advisable to enable the Purchaser to consummate the
public sale or other disposition in such jurisdiction of the Registrable
Securities, except that the Company shall not for any such purpose be
required
5
to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to
service of process;
(d) list such Registrable Securities on the Principal Market, and any
other exchange on which the Common Stock of the Company is then listed, if
the listing of such Registrable Securities is then permitted under the
rules of such exchange or the Principal Market;
(e) notify the Purchaser at any time when the Prospectus is required
to be delivered under the Securities Act, of the happening of any event of
which it has knowledge as a result of which the Prospectus, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and the Company shall prepare and file a curative amendment or
curative supplement under Section 5(a) as quickly as commercially possible
and the period beginning on the date of notice until the curative amendment
is effective or a curative supplement is filed shall be deemed a Suspension
Period and the Company shall compensate the Purchaser as set forth in
Section 3(j) herein;
(f) as promptly as practicable after becoming aware of such event,
notify the Purchaser (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission or any state
authority of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful
action to effect the withdrawal, rescission or removal of such stop order
or other suspension;
(g) take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Purchaser of its Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary for issuers to perform under the
circumstances;
(h) in the event of an underwritten offering, promptly include or
incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managing underwriters
reasonably agree should be included therein and to which the Company does
not reasonably object and make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after it is
notified of the matters to be included or incorporated in such prospectus
supplement or post-effective amendment; and
(i) maintain a transfer agent for its Common Stock.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser
and each person, if any, who controls the Purchaser within the meaning of
the Securities Act ("Distributing Purchaser") against any losses, claims,
damages or liabilities, joint or several
6
(which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees), to which the Distributing Purchaser may become
subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, or any related
preliminary prospectus, the Prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein in light of the circumstances when made not
misleading; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, preliminary prospectus, the Prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Distributing Purchaser
specifically for use in the preparation thereof. This Section 6(a) shall
not inure to the benefit of any Distributing Purchaser with respect to any
person asserting such loss, claim, damage or liability who purchased the
Registrable Securities which are the subject thereof if the Distributing
Purchaser failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation to such person of the sale of such
Registrable Securities, where the Distributing Purchaser was obligated to
do so under the Securities Act or the rules and regulations promulgated
thereunder. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Distributing Purchaser agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) to
which the Company or any such officer, director or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or
any related preliminary prospectus, the Prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in
each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, the Prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by such Distributing Purchaser
specifically for use in the preparation thereof. This indemnity agreement
will be in addition to any liability which the Distributing Purchaser may
otherwise have. Notwithstanding anything to the contrary herein, the
Distributing Purchaser shall not be liable under this Section 6(b) for any
amount in excess
7
of the net proceeds to such Distributing Purchaser as a result of the sale
of Registrable Securities pursuant to the Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve the indemnifying party from any liability which it may have to any
indemnified party except to the extent of actual prejudice demonstrated by
the indemnifying party. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, assume the defense thereof, subject
to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation, unless the indemnifying party
shall not pursue the action to its final conclusion. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that if the
indemnified party is the Distributing Purchaser, the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by
the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Purchaser
and the indemnifying party and the Distributing Purchaser shall have been
advised by such counsel in writing that there may be one or more legal
defenses available to the indemnifying party different from or in conflict
with any legal defenses which may be available to the Distributing
Purchaser (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Distributing Purchaser,
it being understood, however, that the indemnifying party shall, in
connection with any one such action or separate but substantially similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Distributing Purchaser,
which firm shall be designated in writing by the Distributing Purchaser and
be approved by the indemnifying party). No settlement of any action against
an indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
All fees and expenses of the indemnified party (including reasonable costs
of defense and investigation in a manner not inconsistent with this Section and
all reasonable attorneys' fees and expenses) shall be promptly paid to the
indemnified party, as incurred; within ten (10) Trading Days of written notice
thereof to the indemnified party; provided, that the indemnifying party may
require such indemnified party to undertake to reimburse all such fees and
8
expenses to the extent it is finally judicially determined that such indemnified
party is not entitled to indemnification hereunder.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Purchaser shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Purchaser on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall
any (i) Purchaser be required to undertake liability to any person under this
Section 7 for any amounts in excess of the dollar amount of the net proceeds to
be received by the Purchaser from the sale of the Purchaser's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are or were to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
Section 8. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be delivered as set forth in the
Purchase Agreement.
9
Section 9. Assignment. Neither this Agreement nor any rights of the
Purchaser or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, upon the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed in the case
of an assignment to an affiliate of the Purchaser, the Purchaser's interest in
this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Purchaser) who agrees to be
bound hereby.
Section 10. Counterparts/Facsimile. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other party. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 11. Remedies and Severability. The remedies provided in this
Agreement are cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is held by a
board of arbitration or a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of those
that may be hereafter declared invalid, illegal, void or unenforceable.
Section 12. Conflicting Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the purchasers of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 13. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any action may be brought as set
forth in the Purchase Agreement. The Company and the Purchaser agree to submit
themselves to the in personam jurisdiction of the state and federal courts
situated within the Southern District of the State of New York with regard to
any controversy arising out of or relating to this Agreement. Any party shall
have the right to seek injunctive relief from any court of competent
jurisdiction in any case where such relief is available. Any dispute under this
Agreement shall be submitted to arbitration under the American Arbitration
Association (the "AAA") in New York City, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting of
three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The
10
Board of Arbitration shall meet on consecutive business days in New York City,
New York, and shall reach and render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the amount,
if any, which the losing party is required to pay to the other party in respect
of a claim filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
[SIGNATURE PAGE FOLLOWS]
11
[SIGNATURE PAGE TO REGISTRATION RIGHTS REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, on this 26th day of July, 2001
DATA RACE, INC.
By:
----------------------------------------
Xxxxx X. Xxxxxx, President & CEO
GRENVILLE FINANCE LTD.
By:
----------------------------------------
Francois Morax, Authorized Signatory
12
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of July 26, 2001, by
and among Data Race, Inc., a corporation incorporated under the laws of the
State of Texas, (the "Company"), Grenville Finance Ltd. ("Purchaser"), and
Xxxxxxx Xxxxxx & Green, P.C., having an address at 000 Xxxx Xxxxxx, Xxx Xxxx, XX
00000 (the "Escrow Agent"). Capitalized terms used but not defined herein shall
have the meanings set forth in the Common Stock Purchase Agreement referred to
in the first recital.
WHEREAS, the Purchaser will from time to time as requested by the Company,
purchase shares of the Company's Common Stock from the Company as set forth in
that certain Common Stock Purchase Agreement (the "Purchase Agreement") dated
the date hereof between the Purchaser and the Company, which shares shall be
issued pursuant to the terms and conditions contained herein and in the Purchase
Agreement; and
WHEREAS, the Company and the Purchaser have requested that the Escrow Agent
hold in escrow and then distribute the initial documents and certain funds which
are conditions precedent to the effectiveness of the Purchase Agreement, and
have further requested that upon each exercise of a Draw Down, the Escrow Agent
hold the relevant documents and the applicable purchase price pending receipt by
Purchaser of the securities issuable upon such Draw Down;
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE I
TERMS OF THE ESCROW FOR THE INITIAL CLOSING
1.1. The parties hereby agree to establish an escrow account with the
Escrow Agent whereby the Escrow Agent shall hold the funds and documents which
are referenced in Section 4.2 of the Purchase Agreement.
1.2. At the Initial Closing, the Company shall deliver to the Escrow Agent:
(i) the original executed Registration Rights Agreement in the form
of Exhibit A to the Purchase Agreement;
(ii) the original executed opinion of Xxxxxxx Xxxxxx L.L.P., counsel
to the Company, in the form of Exhibit C to the Purchase Agreement;
(iii) the original executed Company counterpart of this Escrow
Agreement;
(iv) the original executed Company counterpart of the Purchase
Agreement;
(v) $20,000 for the Purchaser's legal and administrative costs
and expenses, (except that payment of $10,000 of such amount shall be
delayed until the second closing of that certain Convertible Debentures and
Warrants Purchase Agreement, dated June 12, 2001, entered into between the
Company and the investors signatory thereto under the terms of the escrow
agreement (the "Debenture Escrow Agreement") entered into therewith); and
(vi) the original executed Warrant.
1.3. Upon receipt of the foregoing, and receipt of executed counterparts
from Purchaser of the Purchase Agreement, the Registration Rights Agreement and
this Escrow Agreement, the Escrow Agent shall calculate and enter the exercise
price, issuance date and termination date on the face of the Warrant, shall wire
transfer $10,000 to Xxxxxxx Xxxxxx & Green, P.C. as a non-accountable expense
allowance for the Purchaser's legal and administrative costs and expenses and
shall then arrange to have the Purchase Agreement, this Escrow Agreement, the
Registration Rights Agreement, the Warrant and the opinion of counsel delivered
to the appropriate parties. Upon receipt of $10,000 by the Escrow Agent pursuant
to the terms of the Debenture Escrow Agreement at the second closing therein,
the Escrow Agent shall wire transfer $10,000 to Xxxxxxx Xxxxxx & Green, P.C. as
a non-accountable expense allowance for the Purchaser's legal and administrative
costs and expenses.
1.4 Wire transfers to the Escrow Agent (not address for notice or delivery
of documents) shall be made as follows:
Xxxxxxx Xxxxxx & Green, P.C.
Master Escrow Account
Chase Manhattan Bank
0000 Xxxxxxxx - Xxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA No. 000000000
Account No. 035 1 346036
Attention: L. Borneo
ARTICLE II
TERMS OF THE ESCROW FOR EACH DRAW DOWN
2.1. Each time the Company shall send a Draw Down Notice to the Purchaser
as provided in the Purchase Agreement, it shall send a copy, by facsimile, to
the Escrow Agent.
2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down,
the Purchaser shall send the applicable Purchase Price of the Draw Down Shares
to the Escrow
2
Agent. Upon receipt of such funds, the Escrow Agent shall advise the Company
that it has received the funds for such Draw Down Shares. The Company shall
promptly, but no later than one (1) Trading Day after receipt of such funding
notice from the Escrow Agent:
(i) cause its transfer agent to issue the Draw Down Shares to
the Purchaser via DTC's DWAC system to the account specified
by the Purchaser from time to time;
(ii) deliver the original executed attorney's opinion in the form
of Exhibit C to the Purchase Agreement to the Purchaser; and
(iii) if required by law, deliver a Form 424(b)(3) supplemental
prospectus to the Purchaser.
2.3. Upon receipt of written confirmation from the transfer agent or from
the Purchaser that such Draw Down Shares have been so deposited and the opinion
and the supplemental prospectus have been so delivered, the Escrow Agent shall,
within one (1) Trading Day of receipt of the foregoing, wire 92% of the
applicable Investment Amount per the written instructions of the Company, net of
one thousand dollars ($1,000) as escrow expenses to the Escrow Agent, and the
remaining 8% to Hadrian Investments Limited.
2.4. The Escrow Agent shall remit Hadrian Investments Limited's fees in
accordance with the respective wire instructions that it will send to the Escrow
Agent.
2.5. In the event that such Draw Down Shares are not in the Purchaser's DTC
account and the opinion and supplemental prospectus are not delivered to the
Purchaser within two (2) Trading Days of the date of the Escrow Agent's notice,
then Purchaser shall have the right to demand, by notice, the return of the
Purchase Price, and the applicable Draw Down Notice shall be deemed cancelled.
ARTICLE III
MISCELLANEOUS
3.1. No waiver of any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof, or of
any other covenant or provision herein contained. No extension of time for
performance of any obligation or act shall be deemed an extension of the time
for performance of any other obligation or act.
3.2. All notices or other communications required or permitted hereunder
shall be in writing, and shall be sent by fax, overnight courier, registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
received upon receipt thereof, as set forth in the Purchase Agreement.
3
3.3. This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the parties hereto.
3.4. This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Escrow
Agreement may not be modified, changed, supplemented or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
parties to be charged or by their respective agents duly authorized in writing
or as otherwise expressly permitted herein.
3.5. Whenever required by the context of this Escrow Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Escrow Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Escrow Agreement.
3.6. The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance with the
laws of the State of New York. Except as expressly set forth herein, any action
to enforce, arising out of, or relating in any way to, any provisions of this
Escrow Agreement shall be brought as is more fully set forth in the Purchase
Agreement.
3.7. The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, Purchaser and the Escrow
Agent.
3.8. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for any
act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while
acting in good faith, excepting only its own gross negligence or willful
misconduct, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself)
shall be conclusive evidence of such good faith.
3.9. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
3.10. The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or delivering or
purporting to execute or deliver the Purchase Agreement or any documents or
papers deposited or called for thereunder or hereunder.
4
3.11. The Escrow Agent shall be entitled to employ such legal counsel and other
experts as the Escrow Agent may deem necessary properly to advise the Escrow
Agent in connection with the Escrow Agent's duties hereunder, may rely upon the
advice of such counsel, and may pay such counsel reasonable compensation
therefor. The Escrow Agent has acted as legal counsel for the Purchaser, and may
continue to act as legal counsel for the Purchaser, from time to time,
notwithstanding its duties as the Escrow Agent hereunder. The Company consents
to the Escrow Agent in such capacity as legal counsel for the Purchaser and
waives any claim that such representation represents a conflict of interest on
the part of the Escrow Agent. The Company understands that the Purchaser and the
Escrow Agent are relying explicitly on the foregoing provision in entering into
this Escrow Agreement.
3.12. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
3.13. If the Escrow Agent reasonably requires other or further instruments
in connection with this Escrow Agreement or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
3.14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (i) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the escrow funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned by a final order,
decree or judgment of a board of arbitration or a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings, or (ii) to deliver the escrow funds and any
other property and documents held by the Escrow Agent hereunder to a state or
Federal court having competent subject matter jurisdiction and located in the
State and City of New York in accordance with the applicable procedure therefor.
3.15. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or expenses
(including reasonable attorneys' fees) in any way arising from or relating to
the duties or performance of the Escrow Agent hereunder or the transactions
contemplated hereby or by the Purchase Agreement other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of the Escrow Agent.
[SIGNATURE PAGE FOLLOWS]
5
[SIGNATURE PAGE TO EQUITY LINE ESROW AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of
this 26th day of July, 2001.
DATA RACE, INC.
By:
----------------------------------------
Xxxxx X. Xxxxxx, President & CEO
Grenville Finance Ltd.
By:
----------------------------------------
Francois Morax, Authorized Signatory
ESCROW AGENT:
XXXXXXX XXXXXX & GREEN, P.C.
By:
----------------------------------------
Xxxxxx X. Xxxxxxx, Authorized Signatory
6
EXHIBIT D
DRAW DOWN NOTICE/COMPLIANCE CERTIFICATE
Data Race, Inc.
The undersigned hereby certifies, with respect to shares of Common Stock of
Data Race, Inc. (the "Company") issuable in connection with this Draw Down
Notice and Compliance Certificate dated _____________ (the "Notice"), delivered
pursuant to the Common Stock Purchase Agreement dated as of July 26, 2001 (the
"Agreement"), as follows:
1. The undersigned is the duly appointed Chief Executive Officer or Chief
Financial Officer of the Company.
2. Except as set forth on the schedules attached hereto, the
representations and warranties of the Company set forth in the Agreement are
true and correct in all material respects as though made on and as of the date
hereof and all SEC Documents are as represented in Section 2.1(f) of the
Agreement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company under the Agreement on or prior to the
date of this Draw Down Notice and has complied in all material respects with all
of the Company's obligations and conditions contained in the Agreement.
4. The Investment Amount is $___________.
5. The Threshold Price, if any, is $__________.
6. The Draw Down Pricing Period shall commence on ____________.
The undersigned has executed this Certificate this ____ day of ________,
_____.
DATA RACE, INC.
By:
-----------------------------
Name:
Title:
EXHIBIT E
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND
ANY APPLICABLE STATE LAWS.
STOCK PURCHASE WARRANT
To Purchase 16,366,612 Shares of Common Stock of
DATA RACE, INC.
THIS CERTIFIES that, for value received, Grenville Finance Ltd. (the
"Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after July
30, 2001 (the "Initial Exercise Date") and on or prior to the close of business
on July 30, 2004 (the "Termination Date") but not thereafter, to subscribe for
and purchase from Data Race, Inc., a corporation organized under the laws of the
State of Texas (the "Company"), up to 16,366,612 shares (the "Warrant Shares")
of Common Stock, no par value per share, of the Company (the "Common Stock").
The purchase price of one share of Common Stock (the "Exercise Price") under
this Warrant shall be $0.07027. The Exercise Price and the number of Warrant
Shares for which the Warrant is exercisable shall be subject to adjustment as
provided herein. In the event of any conflict between the terms of this Warrant
and the Common Stock Purchase Agreement dated as of July 26, 2001 pursuant to
which this Warrant has been issued (the "Purchase Agreement"), the Purchase
Agreement shall control. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase Agreement.
1
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, subject to Section 7 herein, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Authorization of Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant.
(a) Except as provided in Section 4 herein, exercise of the purchase
rights represented by this Warrant may be made at any time or times on or
after the Initial Exercise Date and on or before the close of business on
the Termination Date by the surrender of this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company
(or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of such Holder
appearing on the books of the Company) and upon payment of the Exercise
Price of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank, or by means of a cashless exercise, the
Holder shall be entitled to receive a certificate for the number of Warrant
Shares so purchased. Certificates for shares purchased hereunder shall be
delivered to the Holder within three (3) Trading Days after the date on
which this Warrant shall have been exercised as aforesaid. This Warrant
shall be deemed to have been exercised and such certificate or certificates
shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has been
exercised by payment to the Company of the Exercise Price and all taxes
required to be paid by the Holder, if any, pursuant to Section 5 prior to
the issuance of such shares, have been paid.
(b) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
(c) If there is no registration in effect permitting the resale by the
Holder of the Warrant Shares at any time from and after one year from the
issuance date of this Warrant, this Warrant shall also be exercisable by
means of a "cashless exercise" in which the Holder shall be entitled to
receive a certificate for the number of Warrant Shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A), where:
2
(A) = the average of the high and low trading prices per share of
Common Stock on the Trading Day preceding the date of such election on
the Nasdaq Stock Market, or if the Common Stock is not traded on the
Nasdaq Stock Market, then the Principal Market in terms of volume;
(B) = the Exercise Price of this Warrant; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant and the Notice of
Exercise.
(d) Notwithstanding anything herein to the contrary, in no event shall
the Holder be permitted to exercise this Warrant for Warrant Shares to the
extent that (i) the number of shares of Common Stock owned by such Holder
(other than Warrant Shares issuable upon exercise of this Warrant) plus
(ii) the number of Warrant Shares issuable upon exercise of this Warrant,
would be equal to or exceed 9.9% of the number of shares of Common Stock
then issued and outstanding, including shares issuable upon exercise of
this Warrant held by such Holder after application of this Section 3(d). As
used herein, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act. To the extent that the limitation
contained in this Section 3(d) applies, the determination of whether this
Warrant is exercisable (in relation to other securities owned by the
Holder) and of which a portion of this Warrant is exercisable shall be in
the sole discretion of such Holder, and the submission of a Notice of
Exercise shall be deemed to be such Holder's determination of whether this
Warrant is exercisable (in relation to other securities owned by such
Holder) and of which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a Holder
to exercise this Warrant into Warrant Shares at such time as such exercise
will not violate the provisions of this Section 3(d). The provisions of
this Section 3(d) may be waived by the Holder upon, at the election of the
Holder, with not less than 61 days' prior notice to the Company, and the
provisions of this Section 3(d) shall continue to apply until such 61st day
(or such later date as may be specified in such notice of waiver). No
exercise of this Warrant in violation of this Section 3(d) but otherwise in
accordance with this Warrant shall affect the status of the Warrant Shares
as validly issued, fully-paid and nonassessable.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such
3
name or names as may be directed by the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder;
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws,
transfer of this Warrant and all rights hereunder, in whole or in part,
shall be registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant substantially
in the form attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. In the event that the Holder wishes to transfer a
portion of this Warrant, the Holder shall transfer at least 100,000 shares
underlying this Warrant to any such transferee. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of
this Warrant not so assigned, and this Warrant shall promptly be cancelled.
A Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section
7.
(d) The Company agrees to maintain, at its aforesaid office, books for
the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof. Upon the surrender of this Warrant and the payment
of the aggregate Exercise Price or by means of a cashless exercise, the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of the date
of such surrender or payment.
4
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject
to adjustment from time to time upon the happening of any of the following.
In case the Company shall (i) pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock to holders of its outstanding
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which it would have owned or have been entitled
to receive had such Warrant been exercised in advance thereof. Upon each
such adjustment of the kind and number of Warrant Shares or other
securities of the Company which are purchasable hereunder, the Holder shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Anti-Dilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares issuable hereunder and for which
this Warrant is then exercisable pursuant to Section 1 hereof shall be
subject to adjustment from time to time as provided in this Section 11(b).
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up or
down to the nearest cent.
(i) Adjustment of Exercise Price. If and whenever solely during
the first twelve (12) months of the Exercise Period the Company issues
or sells, or
5
in accordance with Section 8(b) hereof is deemed to have issued or
sold, any shares of Common Stock for a consideration per share of less
than the then current market price (the "Base Share Price") or for no
consideration (collectively, a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be
adjusted in accordance with the following formula:
E' = E x O + P/BSP
-------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
BSP = the Base Share Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth in Section 11(b)(ii) hereof, received
by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock
Deemed Outstanding immediately after the Dilutive
Issuance.
(ii) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 11(b) hereof,
the following will be applicable:
(A) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities exercisable, convertible into or
exchangeable for Common Stock ("Convertible Securities") (such
warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options")
and the price per share for which Common Stock is issuable upon
the exercise of such Options is less than the Base Share Price
("Below Base Price Options"), then the maximum total number of
shares of Common Stock issuable upon the exercise of all such
Below Base Price Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of
the date of the issuance or grant of such Below Base Price
Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such Below Base Price Options"
is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or
granting of all such Below Base Price Options, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Company upon the
6
exercise of all such Below Base Price Options, plus, in the case
of Convertible Securities issuable upon the exercise of such
Below Base Price Options, the minimum aggregate amount of
additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Base Price Options (assuming full
conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual
issuance of such Common Stock upon the exercise of such Below
Base Price Options or upon the exercise, conversion or exchange
of Convertible Securities issuable upon exercise of such Below
Base Price Options.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, whether or
not immediately convertible (other than where the same are
issuable upon the exercise of Options) and the price per share
for which Common Stock is issuable upon such exercise, conversion
or exchange is less than the Base Share Price, then the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or
exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon exercise,
conversion or exchange of such Convertible Securities.
(C) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange of any
Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for
Common Stock (in each such case, other than under or by reason of
provisions designed to protect against dilution), the Exercise
Price in effect at the time of such change will be readjusted to
the Exercise
7
Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for
such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or
sold.
(D) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise,
conversion or exchange of any Convertible Securities is not, in
fact, issued and the rights to exercise such Option or to
exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than
in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(E) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or
sold for cash, the consideration received therefor for purposes
of this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance,
grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair market
value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company will be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any merger
or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed
to be the fair market value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Options or Convertible Securities, as the case
may be. The fair market value of any consideration other than
cash or securities will be determined in good faith by an
investment banker or other appropriate expert of national
reputation selected by the Company and reasonably acceptable to
the holder hereof, with the costs of such appraisal to be borne
by the Company.
(F) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the
exercise of this Warrant or any other warrant of this series or
of any other series issued by
8
the Company in connection with the offer and sale of this
Company's securities pursuant to the Purchase Agreement; (ii)
upon the exercise of or conversion of any Convertible Securities,
options or warrants issued and outstanding on the initial
issuance date of this Warrant; (iii) upon the grant or exercise
of any Convertible Securities which may hereafter be granted or
exercised under any employee benefit plan of the Company now
existing or to be implemented in the future, so long as the
issuance of such Convertible Securities is approved by a majority
of the non-employee members of the Board of Directors of the
Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iv) upon
the issuance of Common Stock or Convertible Securities in a
public offering, whether or not underwritten; (v) upon the
issuance of Common Stock or Convertible Securities in any
transaction of the nature contemplated by Rule 145, promulgated
under the Securities Act; or (vi) in connection with any
strategic partnership or joint venture or acquisition (the
primary purpose of which is not to raise equity capital for the
Company).
(iii) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the holder of this
Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant
Shares purchasable at such price upon exercise, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based, provided that such notice shall not contain
any material nonpublic information. Such calculation shall be
certified by the chief financial officer of the Company.
(iv) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than 1% of such Exercise Price.
(v) Certain Events. If, at any time during the Exercise Period,
any event occurs of the type contemplated by the adjustment provisions
of this Section 11 but not expressly provided for by such provisions,
the Company will give notice of such event as provided in Section 11
hereof, and the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of
the holder shall be neither enhanced nor diminished by such event.
9
(vi) Certain Definitions. "Common Stock Deemed Outstanding" shall
mean the number of shares of Common Stock actually outstanding (not
including shares of Common Stock held in the treasury of the Company),
plus (x) in the case of any adjustment hereunder resulting from the
issuance of any Options, the maximum total number of shares of Common
Stock issuable upon the exercise of the Options for which the
adjustment is required (including any Common Stock issuable upon the
conversion of Convertible Securities issuable upon the exercise of
such Options), and (y) in the case of any adjustment required
hereunder resulting from the issuance of any Convertible Securities,
the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of the Convertible Securities for
which the adjustment is required, as of the date of issuance of such
Convertible Securities, if any.
12. Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing
10
provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
13. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the Board of Directors of the
Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
Holder notice of such adjustment or adjustments setting forth the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made. Such notice, in the absence of manifest error,
shall be conclusive evidence of the correctness of such adjustment.
15. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time
11
is to be fixed, as of which the holders of Common Stock shall be entitled to
exchange their Warrant Shares for securities or other property deliverable upon
such disposition, dissolution, liquidation or winding up. Each such written
notice shall be sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in accordance with
Section 17(d).
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
17. Miscellaneous.
(a) Jurisdiction. This Warrant shall constitute a contract under the
laws of New York, without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
12
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by
Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of Holder, shall give rise to any
liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
(i) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
(j) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
13
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: July 26, 2001
DATA RACE, INC.
By:__________________________________________
Xxxxx X. Xxxxxx, President & CFO
14
NOTICE OF EXERCISE
To: Data Race, Inc.
(1)______The undersigned hereby elects to purchase ________ Warrant Shares
(the "Common Stock"), of Data Race, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
_____________________________________________
The Warrant Shares shall be delivered to the following:
_____________________________________________
_____________________________________________
_____________________________________________
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: ________________________
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO CASHLESS EXERCISE PROVISIONS
To: Data Race, Inc.
Aggregate Price of Warrant Before Exercise: $
------------------
Aggregate Price Being Exercised: $
------
Exercise Price: $ per share
------
Number of Shares of Common Stock to be Issued Under this Notice:
--------
Remaining Aggregate Price (if any) After Issuance: $
-------
Gentlemen:
The undersigned, registered Holder of the Warrant delivered herewith,
hereby irrevocably exercises such Warrant for, and purchases thereunder, shares
of the Common Stock of Data Race, Inc., a corporation organized under the laws
of the State of Texas, as provided below. Capitalized terms used herein, unless
otherwise defined herein, shall have the meanings given in the Warrant. The
portion of the Exercise Price (as defined in the Warrant) to be applied toward
the purchase of Common Stock pursuant to this Notice of Exercise is $_______,
thereby leaving a remaining Exercise Price (if any) equal to $________. Such
exercise shall be pursuant to the cashless exercise provisions of Section 3 of
the Warrant; therefore, Holder makes no payment with this Notice of Exercise.
The number of shares to be issued pursuant to this exercise shall be determined
by reference to the formula in Section 3 of the Warrant which, by reference to
Section 3, requires the use of the high and low trading price of the Company's
Common Stock on the Trading Day preceding the date of such election. The high
and low trading price of the Company's Common Stock has been determined by
Holder to be $______ and $_________, respectively, which figure is acceptable to
Holder for calculations of the number of shares of Common Stock issuable
pursuant to this Notice of Exercise. Holder requests that the certificates for
the purchased shares of Common Stock be issued in the name of
_________________________ and delivered to
______________________________________________. To the extent the foregoing
exercise is for less than the full Aggregate Price of the Warrant, a replacement
Warrant representing the remainder of the Aggregate Price (and otherwise of like
form, tenor and effect) shall be delivered
2
to Holder along with the share certificate evidencing the Common Stock issued in
response to this Notice of Exercise.
[Purchaser]
By:
--------------------------------------
Name:
Title:
Date:
NOTE The execution to the foregoing Notice of Exercise must exactly
correspond to the name of the Holder on the Warrant
3
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
__________________________________________________________________.
__________________________________________________________________
Dated: ______________, _______
Holder's Signature: _________________________________
Holder's Address: _________________________________
_________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
