EXHIBIT 10.1
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS PURCHASE AGREEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
PURCHASE AGREEMENT
DATA RACE, INC.
THIS AGREEMENT is executed in reliance upon the transaction exemption
afforded by Regulation D as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in connection with the
private placement of up to Two Million Five Hundred Thousand ($2,500,000)
Dollars aggregate principal amount of Series D Preferred Stock (with the terms
and conditions contained in the Series D Preferred Stock Statement of
Designation annexed hereto as Exhibit A), up to Seven Hundred Fifty Thousand
($750,000) Dollars aggregate principal amount of Series E Preferred Stock (with
the terms and conditions contained in the Series E Preferred Stock Statement of
Designation annexed hereto as Exhibit B), and up to Seven Hundred Fifty Thousand
($750,000) Dollars aggregate principal amount Series F Preferred Stock (with the
terms and conditions contained in the Series F Preferred Stock Statement of
Designation annexed hereto as Exhibit C) of the Company (collectively referred
to as the "Preferred Stock") of DATA RACE, INC. (Nasdaq National Market System
symbol "RACE"), located at 12400 Network Boulevard, San Antonio, Texas 78249, a
corporation organized under the laws of Texas, USA (hereinafter referred to as
the "Company") in two separate closings as described below. The Company will
also sell to the Purchasers listed on Schedule A annexed hereto ("A
Purchasers"), a Class A Warrant (the "Class A Warrant") to purchase up to
566,038 shares of Common Stock of the Company (the "Common Stock") for a period
of two (2) years from the issuance date of the Class A Warrants, as per the
terms of a separate Class A Warrant (Exhibit D annexed hereto). The Company
will sell to the Purchasers listed on Schedule B annexed hereto (the "B
Purchasers" and along with the A Purchasers referred to as the "Purchasers") a
Class B Warrant (the "Class B Warrant" in the form of Exhibit E annexed hereto),
to purchase up to 281,250 shares of Common Stock of the Company for a period of
two (2) years from the issuance date of the Class B Warrants (as defined
herein), as per the terms of a separate Class B Warrant (Exhibit E annexed
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hereto) The Class A and B Warrants are hereinafter referred to as the
"Warrants". This Purchase Agreement and, if accepted by the Company, the offer
and sale of the Preferred Stock, Warrants and the Common Stock underlying the
Preferred Stock and Warrants (collectively the "Securities"), are being made in
reliance upon the provisions of Regulation D under the Act.
The Closing Date shall be Friday, July 24, 1998, as determined in
accordance with Sections 1.1 and 12 herein.
The Purchasers hereby represent and warrant to, and agree with the
Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and the Purchasers will buy, upon
the execution of this Agreement, and in reliance upon the representations and
warranties contained in this Agreement and Statement of Designation for the
Series D Preferred Stock and the Series E Preferred Stock, and the Class A
Warrants to purchase339,623 shares of Common Stock, and Class B Warrants to
purchase 140,625 shares of Common Stock, and upon the terms and satisfaction of
each of the conditions set forth in Sections 13 and 14 below, One Million Five
Hundred Thousand ($1,500,000) Dollars of Series D Preferred Stock (and Class A
Warrants) to be purchased by the A Purchasers and Seven Hundred Fifty Thousand
($750,000) Dollars of Series E Preferred Stock (and Class B Warrants) to be
purchased by the B Purchasers as set forth next to their names on Schedule A and
Schedule B for an aggregate purchase price of Two Million Two Hundred Fifty
Thousand ($2,250,000) U.S. Dollars (the "Purchase Price").
1.2 Form of Payment. The A Purchasers shall pay their portion of the
Purchase Price by delivering good funds in United States Dollars by wire
transfer to Goldstein, Goldstein & Reis, LLP, the Escrow Agent, against delivery
of the original Series D and Class A Warrants as per a separate Escrow
Agreement, (annexed hereto as Exhibit F), as payment in full for their portion
of the Securities. The B Purchasers shall pay their portion of the Purchase
Price by delivering good funds in United States Dollars by wire transfer to the
Company, against delivery of the original Series E Preferred Stock and Class B
Warrant, as payment in full for their portion of the Securities. The Securities
shall not be deemed issued unless the Company has received the Purchase Price
therefor.
1.3 Wire Instructions. Wire instructions for Goldstein, Goldstein &
Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
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Section 2. Representations, Covenants, and Warranties of the
Purchasers. Each of the Purchasers severally, and not jointly, acknowledges,
represents, warrants and agrees as follows:
2.1 Organization and Authorization. Each of the Purchasers are duly
incorporated or organized and validly existing in the state or country of their
incorporation or organization and have all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by the Purchasers, the performance by the Purchasers
of their obligations hereunder and the consummation by the Purchasers of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Purchasers. Each of the Purchasers signatory's
below has all right, power and authority to execute and deliver this Agreement
on behalf of each of the Purchasers. This Agreement has been duly authorized,
validly executed and delivered on behalf of each of the Purchasers and is a
valid and binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally. Each Purchaser represents it was not formed for
the purpose of making an investment in the Company.
2.2 Evaluation of Risks. Each of the Purchasers has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. They recognize that their investment in the Company involves
a high degree of risk and each of the Purchasers can afford the complete loss of
their investment.
2.3 Independent Counsel. Each of the Purchasers acknowledges that
they have been advised to consult with their own attorney regarding legal
matters concerning the Company and to consult with their tax advisor regarding
the tax consequences of acquiring the Securities.
2.4 Disclosure Documentation. Each of the Purchasers has received
and reviewed copies of the Company's reports filed under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the Act, including its 10-Ks, 10-
Qs, 8-K's, proxy and registration statements, filed by the Company since July 1,
1997 (collectively, the "Reports"). Except for the Reports, and this Agreement
(including all Exhibits annexed hereto) the Purchasers are not relying on any
other information relating to the offer and sale of the Securities. Each of the
Purchasers acknowledges that the Company has offered to make available any
additional public information that each of the Purchasers may reasonably
request, including technical information, and other material information about
the Company and each of the Purchasers has been offered the Company's full and
unconditional cooperation in making such information available to each of the
Purchasers and acknowledges that the Company has recommended that the Purchasers
request and review such information prior to making an investment decision. No
oral or written representations have been made, or oral or written information
furnished to the undersigned or its advisors, if any, in connection with the
offering of the Securities which were or are in any way inconsistent with the
Reports as of their respective dates.
2.5 Opportunity to Ask Questions. Each of the Purchasers has had a
reasonable
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opportunity to ask questions of and receive answers from the Company concerning
the Company and the offering, and all such questions, if any, have been answered
to the full satisfaction of each of the Purchasers.
2.6 Reports Constitute Sole Representations. Except as set forth in
the Reports, and this Agreement (including all Exhibits annexed hereto) no
representations or warranties have been made to the Purchasers by (a) the
Company or any agent, employee or affiliate of the Company or (b) any other
person, and in entering into this transaction the Purchasers are not relying
upon any information, other than that contained in the Reports and the results
of independent investigation by Purchasers.
2.7 Each of the Purchasers is Accredited Investor. Each of the
Purchasers is an "Accredited Investor" as defined below who represents and
warrants it is included within one or more of the following categories of
"Accredited Investors."
(i) Any bank as defined in Section 3(a)(2) of the Act, or any
savings and loan associated or other institution as defined in Section
3(a)(5)A of the Act whether acting in its individual or fiduciary capacity;
any broker or dealer registered pursuant to Section 15 of the 1934 Act; any
insurance company as defined in Section 2(13) of the Act; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Act of
1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivision, for the benefits of its employees if such plan has total
assets in excess of $5,000,000; and employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act of 1974
if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000;
(ii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000;
(iv) Any director, executive officer, or general partner of
the issuer of the securities being offered or sold, or any director,
executive officer, or general partner of a general partner of that issuer;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
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(vi) Any natural person who had an individual income in excess
of $200,000 in each of the two (2) most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching that same income level in the current
year;
(vii) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the Act;
(viii) Any entity in which all of the equity owners are
accredited investors; and
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors within the
meaning of Rule 501 of Regulation D promulgated under the Act.
2.8 No Registration, Review or Approval. Each of the Purchasers
acknowledges and understands that the limited private offering and sale of
Securities pursuant to this Agreement has not been reviewed or approved by the
SEC or by any state securities commission, authority or agency, and is not
registered under the Act or under the securities or "blue sky" laws, rules or
regulations of any state. Each of the Purchasers acknowledges, understands and
agrees that the Securities are being offered and sold hereunder pursuant to (i)
a private placement exemption to the registration provisions of the Act pursuant
to Section 3(b) or Section 4(2) of such Act and Regulation D promulgated under
such Act, and (ii) a similar exemption to the registration provisions of
applicable state securities laws. Each of the Purchasers understands that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Purchasers set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Purchasers to acquire the Securities.
2.9 Investment Intent. Without limiting their ability to resell
the Securities pursuant to an effective registration statement, each of the
Purchasers is acquiring the Securities solely for its own account and not with a
view to the distribution, assignment or resale to others. Each of the Purchasers
understands and agrees that it may bear the economic risk of its investment in
the Securities for an indefinite period of time. The Purchasers do not now have
any short position, put option or other similar instrument or position
(collectively, a "short position") in the Common Stock and will make all sales
of the Common Stock in accordance with the Act and shall take no action
prohibited under the Exchange Act (including Section 10(b) thereof). No
Purchaser will enter into any short position in the Common Stock at any time
within one year after the Closing Date, and one year after the closing of the
Call. Further, as a condition to any transfer of any Preferred Stock or
Warrants issued hereunder, the transferee shall agree in writing to be bound by
the restrictions and covenants contained in this Agreement.
2.10 No Advertisements. The Purchasers are not subscribing for the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
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2.11 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit G).
2.12 B Purchasers; Disclosure. The B Purchaser hereby represents that
a General Partner of an affiliate of the B Purchaser is the Chairman of the
Board of the Company.
2.13 No-Conflict. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation or other organizational document,
and any amendments thereto, bylaws and any amendments thereto of Purchasers or
any material mortgage, indenture, lease or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree statute, law,
ordinance, rule or regulation applicable to each of the Purchasers, its
properties or assets.
2.14 Domicile. The Purchasers are domiciled in the jurisdiction set
forth on Schedule A and B.
2.15 No Brokers. Each Purchaser represents that it has had no
dealings with any broker or finder in connection with the transactions
contemplated by this Agreement, except as described in Section 15.6.
Section 3. Representations and Warranties of the Company. The Company
acknowledges, covenants, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Texas and is in
good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have (i) a material adverse effect on the
condition (financial or otherwise) or on the earnings, business affairs,
properties or assets of the Company, or (ii) a material and adverse affect on
the ability of the Company to perform its obligations pursuant to this Agreement
and all Exhibits annexed hereto.
3.2 Accuracy of Reports and Information. The Company is in material
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act, and shall maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the 1934 Act and the Common Stock is listed and trades on the
Nasdaq National Market System. The Company has filed all material documentation
required to be filed pursuant to all reporting obligations, under either Section
13(a) or 15(d) of the 1934 Act for a period of at least twelve (12) months
immediately preceding the offer and sale of the Securities.
6
3.3 SEC Filings/Full Disclosure. For a period of at least twelve
(12) months immediately preceding this offer and sale, (i) none of the Company's
filings with the Securities and Exchange Commission contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, and (ii) the Company
has timely filed all requisite forms, reports and exhibits thereto with the
Securities and Exchange Commission. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been publicly disclosed by the Company or disclosed in writing to the
Purchasers which (i) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or on the closing bid price of
the Common Stock, the trading volume of the Common Stock, the earnings, business
affairs, properties or assets of the Company, or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement and all Exhibits annexed
hereto.
3.4 Authorization. The Company has all requisite corporate right,
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders (other than Nasdaq Marketplace Rule
4460(i)) necessary for the authorization, execution, delivery and performance of
this Agreement by the Company, the authorization, sale, issuance and delivery of
the Securities and the performance of the Company's obligations hereunder has
been taken. This Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy as they may apply to the indemnification provisions
set forth in this Agreement. Upon their issuance and delivery pursuant to this
Agreement and their respective governing documents, the Securities will be
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Securities are subject to restrictions
on transfer under state and/or federal securities laws. The issuance and sale
of the Securities will not give rise to any preemptive right or right of first
refusal or right of participation on behalf of any person that has not been
waived in writing.
3.5 No Conflict. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, bylaws, stockholders agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, or any permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which (i) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise) or on the closing bid price of the Common Stock, the trading volume
of the Common Stock, the earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this Agreement
and all Exhibits annexed hereto.
7
Purchasers acknowledge that the issuance of the Securities may result
in customary anti-dilution adjustments to outstanding warrants, and possible
acceleration of employee options upon a change of control.
3.6 No Undisclosed Liabilities or Events. The Company has no
material liabilities or obligations other than those disclosed in the Reports,
this Agreement or those incurred in the ordinary course of the Company's
business since July 1, 1997, which individually or in the aggregate, do not or
(i) could not reasonably be expected to have a material adverse effect on the
condition (financial or otherwise) or on the closing bid price of the Common
Stock, the trading volume of the Common Stock, the earnings, business affairs,
properties or assets of the Company, or (ii) could not reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement and all Exhibits annexed hereto. No
event or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations,
prospects, trading volume of the Common Stock, or the closing bid price of the
Common Stock, which, 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. Notwithstanding anything herein to
the contrary, the Purchasers acknowledge that the Company may be required to
redeem outstanding Series A Preferred Stock for approximately $167,000.
3.7 No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it is or its property is bound,
and neither the execution, nor the delivery by the Company, nor the performance
by the Company of its obligations under this Agreement, including the conversion
or exercise provision of the Securities, will conflict with or result in the
breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or the
Certificate of Incorporation or by-laws of the Company, or any decree, judgment,
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or its properties, or the Company's listing
agreement for its Common Stock.
3.8 Absence of Events of Default. Except as set forth in the Reports
and this Agreement, no default, as defined in the respective agreement to which
the Company is a party, and no event which, with the giving of notice or the
passage of time or both, would become a default, has occurred and is continuing
under any agreement to which the Company is a party, which (i) could reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise) or on the closing bid price of the Common Stock, the trading volume
of the Common Stock, the earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this Agreement
and all Exhibits annexed hereto.
3.9 Governmental Consent, etc. No material consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale
8
or issuance of the Securities, or the consummation of any other transaction
contemplated hereby, except as may be required by applicable securities laws
including, but not limited to, SEC and Nasdaq regulations.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the best of the Company's knowledge, neither the Company, nor its
products is infringing or will infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence; and there is no claim being made against the Company regarding any
trademark, trade name, patent, copyright, license, trade secret or other
intellectual property right which (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or on the
closing bid price of the Common Stock, the trading volume of the Common Stock,
the earnings, business affairs, properties or assets of the Company, or (ii)
could reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement and all
Exhibits annexed hereto.
3.11 Material Contracts. Except as set forth in the Reports, the
agreements to which the Company is a party described in the Reports are valid
agreements, in full force and effect, to the extent not expired by their terms,
and the Company is not in material breach or material default under any of such
agreements.
3.12 Litigation. Except as disclosed in the Reports, there is no
action, proceeding or investigation pending, or threatened, against the Company
which could reasonably be expected to result, either individually or in the
aggregate, in any (i) material adverse effect on the condition (financial or
otherwise) or on the closing bid price of the Common Stock, the trading volume
of the Common Stock, the earnings, business affairs, properties or assets of the
Company, or (ii) material and adverse effect on the ability of the Company to
perform its obligations pursuant to this Agreement and all Exhibits annexed
hereto. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the Company
has good and marketable title to all properties and material assets described in
the Reports as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as do not
materially affect the value or use of such assets and other than leasehold
improvements pursuant to the Company's facility lease (and the landlord's lien
on assets related thereto).
3.14 Subsidiaries. Except as disclosed in the Reports, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity with
material activities, assets or liabilities.
3.15 Required Governmental Permits. The Company is in possession of
and operating in material compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
9
3.16 Listing. The Company shall secure the listing of the Common
Stock issuable upon conversion of the Preferred Stock and exercise of the
Warrants upon each national securities exchange and automated quotation system
(including the Nasdaq National Market and Small Cap Market), if any, upon which
the shares of Common Stock are then listed (subject to official notice of
issuance) and shall use its best efforts to maintain , so long as any other
shares of Common Stock shall be so listed, such listing of all such shares of
Common Stock. The Company will use its best efforts to maintain the Common
Stock's authorization for quotation on the Nasdaq National Market, Nasdaq Small
Cap, The New York Stock Exchange, or The American Stock Exchange, Inc. The
Company has not received any notice, oral or written, regarding continued
listing (except that the Company has received a letter from Nasdaq dated July
15, 1998 stating that the closing bid price of the Common Stock was below One
Dollar for more than thirty consecutive trading days, and if, within ninety
trading days after July 15, 1998 the closing bid price of the Common Stock is
not greater than One Dollar for ten consecutive trading days the Company faces
delisting from the Nasdaq National Market) and, as long as the Preferred Stock
and Warrants are outstanding, the Company will take no action which would
materially or adversely impact their continued listing or eligibility of the
Company for such listing. The Company does not currently meet the "net tangible
assets" Nasdaq NMS maintenance requirement, but except for the redemption
obligations resulting from the Nasdaq 20% Limitation (which will not be
applicable depending upon the Series D Convertible Price Floor or if shareholder
approval is obtained) the Company would have met such requirement immediately
after the Closing Date.
3.17 Other Outstanding Securities/Financing Restrictions. Except as
disclosed in the Reports, the Company has no outstanding restricted shares, or
shares of Common Stock sold under Regulation S, Regulation D or outstanding
under any other exemption from registration, which are available for sale as
unrestricted ("free trading") stock. The Company agrees that it will only issue
the Preferred Stock to the Purchasers herein pursuant to the terms and
conditions of this Agreement and the Statement of Designations.
3.18 Registration Alternative. The Company covenants and agrees that
for so long as any of the Securities remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Act, the
Company shall permit resales of the underlying Common Stock pursuant to Rule 144
under the Act. The Company and the Purchasers shall provide the Transfer Agent
any and all papers necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to the Transfer Agent, and the Company
shall continue to file all material required to be filed pursuant to Sections
13(a) or 15(d) of the 1934 Act.
3.19 Capitalization. As of July 17, 1998 the outstanding capital
stock of the Company consists of 175 shares of Series A Preferred Stock and
14,398,820 shares of Common Stock (including shares issued to Liviakis Financial
Communications). All issued and outstanding shares of Common Stock and
preferred stock have been duly authorized and validly issued and are fully paid
and nonassessable. The Company represents that it has a sufficient number of
authorized and reserved shares of preferred stock for the purposes of
consummating this transaction and, assuming the conversion on the Closing Date
of all shares of Preferred Stock and Warrants to be issued at such closing, a
sufficient number of authorized and reserved shares of Common Stock.
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3.20 Dilution. The Company is aware and acknowledges that conversion
of the conversion of the Preferred Stock, and/or the exercise of the Warrants,
would cause dilution to existing Shareholders and could significantly increase
the outstanding number of shares of Common Stock.
3.21 Employee Relations. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened.
None of the Company's employees is a member of a union and the Company believes
that its relations with its employees are good.
3.22 Environmental Laws. The Company is (i) in compliance with any
and all foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants and which the Company know is
applicable to them ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required under applicable Environmental Laws to
conduct its business, and (iii) is in compliance with all terms and conditions
of any such permit, license or approval.
3.23 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
3.24 Conversion and Exercise. The Company will permit the Purchasers
to exercise their right to convert the Preferred Stock into shares of Common
Stock, with all of the rights and privileges as set forth in the Series D
Preferred Stock Statement of Designation annexed hereto as Exhibit A, the Series
E Statement of Designation annexed hereto as Exhibit B and the Series F
Statement of Designation annexed hereto as Exhibit C. The Company will permit
the Purchasers to exercise their right to exercise the Warrants pursuant to the
terms of the Class A Warrant, and Class B Warrant annexed hereto.
3.25 Right of First Refusal. In the event the Company wishes to
enter into a transaction for debt or equity financing which is convertible into
shares of Common Stock of the Company within the earlier of three months after
the closing of the Call or February 1, 1999, the Company will give each
Purchaser written notice of the terms and conditions of such offer (the "ROFR
Notice"). Each Purchaser shall have a pro rata right of first refusal to
participate in such offering. Each Purchaser shall have three (3) business days
to reply in writing after receipt of the ROFR Notice from the Company. Such
reply may be sent via facsimile. In the event such written reply is not
received by the Company within such three (3) business day period, it will be
deemed a refusal by such Purchaser. The Purchasers shall have the right to
review all final documentation regarding such placements and such documentation
shall be delivered to each Purchaser with the ROFR Notice. The right of first
refusal shall not apply to (i) a loan from a commercial bank, (ii) any
transaction involving the issuance of the Company's securities (A) as
consideration in a merger,
11
consolidation or other business combination, (B) in connection with any
strategic partnership or joint venture or (C) as consideration for the
acquisition of a business, product or license or other assets by the Company,
(iii) the issuance of Common Stock in a firm commitment, underwritten public
offering, (iv) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (v) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option plan,
restricted stock plan, stock purchase plan or other plan or written compensation
contract for the benefit of the Company's employees, directors or consultants,
or (vi) the issuance of securities pursuant to the Rights Agreement, dated
September 15, 1997, between the Company and ChaseMellon Shareholder Services,
L.L.C. (the "Rights Agreement").
3.26 20% Rule Limitation. The Company agrees that it shall call a
stockholders meeting on or before November 20, 1998 for the purpose of, among
other things, approving below market price issuances of Common Stock to the
Purchasers and in excess of 19.99% of the number of shares of Common Stock
outstanding as of the Closing Date as required by Section 4460(i)(1)(D) of the
Nasdaq Marketplace Rules. In the event that the aforementioned proposal is not
ratified by the stockholders and the number of shares issuable under the
Statement of Designations and/or exercise of the Warrants would exceed 19.99% of
the number of shares of Common Stock outstanding as of the Closing Date, the
Company will seek a waiver from the Nasdaq Stock Market (or other applicable
market or exchange) to permit such issuances.
3.27 No Brokers. Each Purchaser represents that it has had no
dealings with any broker or finder in connection with the transactions
contemplated by this Agreement, except as described in Section 15.6.
Section 4. Representations and Warranties of the Company and
Purchasers. Each of the Purchasers and the Company represent to, and agree
with, the other the following with respect to itself:
4.1 Mandatory Call. The Company shall make a mandatory "Call" (the
"Call") upon the Purchasers as follows: (i) upon the A Purchasers, to fund up to
an additional One Million ($1,000,000) Dollars aggregate principal amount of
Series D Preferred Stock , and Class A Warrants to purchase 226,415 shares of
Common Stock pursuant to the terms of this Agreement, the Class A Warrant, and
the Statement of Designation for the Series D Preferred Stock, and/or (ii) upon
the B Purchaser, to fund up to an additional Seven Hundred Fifty Thousand
($750,000) Dollars aggregate principal amount of Series F Preferred Stock, and
Class B Warrants to purchase 140,625 shares of Common Stock pursuant to the
terms of this Agreement, the Class B Warrant, and the Statement of Designation
for the Series F Preferred Stock. The Call may only be made by the Company
after all of the conditions below are satisfied (or waived in writing by all
interested parties). The Company has the right to make the Call up to and
including January 31, 1999. The Call upon the A Purchasers and the Call upon
the B Purchasers may be made independently of each other. The closing for the
Call shall be ten (10) business days after receipt by the Purchasers of a
written notice from the Company stating the applicable party's intention to
Call, and that each of the following conditions have been satisfied:
(i) the Purchasers shall have received written proof that the
Registration
12
Statement (which includes all shares of Common Stock
underlying the Preferred Stock and Warrants required to
be registered pursuant to the Registration Rights
Agreement) has previously become effective and remains
effective during the ten (10) Trading Days immediately
prior to the closing of the Call, and (A) neither the
Company nor any of the Purchasers shall have received
notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that
the SEC otherwise has suspended or withdrawn the
effectiveness of the Registration Statement, either
temporarily or permanently (that has not been cured), or
intends or has threatened to do so (unless the SEC's
concerns have been addressed and the Purchasers are
reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (B) no
other suspension of the use or withdrawal of the
effectiveness of the Registration Statement or related
prospectus shall exist;
(ii) the Common Stock shall be listed on the Nasdaq National
Market and, as a result of the Call, the Company will be
in compliance with Nasdaq listing requirements
immediately upon the Closing of the Call;
(iii) the Purchasers shall have received an opinion of counsel
of the Company as set forth in Exhibit H annexed to this
Agreement, dated on the closing for the Call;
(iv) the average closing bid prices of the Common Stock for
the five trading days immediately preceding the date the
Company serves the Call notice upon the Purchasers was at
least One and 50/100 ($1.50) Dollar;
(v) As to the B Purchasers only, the Company shall have a
minimum of Seven Hundred fifty Thousand ($750,000)
Dollars in revenues for the fiscal quarter ended
September 30, 1998, or the fiscal quarter ended December
31, 1998, according to unaudited internally prepared
statements, even in the event such revenues are achieved
prior to the end of said fiscal quarter;
(vi) the Purchasers shall have received certification that the
Company has obtained shareholder approval for the
Company's issuance of more than twenty (20%) percent of
its Common Stock in connection with the transactions
contemplated hereby, if necessary, as required by Section
3.26 above;
(vii) the Purchasers shall have received written certification
from the Company that the representations and warranties
of the Company contained in this Agreement and all
Exhibits annexed hereto are true and correct in all
material respects as of the closing of the Call as though
made at each such time (except for representations and
warranties specifically made as of a particular date)
with respect to all periods, and as to all events and
circumstances occurring or existing to and including the
closing of the Call;
(viii) the Company shall have performed, satisfied and complied
in all material respects with all covenants, agreements
and conditions required by this Agreement, and all
Exhibits annexed hereto, to be performed, satisfied or
complied with by the Company at or prior to the closing
for the Call
13
(except for breaches that have been cured or waived in
writing by all of the Purchasers);
(ix) since the Closing Date no event, that had or is likely to
have a material adverse effect on the properties,
business, condition (financial or otherwise), operations
or prospects of the Company has occurred, which has not
been remedied or cured by the Company or waived in
writing by all of the Purchasers;
(x) the Purchasers shall receive certification that the
Series D and Series E Statements of Designation remain in
full force and effect as in the form annexed hereto and
have not been amended except as provided in the Statement
of Designations; and
(xi) the B Purchasers shall receive written certification that
the Company has filed the Statement of Designation for
the Series F Preferred Stock.
Section 5. Opinion of Counsel. Each of the Purchasers shall, upon
the Closing, and upon the closing of the Company's Call, receive an opinion
letter from counsel to the Company as is set forth in Exhibit H.
Section 6. Opinion of Counsel Upon Conversion. Except as otherwise
provided herein, or in the Exhibits annexed herein, the Company will obtain for
each Purchaser, at the Company's expense, any and all opinions of counsel which
may be reasonably required in order to convert the Preferred Stock into Common
Stock, and exercise the Warrants, including, but not limited to, obtaining for
each Purchaser an opinion of counsel, subject only to receipt of a Notice of
Conversion in the form of Exhibit I and receipt by Counsel of such
representations, warranties, and documents as are determined to be necessary to
comply with applicable securities laws, duly executed by the Purchaser which
shall be satisfactory to the Transfer Agent, directing the Transfer Agent to
remove the legend from the certificate.
Section 7. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act, at all times
after the effective date on which the Company becomes subject to the
reporting requirements of the Act or the 1934 Act;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act;
(iii) furnish to each Purchaser forthwith, upon request, a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Act and the 1934 Act, a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as each Purchaser may
reasonably request in availing itself of any rule or regulation of the SEC
allowing any
14
Purchaser to sell any such Securities without registration.
Section 8. Indemnification. Each of the Company, and all key
operating subsidiaries, and each of the Purchasers agrees to indemnify the other
and to hold the other harmless from and against any and all losses, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) which the
other may sustain or incur in connection with the breach by the indemnifying
party of any representation, warranty or covenant made by it in this Agreement.
Section 9. Registration or Exemption Requirements. Each of the
Purchasers acknowledges and understands that the Securities may not be resold or
otherwise transferred except in a transaction registered under the Act and any
applicable state securities laws or unless an exemption from such registration
is available. Each of the Purchasers understands that the Securities will be
imprinted with a legend that prohibits the transfer of the Securities unless (i)
they are registered or such registration is not required, and (ii) if the
transfer is pursuant to an exemption from registration other than Rule 144 under
the Act and, if the Company shall so request in writing, an opinion of counsel
reasonably satisfactory to the Company is obtained to the effect that the
transaction is so exempt.
Section 10. Legend.
(a) The certificates representing the Securities shall be
subject to a legend restricting transfer under the Act, such legend to be
substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT, EXCEPT IN THE
CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT."
The certificates representing these Securities, and each certificate
issued in transfer thereof, will also bear any legend required under any
applicable state securities law.
Section 11. Stock Delivery Instructions. The Preferred Stock and
Warrants shall be delivered to the Purchasers on a delivery versus payment
basis.
Section 12. Closing Date. The date the Escrow Agent receives the
Series D Preferred Stock in the aggregate principal amount of $1,500,000, and
the Class A Warrants to purchase an aggregate of 339,623 shares of Common Stock,
and the B Purchaser receives the Series E Preferred Stock in the aggregate
principal amount of $750,000, and Class B Warrants to purchase an aggregate of
140,625 shares of Common Stock, and the Purchase Price therefor is paid to the
Company by the Purchasers, and the conditions set forth in Sections 13 and 14,
and the terms and conditions of the Escrow Agreement, for the Company and the A
Purchasers, (Exhibit F) herein are satisfied, or waived in writing, shall be the
Closing (the "Closing Date").
Section 13. Conditions to the Company's Obligation to Sell. Each of
the Purchasers
15
understands that the Company's obligation to sell the Series D and Series E
Preferred Stock and the Class A and Class B Warrants set forth in Section 12
above, and file the Statement of Designations for the Series D and Series E
Preferred Stock, are conditioned upon:
(i) The receipt and acceptance by the Company of a duly
executed copy of this Agreement and all duly executed all other parties
thereto;
(ii) Delivery into escrow by each of the Purchasers of good
cleared funds as payment in full for the purchase of the Securities;
(iii) All representations and warranties of each of the
Purchasers contain herein shall remain true and correct in all material
respects as of each Closing Date; and
(iv) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock and Warrants, or shall have the availability of exemptions
therefrom. At each Closing Date, the sale and issuance of the Preferred
Stock, Warrants, and the proposed issuance of the Common Stock underlying
the Preferred Stock, and Warrants shall be legally permitted by all laws
and regulations to which the Purchasers each of the Purchasers and the
Company are subject.
Section 14. Conditions to Purchaser's Obligation to Purchase. The
Company understands that each Purchaser's obligation to purchase the Series D
and Series E Preferred Stock, and Warrants as set forth in Section 12 above, is
conditioned upon:
(i) Acceptance by each of the Purchasers of a duly executed
Purchase Agreement and all duly executed Exhibits hereto for the sale of
the Securities;
(ii) Delivery of the original Series D and Series E Preferred
Stock and Warrants as set forth in Section 12 above;
(iii) All representations and warranties of the Company
contained herein shall remain true and correct as of the Closing Date;
(iv) Receipt of opinion of counsel and proof that both
Statement of Designations have been filed;
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Series
D and Series E Preferred Stock and Warrants (as set forth in Section 12
above), or shall have the availability of exemptions therefrom. At the
Closing Date, the sale and issuance of the Series D and Series E Preferred
Stock and Warrants (as set forth in Section 12 above) shall be legally
permitted by all laws and regulations to which the Company and Purchasers
are subject;
(vi) Payment of fees as set forth in Section 15.6 below; and
(vii) Receipt of proof that the Statement of Designation for
the Series D
16
Preferred Stock and the Series E Preferred Stock has been filed with the
State of Texas.
Section 15. Miscellaneous.
15.1 Governing Law/Jurisdiction. This Agreement will be construed
and enforced in accordance with and governed by the laws of the State of New
York, except for matters arising under the Act, without reference to principles
of conflicts of law. Each of the parties consents to the jurisdiction of the
Southern District of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state or country having jurisdiction over
the party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
15.2 Facsimile/Counterparts/Entire Agreement. Except as otherwise
stated herein, in lieu of the original, a facsimile transmission or copy of the
original shall be as effective and enforceable as the original. This Agreement
may be executed in counterparts which shall be considered an original document
and which together shall be considered a complete document. This Agreement and
Exhibits hereto constitute the entire agreement between the Purchaser and the
Company with respect to the subject matter hereof. This Agreement may be
amended only by a writing executed by all parties.
15.3 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
15.4 Reliance by Company. Each Purchaser represents to the
Company that the representations and warranties of the Purchaser contained
herein are complete and accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under federal and
state securities laws in connection with a private offering of securities.
15.5 Confidentiality. Except as required by the Company pursuant to
securities laws, each of the Company and each of the Purchaser agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by or obtained from the other party as being confidential without
the prior written approval of the other party; provided, however, that this
provision shall not apply to information which, at the time of disclosure, is
already part of the public domain (except by breach of this Agreement) and
information which is required to be disclosed by law.
17
15.6 Legal Fees and Expenses. Each of the parties shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby except that the Company agrees to pay to (i)
Goldstein, Goldstein & Reis, LLP Twenty Five Thousand ($25,000) Dollars, in cash
out of escrow from the proceeds of the Closing of the initial Series D and
Series E Preferred Stock and Warrant Purchases and Five Thousand ($5,000)
Dollars, in cash, payable out of escrow from the proceeds of the Closing of the
Call provision as set forth in Section 4.1 herein, for administrative, and
escrow fees, (ii) the placement agents, Class A Warrants to purchase an
aggregate of 339,623 shares of Common Stock on the Closing of the initial Series
D Preferred Stock and Ninety Thousand ($90,000) Dollars, in cash, payable out of
escrow from the proceeds from the Closing of the initial Series D Preferred
Stock, and Warrant Purchases, and Class A Warrants to purchase 113,208 shares of
Common Stock on the Closing of the Call for additional Series D Preferred Stock,
and Thirty Thousand ($30,000) Dollars, in cash, payable out of escrow from the
proceeds on the Closing of the Call for additional Series D Preferred Stock as
set forth in Section 4.1,all of which shall be payable pursuant to the Escrow
Agreement. If for any reason the transactions contemplated by this Agreement
are not consummated, each of the parties hereto shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information, without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herewith.
15.7 Authorization. Each of the parties hereto represents that the
individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
15.8 Closing Bid Price. All references to the closing bid price
of the Common Stock shall be as reported by Bloomberg, L.P.
15.9 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 (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, 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 reputable 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:
(i) If to the Company:
Data Race, Inc.
12400 Network Boulevard
18
San Antonio, Texas 78249
Attention: Greg Skalla
Telephone: (210) 263-2000
Facsimile: (210) 558-0365
(ii) If to the Purchasers, at the addresses and numbers listed on
Schedule A and Schedule B annexed hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other parties
hereto.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
19
IN WITNESS WHEREOF, this Purchase Agreement was duly executed on the
date first written below.
Agreed to and Accepted on
this 24th day of July, 1998
DATA RACE, INC.
By /s/ Gregory T. Skalla
----------------------------
Gregory T. Skalla
Vice President-Finance
Chief Financial Officer SOVEREIGN PARTNERS L.P.
"A" Purchaser
By /s/ Mark Valentine
-----------------------------
Mark Valentine
DOMINION CAPITAL FUND, LTD.
"A" Purchaser
By /s/ Mark Valentine
-----------------------------
Mark Valentine
FIRST CAPITAL GROUP OF TEXAS II, L.P.,
"B" Purchaser
By: First Capital Group Investment
Partners, LP, its General Partner
By: First Capital Group Management
Company, LP, its General Partner
By /s/ Jeffrey P. Blanchard
------------------------------------
Jeffrey P. Blanchard, Managing Partner
20
SCHEDULE A
----------
Purchaser Initial $ Amount of Initial Number of
Name and Address Purchase Price Series D Preferred Stock Class A Warrant Shares
- -------------------------- -------------- ------------------------ ----------------------
Sovereign Partners L.P. $1,000,000 $1,000,000 226,415
365 Bay Street, 10th Fl.
Toronto, Ontario M5H 2V2
Dominion Capital
Fund, Ltd. $ 500,000 $ 500,000 113,208
365 Bay Street, 10th Fl.
Toronto, Ontario M5H 2V2
21
SCHEDULE B
----------
Purchaser Initial $ Amount of Initial Number of
Name and Address Purchase Price Series E Preferred Stock Class B Warrant Shares
- ------------------------ -------------- ------------------------ ----------------------
First Capital Group of
Texas II, L.P. $750,000 $750,000 140,625
P.O. Box 15616
San Antonio, TX 78212
22