EXHIBIT 10
MODIFICATION AGREEMENT
This MODIFICATION AGREEMENT (this "Agreement") is entered into as of
November 5, 1998, between DATA RACE, Inc., a Texas corporation (the "Company");
and Sovereign Partners L.P., Dominion Capital Fund, Ltd., and First Capital
Group of Texas II, L.P. (the "Purchasers").
RECITALS
WHEREAS, pursuant to that certain Purchase Agreement, dated July 24, 1998,
between the Company and the Purchasers (the "Purchase Agreement"), the Company
issued to the Purchasers an aggregate of 2,250 shares of the Company's
convertible preferred stock and common stock purchase warrants to purchase an
aggregate of 480,248 shares of the Company's common stock;
WHEREAS, pursuant to the Purchase Agreement, the Company agreed to issue,
and the Purchasers agreed to purchase, subject to the satisfaction of certain
conditions, an additional 1,750 shares of the Company's convertible preferred
stock and additional common stock purchase warrants to purchase an aggregate of
367,040 shares of the Company's common stock;
WHEREAS, pursuant to the Purchase Agreement, the Company and the Purchasers
entered into that certain Registration Rights Agreement, dated July 24, 1998
(the "Registration Rights Agreement"); and
WHEREAS, the parties to this Agreement desire to modify and clarify certain
provisions of the Purchase Agreement, the Registration Rights Agreement and
certain documents executed in connection therewith.
AGREEMENT
For good and valuable consideration, the sufficiency and receipt of which
is hereby acknowledged by each party, the parties to this Agreement agree as
follows:
1. Unless the context requires otherwise, capitalized terms used, but not
defined herein, shall have the applicable meanings given to them in the
Purchase Agreement, the Registration Rights Agreement and the
Statements of Designation referred to in the Purchase Agreement (the
"Statements of Designation").
2. The parties acknowledge that the Company does not intend to register
under the Securities Act, prior to the closing of the Call, the shares
of Common Stock underlying the Preferred Stock and Warrants to be
issued upon the closing of the Call. Accordingly, the parties hereby
waive the condition to the closing of the Call that a registration
statement under the Securities Act be in effect with respect to such
shares of Common Stock. The Company agrees that, notwithstanding
Section 3(a) of the Registration Rights Agreement and without reducing
the time
periods set forth in Section 3(e) of the Registration Rights Agreement,
the Company agrees to file with the SEC an additional registration
statement under the Securities Act covering the resale by the Holders
of the shares of Common Stock underlying the Preferred Stock and
Warrants issued on the closing of the Call, within ten business days
following the closing of the Call; and assuming the SEC determines not
to review the registration statement, the Company agrees to use its
best efforts to cause the registration statement to be declared
effective within 20 business days following the closing of the Call.
The term "Demand," as used in the Registration Rights Agreement, shall
be deemed to have been given as of the date of the closing of the Call
with respect to the registration of the shares of Common Stock
underlying the Preferred Stock and Warrants issued in the closing of
the Call, and any penalties provided for under Section 3(e) of the
Registration Rights Agreement shall be determined based on such deemed
date of Demand. In addition to the modifications described above, the
Purchasers waive any default or damages attributable to the failure of
the registration statement previously filed with SEC with respect to
the shares of Common Stock underlying the outstanding Preferred Stock
and Warrants to be declared effective within the period specified in
the Registration Rights Agreement and the Statements of Designations;
provided, however, that the penalties accruing under Section 3(e) of
the Registration Rights Agreement with respect to the outstanding
Preferred Stock and Warrants shall be deemed waived only if the
registration statement covering the underlying securities is declared
effective on or before November 13, 1998. The parties acknowledge that,
except as specified herein, no other rights are waived or reduced with
respect to the matters described in this paragraph.
3. The parties acknowledge that the Preferred Stock to be issued at the
closing of the Call will not be included in the Company's net tangible
assets (as defined by the Nasdaq National Market continued listing
requirements) until the registration statement with respect to the
underlying shares of Common Stock is declared effective by the SEC.
Accordingly, the parties agree that the condition to the closing of the
Call that the Company be in compliance with the Nasdaq National Market
continued listing requirements requirement upon closing of the Call
shall be determined assuming that the Preferred Stock issued at such
closing were included in the Company's net tangible assets.
4. The parties agree that the legal opinion required to be delivered to
the Purchasers as a condition to the closing of the Call shall be
appropriately modified as may be necessary to be rendered consistent
with the matters addressed in or related to this Modification.
5. The parties agree that the condition to the closing of the Call that
the representations and warranties of the Company made pursuant to the
Purchase Agreement and Exhibits be true and correct as of the date of
the Call shall, in all cases, be subject to the matters addressed in or
related to this Agreement.
6. The parties agree that the condition to the closing of the Call that
the Company shall have performed, satisfied and complied with all
covenants, agreements and
2
conditions required pursuant to the Purchase Agreement and Exhibits to
be performed, satisfied or complied with by the Company prior to the
closing of the Call shall, in all cases, be subject to the matters
addressed in or related to this Agreement.
7. The parties acknowledge that the minimum conversion price (and the
maximum conversion price) with respect to the outstanding Series D
Preferred Stock has been fixed in accordance with the Statement of
Designation for Series D Preferred Stock. Accordingly, the parties
agree that, with respect to the outstanding Preferred Stock and
Warrants, the Company shall be required to register and keep reserved
for issuance only that number of shares of Common Stock that is at any
time issuable upon conversion of such Preferred Stock and Warrants, and
the Purchase Agreement, the Registration Rights Agreement and the
Statements of Designation for the Series D Preferred Stock and Series E
Preferred Stock shall be deemed appropriately modified to such extent.
In addition, with respect to the Series F Preferred Stock and the
Warrants to be issued on the closing of the Call, the Company shall be
required to register and keep reserved for issuance only that number of
shares of Common Stock that is at any time issuable upon conversion of
such Series F Preferred Stock and Warrants, and the Purchase Agreement,
the Registration Rights Agreement and the Statement of Designation for
the Series F Preferred shall be deemed appropriately modified to such
extent.
8. The parties desire to clarify Section 4(e) of each of the Statements of
Designation which provides that the failure to pay certain penalties
constitutes a Triggering Event. The parties intended that the
redemption obligations arising from such a Triggering event be in lieu
of, rather than in addition to, the penalties described in Section
4(e). The parties acknowledge and agree that a holder that elects to
require the Company to redeem Preferred Shares upon the occurrence of a
Triggering Event attributable to such failure to pay the penalties
described in Section 4(e) shall be deemed to have waived its right to
receive the penalties described in such Section.
9. Notwithstanding that the Purchase Agreement and the Registration Rights
Agreement were executed on behalf of First Capital Group of Texas II,
L.P. ("First Capital Group"), by First Capital Group Investment
Partners, L.P., its General Partner, by Jeffrey P. Blanchard, "General
Partner" of First Capital Group Management Company, "L.P."
("Management Company"), the parties acknowledge that they have been
advised that Management Company is a Texas limited liability company
(rather than a limited partnership as implied by the signature pages to
the Purchase Agreement and the Registration Rights Agreement), and that
Jeffrey P. Blanchard is an authorized officer of Management Company
(rather than a partner of Management Company). The parties acknowledge
and agree that any documents executed on behalf of First Capital Group
in connection with the private placement pursuant to the Purchase
Agreement are deemed modified accordingly as of their respective dates
of execution.
3
10. The parties acknowledge that, to the extent the Purchase Agreement,
the Registration Rights Agreement or any of the Statements of
Designation are inconsistent with the terms of this Agreement, the
terms of this Agreement shall be deemed controlling and the other
documents shall be deemed appropriately modified. Except as modified
as provided herein, the Purchase Agreement, the Registration Rights
Agreement and the Statements of Designation shall remain in full force
and effect in accordance with their terms.
11. This Agreement sets forth the entire understanding between the parties
hereto concerning the subject matter contained herein. Provisions of
this Agreement may be amended or waived only by written instrument
executed by the party against whom enforcement is sought. This
Agreement shall be binding upon the parties and the respective
successors and assigns. The parties agree to execute such additional
documents and take such additional actions as may be reasonably
necessary to give effect to the purposes and intent of this Agreement.
This Agreement may be executed in one or more counterparts, any of
which shall be deemed to be an original, all of which taken together
shall constitute one and the same instrument.
[signatures on following page]
4
IN WITNESS WHEREOF, each party has duly executed this Modification
Agreement as of the date first written above.
COMPANY PURCHASERS
- ------- ----------
DATA RACE, INC. SOVEREIGN PARTNERS L.P.
By: /s/ Gregory T. Skalla By: /s/ Stephen Hicks
---------------------------- -----------------------------------------
Gregory T. Skalla, Senior Vice Name: Stephen Hicks
President-Finance and Chief ------------------------------------
Financial Officer Title: President: General Partner
-----------------------------------
DOMINION CAPITAL FUND, LTD.
By: Inter Carribean Services (Bahamas) Ltd.
By: /s/ Carl O'Connell
/s/ Nina Ray
-----------------------------------------
Name: Carl O'Connell; Nina Ray
------------------------------------
Title: Director and Attorney-in-Fact
-----------------------------------
FIRST CAPITAL GROUP OF TEXAS II, L.P.
By: First Capital Group Investment Partners,
L.P., its General Partner
By: First Capital Group Management Company,
L.C., its General Partner
By: /s/ Jeffrey P. Blanchard
-----------------------------------------
Jeffrey P. Blanchard
Authorized Officer
5