As filed with the Securities and Exchange Commission on March 16, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
DATA RACE, INC.
(Exact name of Registrant as specified in its charter)
6509 Windcrest Drive
Plano, Texas 75024
(972) 265-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
_________________________
Texas 3661 74-2272363
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
_________________________
James G. Scogin
DATA RACE, Inc.
6509 Windcrest Drive
Plano, Texas 75024
(972) 265-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
James S. Ryan, III
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
_________________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
_________________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
____________________
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of each class of Amount to be Offering Price Per Aggregate Offering Amount of
securities to be registered Registered Share (1) Price (1) Registration Fee
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Common Stock, no par value 3,352,382 $0.6875 $2,304,763 $576.19
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), using the average of the high and low prices
reported on the Nasdaq National Market for the Registrant's common stock on
March 12, 2001.
__________________
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Prospectus (Subject to Completion)
March 16, 2001
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Up to 3,352,382 Shares
DATA RACE, INC.
Common Stock
Our common stock is traded on the Nasdaq National Market under the symbol
"RACE." On March 15, 2001, the closing price of our common stock was $0.625.
These shares of common stock are being sold by the shareholders listed
under the heading "Selling Shareholders." The Selling Shareholders may offer and
sell up to 3,352,382 shares of our common stock under this prospectus. The
Selling Shareholders acquired 3,047,620 of such shares directly from the Company
and may acquire 304,762 of such shares of common stock upon their exercise of
warrants to purchase our common stock. The Selling Shareholders may offer and
sell the common stock from time to time in one or more transactions, including
block transactions, on the Nasdaq National Market, or such other markets or
exchanges on which the common stock is from time to time eligible for trading or
quoting, at prevailing market prices or at privately negotiated prices. See
"Selling Shareholders" beginning on page 6 for additional information regarding
the shares that may be offered under this prospectus. We will not receive any of
the proceeds from the sales of the shares by the Selling Shareholders.
Investing in our common stock involves many risks. See "Risk Factors"
beginning on page 1.
______________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
_______________
The date of this prospectus is _____________, 2001.
TABLE OF CONTENTS
Page
----
About DATA RACE, Inc...................................................... 1
Risk Factors.............................................................. 1
Forward-Looking Statements................................................ 6
Use of Proceeds........................................................... 6
Selling Shareholders...................................................... 6
Plan of Distribution...................................................... 8
Legal Opinions............................................................ 9
Experts................................................................... 9
Where You Can Find More Information....................................... 10
ABOUT DATA RACE, INC.
We provide integrated IP-based remote work solutions over multiple access
media. Our VocalWare IP client/server product line provides out-of-office
employees with simultaneous access to critical corporate resources including
phone, fax, Internet, and E-mail over a single connection via: DSL, cable modem,
LAN, Frame Relay, ATM or high speed dial-up through VPN, local ISP POP, or PSTN.
VocalWare's primary markets are telecommuters, who can establish a virtual
office presence with just one line, and call centers that use VocalWare to
connect part-time workers to customers and corporate databases simultaneously
over a single line.
DATA RACE, Inc. is currently doing business as IP AXESS. At the annual
shareholder meeting held on November 9, 2000 our shareholders approved the
formal change of our corporate name to IP AXESS, Inc. Our principal executive
offices are located at 6509 Windcrest, Plano, Texas 75024, and our telephone
number is (972) 265-4000. You can access our web site at
http://www.ipaxess.com.
RISK FACTORS
An investment in the common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. We
believe the following risks represent the known, material risks facing our
company, in addition to the risks which typically face any company in our
industry. If any of the following risks actually occur, our business, financial
condition and operating results could be materially adversely affected. In that
case, the trading price of our common stock could decline, and you could lose a
part or all of your investment.
Our Future Success Depends on the Success of Recently Introduced VocalWare
Products
Our success depends almost entirely on the success of our VocalWare product
line. The failure of our VocalWare products to achieve success would likely have
a material adverse effect on our business and our ability to continue
operations. The Be There! system which was the predecessor to VocalWare had very
limited success and failed to generate significant revenue since it was released
in 1997. The majority of our historical revenue has come from products other
than Be There!/VocalWare, and we are no longer manufacturing or selling those
other products. In March 2000, we sold our network multiplexer business segment
to concentrate all our efforts on the VocalWare product line. The market may not
accept our VocalWare products for a variety of reasons. Our inability to
penetrate our target markets and increase VocalWare sales would adversely affect
our business and operations.
Our Success is Dependent on Developing a Relationship with a Strategic Partner
Our business strategy is heavily dependent on our ability to establish a
strategic relationship with one or more partners who can enhance our market
presence and credibility and who can provide needed capital. Our inability to
develop such strategic relationships could have a material adverse effect on our
business and prospects.
Our Dependence on Third Party Manufacturers and Third Party Component Suppliers
Increases Potential Manufacturing Problems and Other Risks
Our dependence on third party manufacturers and third party component suppliers
could adversely affect our business, customer relationships, or operating
results. In fiscal year 2000 we outsourced all of our
manufacturing of our products. We use third party manufacturers to assemble our
products. Because of this reliance on third party manufacturers we cannot always
exercise direct control over manufacturing quality and costs. We use third party
component suppliers to provide components for our manufacturing of our products.
Because of this reliance on third party component suppliers we can experience
delays in the manufacturing of our products based on external demands the third
party component suppliers may face in component allocations, component shortages
and component suppliers financial viability. We may also have problems with
production schedules of our products because of other demands placed on the
third party manufacturers and part suppliers.
We Will Likely Need Additional Capital to Sustain Operations
We may be required to suspend some or all of our operations if we cannot obtain
additional capital when needed. It is possible that sources of capital, such as
investors, lenders or strategic partners, may perceive our recent history of
losses, current financial condition, or lack of significant VocalWare product
sales as too great a risk to bear. As a result, we may not be able to obtain
additional capital on favorable terms, if at all. Further, if we issue equity
securities, shareholders may experience additional dilution or the new equity
securities may have rights and preferences senior to the common stock. Even if
our sales grow, we may require additional capital to hire additional personnel
and increase inventory levels. We cannot predict the timing and amount of our
future capital requirements.
We Have a History of Operating Losses and Expect to Have Continued Losses
We have suffered substantial recurring losses, and our VocalWare products have
not generated significant revenue. We may never return to profitability or
generate future revenue levels sufficient to support our operations. In recent
years we have funded operations from the sale of equity securities. We expect to
continue to incur significant product development, sales and marketing, and
administrative expenses and, as a result, will need to generate significant
revenue to achieve profitability.
The Market for Our VocalWare Products May Not Develop as We Anticipated
The VocalWare products have not yet been and may never be widely accepted in the
market. We can not be assured that we will establish a market for VocalWare
products or establish our credibility in that market. The market may elect to
embrace alternative products or service solutions to satisfy the need for
communication between the corporate headquarters and workers who are away from
their headquarters. The potential market for our VocalWare products may be
affected by various factors, including changes in market trends and market needs
and changes in technology. The actual rate of growth and size of the market may
not reach expected levels. Our business will be adversely affected if the market
does not develop or we are not able to penetrate it as we hope.
Rapid Technological Change Could Adversely Affect Our Business
The rapid pace of technological change may prevent us from developing and
marketing new products, enhancing our existing products, or responding
effectively to emerging industry standards or new product introductions by
others. Our future success will be largely dependent on our ability to enhance
our existing products and to develop and introduce successful new products.
Rapidly changing technology, emerging industry standards, product proliferation
and short product life cycles characterize the market for our products. As the
technical complexity of new products increases, it may become increasingly
difficult to introduce new products quickly and according to schedule. Delays
in developing or shipping new or enhanced products could adversely affect our
operating results.
Competition from Companies Having Greater Resources Could Adversely Affect Us
The communications industry is intensely competitive. The competitive pressures
we face could materially and adversely affect our business, financial condition
or operating results. Several of our existing and potential competitors have far
more extensive financial, engineering, product development,
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manufacturing, and marketing resources than we have. As a result, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote much greater resources to the
development, promotion, and sale of their products and services than we can.
Many of these competitors have far greater brand recognition, which places us at
a competitive disadvantage. In addition, some competitors have a lower cost
structure that gives them a competitive advantage on the basis of price. There
is a growing array of solutions for communication between the corporate
headquarters and remote workers, presenting a variety of alternatives to our
VocalWare products. We expect new competing alternatives to arise as new
technologies develop.
Our Business Could Suffer if We Lose Key Personnel or Cannot Attract Qualified
Personnel
The loss of key personnel could have a material adverse effect on our business.
Our success is dependent largely on the skills, experience and performance of
key management, sales and technical personnel. We are especially dependent on
our president and chief executive officer and other senior officers, and our
VocalWare products sales executives. We are also dependent on key technical
personnel to introduce new products and to remain in the forefront of
technological advances. All of our senior executives and other employees are
employed on an "at-will" basis. We do not have any insurance on our employees.
Our future success will also depend on our ability to attract highly skilled
personnel. Competition for qualified personnel is intense in our industry and
we may not be able to retain our key employees or attract and retain other
qualified personnel.
Our Limited Customer Base Could Adversely Affect Our Operating Business
We have a limited number of customers for our products and a loss of a key
customer or a reduction or delay in orders from the customer could materially
and adversely affect operating results. In addition, although we have not yet
recorded significant revenue from our VocalWare products, we are currently
attempting to market them to large corporations, as well as to smaller
businesses. If we do succeed in attracting large customers, the revenue from
VocalWare products could fluctuate significantly according to the purchasing
cycle of those limited number of large customers. We do not generally have and
may not obtain minimum product purchase commitments from our customers.
Cancellation of orders by important customers could have a substantial effect on
our revenue.
The Inability to Protect Our Proprietary Technology Could Reduce Our Competitive
Advantage
Intellectual property laws of the United States and foreign countries may not be
adequate to protect our proprietary rights. Because our success depends in part
on our technological expertise and proprietary technologies, the loss of our
proprietary rights could have a material adverse effect on our business. We rely
on trade secret protection and, to a lesser extent, on patents and copyrights to
protect our proprietary technologies. These steps may not be adequate to deter
misappropriation or infringement of our proprietary technologies. Competitors
may also independently develop technologies that are similar or superior to our
technology. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States.
Intellectual Property Disputes Could Be Costly and Disruptive and Affect the
Validity of Our Patents
We may be involved in intellectual property litigation, which could adversely
affect our intellectual property rights, could be costly, and could divert
management's attention away from the business. We believe that the
communications industry is a competitive environment where intellectual property
disputes are likely to arise. We may be required to bring or defend against
litigation to enforce our patents, to protect our trademarks, trade secrets, and
other intellectual property rights, to defend against infringement claims, to
resolve disputes under technology license arrangements, and to determine the
scope and validity of our proprietary rights or those of others. In addition,
intellectual property disputes may be initiated against us for tactical purposes
to gain competitive advantage or overcome competitive
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disadvantage, even if the merits of a specific dispute are doubtful. Our limited
resources may limit our ability to bring or defend against intellectual property
litigation. Adverse determinations in litigation, including litigation we
initiate, could result in the loss of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties, or
prevent us from manufacturing or selling our products. In addition, any
litigation can be expensive and divert management resources. Any of these
consequences could materially adversely affect our business, financial condition
and operating results.
Our Financial Condition and Operating Results Could be Adversely Affected If We
Do Not Manage Inventory
Our business and financial condition could be materially adversely affected if
we do not effectively manage purchasing activities in the face of uncertain
revenue levels. In the past we have substantially increased our inventory
levels to meet anticipated shipment requirements. Increased levels of inventory
could adversely affect our liquidity or increase the risk of inventory write-
offs.
We Could Be Adversely Affected If Our Products Fail to Meet FCC and Other
Regulatory Standards
The failure of our products to conform to the regulations established by the
Federal Communications Commission or similar foreign regulatory bodies or to
meet applicable testing requirements could adversely affect our business. The
FCC and other foreign regulators regulate aspects of our products. Our products
must typically be tested before they are sold. Foreign authorities often
establish telecommunications standards different from those in the United
States, making it difficult and more time consuming to obtain the required
regulatory approvals. A significant delay in obtaining regulatory approvals
could delay the introduction of our products into the market and adversely
affect operating results. In addition, changes in regulations or requirements
applicable to our products could affect the demand for our products or result in
the need to modify products, either of which could involve substantial costs or
delays in sales and adversely affect our operating results.
Future Sales of Shares Could Adversely Affect Our Stock Price and Impair Our
Ability to Raise Capital
The sale or availability for sale of a significant number of shares of common
stock in the public market could adversely affect the market price of the common
stock, which is already volatile. In addition, the sale of these shares could
impair our ability to raise additional equity capital. We have also previously
registered for resale shares of common stock including preferred stock and
warrants, which have not been sold into the public market. We may elect to
reserve and issue additional shares in the future.
Our Stock Price is Highly Volatile
The market price of our common stock in the past has been highly volatile, and
for the foreseeable future will likely continue to be highly volatile. This is
caused in part by the relatively low aggregate market value of our publicly
traded shares. Events or circumstances may cause a much greater percentage
change in the market price of our shares than the market price of a company with
a higher aggregate market value. There are many events or circumstances,
including those highlighted in these risk factors, which could cause the market
price of our stock to fluctuate. Many of those events or circumstances are
outside our control. In addition, stock prices for many technology companies
fluctuate widely for reasons unrelated to their business, financial condition or
operating results.
Our Business May Be Adversely Affected by Class Action Litigation Due to Stock
Price Volatility
The filing of securities class action litigation against companies often occurs
following periods of volatility in the market price of a company's securities.
We have in the past and may in the future be a target of securities litigation.
Securities litigation could have a material adverse effect on our business if it
is filed against us because it could result in substantial costs and a diversion
of management's attention
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and resources. It may also adversely affect our ability to raise capital, our
sales efforts, and our ability to attract a strategic partner.
Anti-Takeover Measures Could Prevent or Delay a Change in Control of Our Company
Our shareholder rights plan could have the effect of delaying, deferring, or
preventing a change of control of our company and might make it difficult to
replace incumbent management. In addition, provisions of our articles of
incorporation may have the effect of discouraging unsolicited proposals to
acquire control over us. Our board of directors can, without obtaining
shareholder approval, issue shares of preferred stock having rights that could
adversely affect the voting power of holders of our common stock, including the
right to vote as a class on any proposed change of control. In addition, Texas
corporate laws, including the Texas Business Combination Law, could also have
the effect of hindering or delaying a takeover bid for the company. These laws
may inhibit takeover bids and decrease the chance of shareholders realizing a
premium to the then current market price of the common stock as a result of a
takeover bid. The Business Combination Law prohibits a publicly traded Texas
corporation from engaging in a broad range of business combinations with a
person who, together with affiliates and associates, owns or did own 20% or more
of the corporation's voting stock, for a period of three years after the date of
the transaction in which the person first became a 20% owner, unless the
business combination is approved in a prescribed manner.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements that are based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and variations
of these words and similar expressions are intended to identify the forward-
looking statements. These statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any forward-looking statements. These risks and uncertainties
include those noted in "Risk Factors" above and in the documents incorporated by
reference.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the Selling Shareholders
of the shares of common stock covered by this prospectus.
SELLING SHAREHOLDERS
This prospectus covers the resale of the common stock issued and the common
stock issuable upon exercise of the warrants issued to the Selling Shareholders
in a March 2001, $2 million private placement of common stock and warrants.
Summary of March 2001 Private Placement
Issuance of Common Stock and Warrants
On March 2, 2001, we completed a private placement of 3,047,620 shares of
our common stock and warrants to purchase 304,762 shares of our common stock to
three (3) accredited investors: Protius Overseas Limited, Keyway Investments
Ltd. and Lionhart Investments Ltd. The aggregate price of the securities was
$2,000,000. In connection with the private placement, we entered into a
securities purchase agreement (the "Securities Purchase Agreement"), a
registration rights agreement (the "Registration Rights Agreement"), and
Warrants (the "Warrants") with the three investors. The following table
summarizes the number of shares and warrants issued and the purchase price paid.
Investor Shares of Common Stock Warrants Purchase Price
-------- ---------------------- -------- --------------
Protius Overseas Limited 1,828,572 182,857 $1,200,000
Keyway Investments Ltd. 76,191 7,619 $ 50,000
Lionhart Investments Ltd. 1,142,857 114,286 $ 750,000
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Material Terms of the Securities Purchase Agreement
In the Securities Purchase Agreement, we (i) granted the investors a right
of first refusal to acquire additional securities in any financing transactions
we undertake prior to August 29, 2001 and (ii) agreed to reduce to $0.9875 the
exercise price of the warrants to purchase on aggregate of 1,043,251 shares of
our common stock issued in connection with our June 1999 and December 1999
private placements and to extend the term of those warrants for two years to
December 10, 2003. If we issue additional shares of our common stock at a price
per common stock share less than $0.65625 prior to the earlier of July 30, 2001
or the effective date of the registration statement of which this prospectus
forms a part, subject to certain exceptions, then antidilution provisions
contained in the securities purchase agreement may require us to issue
additional shares of common stock to the investors so as to prevent dilution of
the investors' investment in our common stock. In addition, subject to certain
exceptions, we agreed not to file with the SEC any other registration statements
covering the sale or resale of shares of our common stock for a period of 90
days following the effective date of the registration statement of which this
prospectus forms a part.
Material Terms of the Warrants
The warrants entitle the holders to purchase our common stock at a price of
$0.9875 per share, subject to customary antidilution adjustments, through March
2, 2006. The exercise price was determined based on the average closing bid
price of our common stock over the five trading days preceding the issuance of
the warrants.
Material Terms of the Registration Rights Agreement
In the Registration Rights Agreement, we agreed to file the registration
statement of which this prospectus forms a part, covering the resale of the
common stock issued in the private placement and the shares of common stock
issuable upon exercise of the warrants issued in the private placement. We
agreed to pay all of the registration expenses. We must also pay penalties if
the SEC does not declare the registration statement effective by May 31, 2001.
These penalties may be paid in cash or, at the option of the investors, in
shares of our common stock.
Selling Shareholder Table - Beneficial Ownership and Shares Offered for Sale
The following table lists the names of the Selling Shareholders, the number
of shares of common stock beneficially owned by each Selling Shareholder on
February 28, 2001, and the number of shares, which may be offered for sale by
this prospectus. Each Selling Shareholder provided to us the information
regarding its share ownership. Because the Selling Shareholders may offer all,
some or none of their common stock, we can not give a definitive estimate as to
the number of shares that will be held by the Selling Shareholders after the
offering and we prepared the following table based on the assumption that the
Selling Shareholders will sell all of the shares of common stock covered by this
prospectus. At March 2, 2001, we had 26,895,872 shares of common stock
outstanding.
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Shares Beneficially Owned
After the Offering
------------------
Shares Shares
Beneficially Owned Being Percent of
Selling Shareholder Prior to Offering Offered Number Outstanding
------------------- ----------------- ------- ------ -----------
Protius Overseas Limited 2,200,972(1) 2,011,429(2) 1,079,361 3.6%
Keyway Investments Ltd. 780,723 83,810(3) 696,913 2.3%
Lionhart Investments Ltd. 1,700,234 1,257,143(4) 443,091 1.5%
_____________________
* Less than 1%.
(1) Does not include 889,818 shares issuable upon exercise of warrants due to
certain restrictions on exercise of these warrants.
(2) Includes 182,857 shares issuable upon exercise of warrants held of record
by such shareholder.
(3) Includes 7,619 shares issuable upon exercise of warrants held of record by
such shareholder.
(4) Includes 114,286 shares issuable upon exercise of warrants held of record
by such shareholder.
PLAN OF DISTRIBUTION
This prospectus covers the resale of shares of common stock by the Selling
Shareholders and their pledgees, donees, assignees and other successors in
interest. The Selling Shareholders may sell their shares on the Nasdaq National
Market, in the over-the-counter market or through any other facility on which
the shares are traded, or in private transactions. These sales may be at market
prices or at negotiated prices. The Selling Shareholders may use the following
methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker or
dealer solicits purchasers;
. block trades in which the broker or dealer attempts to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
. purchases by a broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus;
. privately negotiated transactions;
. any combination of these methods of sale; or
. any other legal method.
The Selling Shareholders may engage in short sales of the common stock and
deliver shares to close out their short positions. The Selling Shareholders may
also enter into put or call options or other transactions with broker-dealers or
others, which require delivery to those persons of shares covered by this
prospectus.
Brokers, dealers or other agents participating in the distribution of the
shares of common stock may receive compensation in the form of discounts or
commissions from the Selling Shareholders, as well as the purchaser if they act
as agent for the purchaser. The discount or commission in a particular
transaction could be more than the customary amount. We know of no
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existing arrangements between any Selling Shareholder and any underwriter,
broker, dealer or agent relating to the sale or distribution of the shares.
The Selling Shareholders and any brokers or dealers that participate in the
sale of the shares may be deemed to be "underwriters" within the meaning of the
Securities Act. Any discounts, commissions or other compensation received by
these persons and any profit on the resale of the shares by them as principals
might be deemed to be underwriters' compensation. The Selling Shareholders may
agree to indemnify any broker, dealer or agent that participates in the sale of
the shares against various liabilities, including liabilities under the
Securities Act.
At the time a particular offer of shares is made, to the extent required,
we will file a supplement to this prospectus which identifies the number of
shares being offered, the name of the Selling Shareholder, the name of any
participating broker or dealer, the amount of discounts and commissions, and any
other material information.
The Selling Shareholders and any other person participating in a
distribution will be subject to the applicable provisions of the Exchange Act
and its rules and regulations. For example, the anti-manipulative provisions of
Regulation M may limit the ability of the Selling Shareholders or others to
engage in stabilizing and other market making activities.
The Selling Shareholders may also sell their shares pursuant to Rule 144
under the Securities Act, rather than pursuant to this prospectus, so long as
they meet the criteria and conform to the requirements of the rule.
We will not receive any of the proceeds from the sale of the shares by the
Selling Shareholders. We will pay the registration and other offering expenses
related to this offering, but the Selling Shareholders will pay all underwriting
discounts and brokerage commissions incurred in connection with the offering.
Pursuant to the registration rights agreement for the June 2000 private
placement of common stock and warrants, we have agreed to indemnify the Selling
Shareholders against various liabilities, including liabilities under the
Securities Act.
In order to comply with some states' securities laws, if applicable, the
shares will be sold in those states only through registered or licensed brokers
or dealers. In addition, in some states the shares may not be sold unless they
have been registered or qualified for sale or an exemption from registration or
qualification is available and is satisfied.
LEGAL OPINIONS
Our special counsel, Jackson Walker L.L.P., Dallas, Texas, has issued a
legal opinion regarding the legality of the shares of our common stock offered
by this prospectus.
EXPERTS
The financial statements of Data Race, Inc. as of June 30, 2000 and 1999,
and for each of the years in the three year period ended June 30, 2000, have
been incorporated by reference in this prospectus and in the registration
statement of which this prospectus forms a part in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, and Chicago. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from commercial
document retrieval services and at the SEC's web site at http://www.sec.gov. In
addition, you can read and copy our reports, proxy statements and other
information at the offices of The Nasdaq National Market, Report Section, 1735 K
Street, N.W., Washington, D.c. 20006, on which our common stock is listed.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents instead of having to repeat the information in
this prospectus. The information incorporated by reference is considered to be
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until the Selling Shareholders sell all the shares.
. Annual Report on Form 10-K for the fiscal year ended June 30, 2000;
. Quarterly Report on Form 10-Q for the quarter ended September 30,
2000;
. Quarterly Report on Form 10-Q for the quarter ended December 31, 2000;
. Current Report on Form 8-K filed November 28, 2000;
. Current Report on Form 8-K filed January 12, 2001;
. Current Report on Form 8-K filed March 7, 2001 (as amended by the Form
8-K/A filed March 8, 2001); and
. Registration Statement on Form 8-A filed with the SEC on October 5,
1992, which contains a description of the terms of our common stock,
as well as any amendment or report filed later for the purpose of
updating the description.
You can request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
DATA RACE, Inc.
Attn: Corporate Secretary
6509 Windcrest Drive
Plano, Texas 75024
(972) 265-4000
You should rely only on the information contained in this prospectus or any
supplement and in the documents incorporated by reference. We have not
authorized anyone else to provide you with different information. The Selling
Shareholders will not make an offer of these shares in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or
10
any supplement or in the documents incorporated by reference is accurate on any
date other than the date on the front of those documents.
This prospectus is part of a registration statement we filed with the SEC
(Registration No. 333- ). More information about the shares sold by the
Selling Shareholders is contained in that registration statement and the
exhibits filed along with the registration statement. Because information about
contracts referred to in this prospectus is not always complete, you should read
the full contracts, which are incorporated by reference in this prospectus. You
may read and copy the full registration statement and its exhibits at the SEC's
public reference rooms or their web site.
11
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses (other than underwriting discounts and commissions) in
connection with the issuance and distribution of the common stock registered
hereby are as follows:
SEC registration fee.......................................... $ 576
Nasdaq Listing of Additional Shares filing fee................ 17,500
Legal fees and expenses....................................... 20,000*
Accounting fees and expenses.................................. 2,500*
Miscellaneous................................................. 3,424*
--------
Total....................................................... $44,000*
========
_______________
* Estimated.
Item 15. Indemnification of Directors and Officers.
Article 2.02-1 of the Texas Business Corporation Act provides for
indemnification of directors and officers in certain circumstances. In addition,
the Texas Miscellaneous Corporation Law provides that a corporation may amend
its Articles of Incorporation to provide that no director shall be liable to the
corporation or its shareholders for monetary damages for an act or omission in
the director's capacity as a director, provided that the liability of a director
is not eliminated or limited for: (i) any breach of the director's duty of
loyalty to the corporation or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law; (iii) any transaction from which such director derived an improper personal
benefit; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
We amended our Articles of Incorporation and added Article Ten adopting
such limitations on a director's liability. Our Articles of Incorporation also
provide in Article Ten for indemnification of directors or officers in
connection with the defense or settlement of suits brought against them in their
capacities as directors or officers of the company, except in respect of
liabilities arising from gross negligence or willful misconduct in the
performance of their duties.
Article VIII of our bylaws provides for indemnification of any person made
a party to a proceeding by reason of such person's status as a director, officer
or employee of the company, except in respect of liabilities arising from
negligence or misconduct in the performance of their duties.
We have obtained an insurance policy, which provides for indemnification of
officers and directors of the company and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
12
Item 16. Exhibits
Exhibits
3.1 Articles of Amendment to and Restatement of the Articles of
Incorporation of the Company, filed December 27, 1991. (a)
3.2 Articles of Correction to Articles of Amendment to and
Restatement of the Articles of Incorporation of the Company,
filed August 13, 1992. (a)
3.3 Articles of Amendment to the Articles of Incorporation of the
Company, filed August 21, 1992. (a)
3.4 Statement of Resolution Establishing Series B Participating
Cumulative Preferred Stock. (b)
3.5 Articles of Amendment to the Articles of Incorporation of the
Company, filed January 21, 1999. (d)
3.6 Bylaws of the Company and Amendments to Bylaws. (a)(c)
5.1 Opinion of Jackson Walker L.L.P. (f)
10.1 Securities Purchase Agreement dated March 2, 2001, between the
Company, Protius Overseas Limited, Kewyay Investments Ltd., and
Lionhart Investments Ltd. (e)
10.2 Registration Rights Agreement, dated March 2, 2001, between the
Company, Protius Overseas Limited, Kewyay Investments Ltd., and
Lionhart Investments Ltd. (e)
10.3 Warrants for March 2001 Private Placement (e)
10.4 Letter Agreement dated March 2, 2001, regarding amendment of
warrants issued in connection with June 1999 private placement.
(e)
10.5 Letter Agreement dated March 2, 2001, regarding amendment of
warrants issued in connection with December 1999 private
placement. (e)
23.1 Consent of KPMG LLP. (f)
23.2 Consent of Jackson Walker L.L.P. (included in opinion filed as
Exhibit 5.1)
24.1 Power of Attorney. (included as part of the signature page to
this registration statement)
________________________________
(a) Filed as an exhibit to Form S-1 Registration Statement No. 33-
51170, effective October 7, 1992.
(b) Filed as an exhibit to Form 10-K Annual Report for the fiscal
year ended June 30, 1997.
(c) Filed as an exhibit to Form 10-Q Quarterly Report for the quarter
ended December 31, 1996.
(d) Filed as an exhibit to Form S-3 Registration Statement No. 333-
71319, effective April 20, 1999.
(e) Filed as an exhibit to Form 8-K Current Report filed March 7,
2001.
13
(f) Filed herewith.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement, or any material change to such
information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report
14
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such new securities at that time shall be deemed to be the
initial bona fide offering thereof.
15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Plano, State of Texas, on March 13, 2001.
DATA RACE, INC.
By: /s/ Michael Mc Donnell
---------------------------------------
Michael Mc Donnell
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of DATA RACE, Inc., hereby constitute and appoint Michael Mc Donnell
and James G. Scogin, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him and his name,
place and stead, in any and all capacities, to execute any and all amendments
(including post-effective amendments) to this registration statement, and any
and all registration statements filed pursuant to Rule 462 or Rule 429 under the
Securities Act of 1933, as amended, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
16
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated below.
Name Title Date
---- ----- ----
/s/ Michael Mc Donnell President, Chief Executive Officer and March 13, 2001
-------------------------------- Director (Principal Executive Officer)
Michael Mc Donnell
/s/ James G. Scogin Chief Financial Officer, Treasurer and March 13, 2001
-------------------------------- Secretary (Principal Financial and
James G. Scogin Accounting Officer)
/s/ Jeffrey P. Blanchard Chairman of the Board of Directors March 13, 2001
--------------------------------
Jeffrey P. Blanchard
/s/ Matthew A. Kenny Director March 13, 2001
--------------------------------
Matthew A. Kenny
/s/ George R. Grumbles Director March 13, 2001
--------------------------------
George R. Grumbles
/s/ Tom Bishop Director March 13, 2001
--------------------------------
Tom Bishop
/s/ Byron W. Smith Director March 13, 2001
--------------------------------
Byron W. Smith
/s/ General Harold Adams Director March 13, 2001
--------------------------------
General Harold Adams
17
INDEX TO EXHIBITS
Exhibits
3.1 Articles of Amendment to and Restatement of the Articles of
Incorporation of the Company, filed December 27, 1991. (a)
3.2 Articles of Correction to Articles of Amendment to and
Restatement of the Articles of Incorporation of the Company,
filed August 13, 1992. (a)
3.3 Articles of Amendment to the Articles of Incorporation of the
Company, filed August 21, 1992. (a)
3.4 Statement of Resolution Establishing Series B Participating
Cumulative Preferred Stock. (b)
3.5 Articles of Amendment to the Articles of Incorporation of the
Company, filed January 21, 1999. (d)
3.6 Bylaws of the Company and Amendments to Bylaws. (a)(c)
5.1 Opinion of Jackson Walker L.L.P. (f)
10.1 Securities Purchase Agreement, dated March 2, 2001, between the
Company, Protius Overseas Limited, Keyway Investments Ltd., and
Lionhart Investments Ltd. (e)
10.2 Registration Rights Agreement, dated March 2, 2001, between the
Company, Protius Overseas Limited, Keyway Investments Ltd., and
Lionhart Investments Ltd. (e)
10.3 Warrants for March 2001 Private Placement (e)
10.4 Letter Agreement, dated March 2, 2001, regarding amendment of
warrants issued in connection with June 1999 private placement.
(e)
10.5 Letter Agreement, dated March 2, 2001, regarding amendment of
warrants issued in connection with June 1999 private placement.
(e)
23.1 Consent of KPMG LLP. (f)
23.3 Consent of Jackson Walker L.L.P. (included in opinion filed as
Exhibit 5)
24.1 Power of Attorney. (included as part of the signature page to
this registration statement)
_______________________________
(a) Filed as an exhibit to Form S-1 Registration Statement No. 33-
51170, effective October 7, 1992.
(b) Filed as an exhibit to Form 10-K Annual Report for the fiscal
year ended June 30, 1997.
(c) Filed as an exhibit to Form 10-Q Quarterly Report for the quarter
ended December 31, 1996.
(d) Filed as an exhibit to Form S-3 Registration Statement No. 333-
71319, effective April 20, 1999.
(e) Filed as an exhibit to Form 8-K Current Report filed March 7,
2001.
(f) Filed herewith.