SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) November 14, 1997
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U.S. Wireless Data, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 0-22848 84-1178691
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
2200 Powell Street, Suite 450, Emeryville, California 94608
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 596-2025
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
Closing of Private Offering of 8% Adjustable Rate
Convertible Subordinated Debentures Due December 31, 1999
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On December 10, 1997, U.S. Wireless Data, Inc. (the "Company") closed a
private offering of $3,060,000 principal amount of 8% Adjustable Rate
Convertible Subordinated Debentures due December 31, 1999 (the "Debentures").
The net proceeds to the Company from the offering will be $2,769,300, after
paying finder's commissions of $290,700, but before paying additional expenses
of the offering, which are estimated at $50,000. The Company will use the
proceeds from the offering primarily as working capital to fund the national
launch of its proprietary wireless transactions processing solutions and to
repay existing obligations.
The following is a summary of the terms and conditions of certain
agreements entered into or to be entered into between the Company and the
purchasers of the Debentures. The descriptions of the terms of the agreements
are qualified in their entirety by reference to copies of the operative
documents, including the Debenture Agreement (and form of Debenture Certificate
included therein), proposed form of Articles of Amendment to the Company's
Articles of Incorporation (including Designation of Series A Cumulative
Convertible Redeemable Preferred Stock), the Registration Rights Agreement and
the form of Subscription Agreement, which are filed as Exhibits to this Report.
The Debentures will automatically convert into shares of no par value
Series A Cumulative Convertible Redeemable Preferred Stock, with a stated value
of $1.00 per share (the "Preferred Stock") at any time prior to maturity, unless
previously redeemed or converted into shares of the Company's no par value
common stock (the "Common Stock"), upon effectiveness of an amendment to the
Company's Articles of Incorporation authorizing the Company to issue the
Preferred Stock. The conversion rate will be equal to one share of Preferred
Stock for each dollar of principal face amount of the Debentures being
converted. Any accrued but unpaid interest owing on the Debentures to the date
of conversion will be paid either in cash or in Common Stock of the Company. No
fractional shares of Preferred Stock will be issued upon conversion.
The Debentures or the shares of Preferred Stock into which they have
been converted will be further convertible at the option of the holder into
shares of Common Stock effective upon (a) an amendment to the Company's Articles
of Incorporation increasing the number of shares of authorized Common Stock and
(b) the earlier of (i) a declaration of effectiveness by the Securities and
Exchange Commission (the "SEC") of a registration statement covering the shares
of Common Stock into which the Debentures or Preferred Stock are convertible
(the "Common Stock Registration Statement") or (ii) 150 days from December 10,
1997. The rate at which the Debentures or Preferred Stock are convertible
(either per dollar of Debenture or per share of Preferred Stock, into Common
Stock (the "Conversion Price") is equal to the lesser of (i) $6.00 per share of
Common Stock or (ii) 80% of the average of the closing bid price of the Common
Stock over the five trading days prior to conversion. The Conversion Price is no
less than $4.00 per share of Common Stock for 270 days from December 10, 1997
(the "Minimum Conversion Price"). After that 270 day period, the Minimum
Conversion Price no longer applicable. No fractional shares of Common Stock will
be issued upon conversion of Debentures or shares of Preferred Stock; rather,
the Company will either pay cash for such fractional share or apply a rounding
formula to issue only full shares of Common Stock.
The Debentures (or the Preferred Stock into which the Debentures have
become converted) automatically convert to Common Stock (if a sufficient number
of shares are available) if the Company closes a $5,000,000 public offering at a
minimum share price of $10.00. The shares of Common Stock into which the
Debentures and/or the Preferred Stock are convertible and which are issuable as
interest on the Debentures and dividends on the Preferred Stock are hereafter
referred to as the "D/PS Common Stock."
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Interest on the Debentures (or cumulative dividends on the Preferred
Stock which become payable once the Debentures have become converted to
Preferred Stock) are payable in arrears to holders of record as of March 31,
June 30, September 30 and December 31 of each year, beginning December 31, 1997,
at an initial rate of 8% per annum, subject to reduction to 4% per annum upon
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "1933 Act") covering the Common Stock issuable upon conversion of
the Debentures (or the Preferred Stock into which the Debentures have become
converted) (the "Common Stock Registration Statement"). Unless converted or
redeemed, the Debentures will be due and payable in full on December 31, 1999.
Interest on the Debentures (or dividends on the Preferred Stock if the
Debentures have become converted to Preferred Stock) is payable in Common Stock,
if possible.
The Company does not presently have an adequate number of shares of
Common Stock authorized to allow payment of interest on the Debentures (or
dividends on the Preferred Stock) to be paid in shares of Common Stock or to
allow for conversion of the Debentures or Preferred Stock into shares of Common
Stock, nor does the Company have shares of Preferred Stock presently authorized.
The Company has taken steps to hold an Annual Meeting of Shareholders and
intends to promptly file a proxy statement with the SEC to solicit proxies for
that meeting at which proposals will be submitted to shareholders to amend the
Company's Articles of Incorporation to authorize a total of 15,000,000 shares of
no par value "blank check" preferred stock (4,000,000 of which would then be
designated by the Board of Directors as the Series A Preferred Stock into which
the Debentures would then automatically become converted) and to increase the
number of shares of Common Stock from its present number of 12,000,000 shares to
40,000,000 shares. The Company hopes to hold its Annual meeting by no later than
January 30, 1998, based on a December 15, 1997 record date. If approval for the
increases in authorized capital is not obtained, interest or dividends will be
payable in cash and the Debentures will remain as unsecured, subordinated
interest-bearing obligations of the Company, payable in cash.
The number of shares of Common Stock issuable at each interest or
dividend payment date will be determined by applying the applicable interest
rate to determine the dollar amount of the payment due, then converting that
amount to the appropriate number of shares based on the average closing bid
price of the Common Stock over the last five trading days of the quarter, as
quoted on the OTC Electronic Bulletin Board or the price as quoted on The Nasdaq
Stock Market or another exchange, if and when the stock is listed on any such
exchange. No fractional shares of Common Stock will be issued as interest or
dividends; rather, a Holder entitled to a fractional share will receive at the
Company's option, either a cash payment for such fractional share or the next
higher or lower number of whole shares, as calculated using a rounding formula.
The Company also entered into an agreement with the purchasers of the
Debentures to file a registration statement with the SEC covering the D/PS
Common Stock within 90 days of December 10, 1997. The Company will use its best
efforts to obtain effectiveness of the registration statement. However, if the
Company is unable to do so within 150 days of December 10, 1997, the Conversion
Price (or Minimum Conversion Price, if then in effect) for the Debentures and/or
Preferred Stock will be discounted by 2% off the then-existing conversion price
for each thirty day period (or fraction of any thirty day period) during which
the registration statement is not effective after such 150th day and such
discount will apply thereafter to determine the Conversion Price or Minimum
Conversion Price applicable to the Debentures and/or Preferred Stock. The
Company is to use its best efforts to maintain effectiveness of the registration
statement for 16 months from June 30, 1998. The Company will be required to
include up to approximately 6,385,000 additional shares in the registration
statement which are the subject of "piggyback" registration rights granted to
other holders of the Company's securities. A total of 5,100,000 of those shares
are registrable for the benefit of Liviakis Financial Communications, Inc.
("LFC") and two affiliates of LFC, Messrs. John M. Liviakis and Robert B. Prag.
LFC and Messrs. Liviakis and Prag have agreed that they will not sell any shares
under the registration (even if they elect to have their shares included in the
registration) until at least July 31, 1998. A copy of the Lock-up Agreement
dated November 25, 1997 that was entered into between the Company and LFC and
Messrs. Liviakis and Prag is filed as an Exhibit to this Report.
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The Company may redeem the Debentures and/or the Preferred Stock at any
time during the first 270 days following the initial closing date of this
offering (and for 60 days thereafter under certain circumstances) if the closing
bid price (or last sale price, if available) of the Common Stock for at least 20
trading days in any consecutive 30 trading day period is less than the Minimum
Conversion Price. The Company must pay 118% of the holder's initial cash
investment to redeem either Debentures or Preferred Stock, plus pay accrued but
unpaid dividends to the date of redemption. The Company may also redeem any
Preferred Stock outstanding three years from December 10, 1997, at stated value
plus accrued and unpaid dividends.
The Company has agreed with the purchasers of the Debentures that it
will not offer any equity securities in private offerings pursuant to SEC
Regulations D or S or otherwise, for 150 days from December 10, 1997. After such
period, and continuing until the shares underlying the Debentures and/or
Preferred Stock have been registered for public sale, the Company has granted a
first right of refusal to the purchasers of the Debentures to purchase any
equity securities offered privately by the Company pursuant to SEC Regulations D
or S or otherwise.
The offering was made pursuant to Rule 506 of Regulation D and Section
4(2) of the 1933 Act. The Debentures, the Preferred Stock and the D/PS Common
Stock (hereafter collectively referred to as the "Securities") are, or will be,
when issued, "restricted securities" as defined under Rule 144 of the 1933 Act.
Holders will not be able to resell the Securities absent an effective
registration statement covering the Securities or an exemption from such
registration requirements, the availability of which must be demonstrated to the
satisfaction of the Company. There is currently no public market for the
Debentures or the Preferred Stock and there is no intention that any public
trading market develop for the Debentures or Preferred Stock.
JW Charles Securities, Inc. of Boca Raton, Florida, acted as finder for
the Company in connection with the offering. JW Charles received a finder's fee
of 7% of the gross offering proceeds and a Stock Purchase Warrant to purchase
50,000 shares of the Company's Common Stock at $6.525 per share, exercisable
until December 10, 2000. The shares underlying the Warrant have both demand and
"piggyback" registration rights. The Company is also obligated to pay a finder's
fee of 2.5% of the gross offering proceeds, or $76,500, to Liviakis Financial
Communications, Inc. for its assistance in locating JW Charles Securities. In
addition to the finder's fee, the Company will repay bridge loans from LFC in
the amount of $475,000 using proceeds from this offering.
In order to facilitate the offering, additional agreements were entered
into with the Company and certain persons, as follows. As of November 11, 1997,
all officers, directors and greater than 5% shareholders of the Company signed
voting agreements by which they agreed to vote all shares owned by them as of
the record date of the Company's Annual meeting in favor of the increase in
Common Stock from 12,000,000 to 40,000,000 shares and the authorization of
15,000,000 shares of preferred stock, up to 4,000,000 of which are to be
designated as Series A Preferred Stock. A copy of the Shareholder Voting
Agreement is filed as an Exhibit to this Report. In addition, Messrs. Liviakis
and Prag agreed as of October 20, 1997, to refrain from exercising the 1,600,000
warrants they own until the later of January 15, 1998 or the time immediately
following the next Annual Meeting of Shareholders of the Company. The Company
agreed that it would submit the increase in authorized Common Stock to its
shareholders at that meeting. A copy of the Letter Agreement between the Company
and Messrs. Liviakis and Prag dated October 20, 1997 is filed as an Exhibit to
this Report.
Demands by Certain Noteholders
During April - June, 1997, the Company issued a total of $185,000 of
Demand Notes payable in full on or before April 11, 1998 (the "Notes"). The
principal and accrued interest on the Notes became convertible into shares of
the Company's Common Stock as of November 1, 1997 at prices of $.35 per share
(as to $75,000
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of the Notes) and $.50 per share (as to $110,000 of the Notes). Commencing on
November 3, 1997, the Company began receiving conversion demands from the
Noteholders and as of November 14, 1997, holders of $135,000 of the Notes had
demanded conversion of their Notes into Common Stock and are insisting that the
Company issue "free-trading" shares to them. The Noteholders claim that their
right to free-trading stock arises out of certain oral representations made at
the time of issuance of the Notes, the fact that no "restricted securities"
legends were imprinted on the documents comprising the Notes and no other
written advice as to the "restricted" nature of the shares underlying the Notes
was given to them at the time. The Company believes the Noteholders' claims are
without merit for at least the following reasons: (1) no registration rights
were granted to the Noteholders regarding the shares underlying the Notes and
(2) the Company cannot issue free-trading stock without going through SEC
registration and never actually authorized (nor would have authorized) any
person to make oral representations granting registration rights to the
Noteholders. No assurance can be given that the matter can be resolved without
litigation. The shares into which the Notes are convertible would become
saleable under SEC Rule 144 in the Spring of 1998, one year from the dates on
which the Notes were issued.
Item 7. Financial Statement and Exhibits.
The following Exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
10.1 Debenture Agreement for 8% Adjustable Rate Convertible Subordinated Debentures Due
December 31, 1999
10.2 Proposed Form of Articles of Amendment to the Company's Articles of Incorporation
(including Designation of Series A Cumulative Convertible Redeemable Preferred Stock)
10.3 Form of Registration Rights Agreement
10.4 Form of Subscription Agreement
10.5 Form of Common Stock Purchase Warrant issued to JW Charles Securities, Inc.
10.6 Letter Agreement between the Company and Messrs. Liviakis and Prag Re: Exercise Terms
of Warrants - October 20, 1997
10.7 Shareholder Voting Agreement - November 11, 1997
10.8 Lock-Up Agreement - Liviakis and Prag - November 25, 1997
</TABLE>
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
U.S. Wireless Data, Inc.
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(Registrant)
December 15, 1997 By /s/ Evon A. Kelly
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(Date) (Signature)
Evon A. Kelly,
Chief Executive Office
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Exhibit 10.1
DEBENTURE AGREEMENT
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THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE OR FOREIGN LAW. THE DEBENTURES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (i) THEY SHALL HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE AND
FOREIGN SECURITIES ACT OR OTHER LAW OR (ii) THE CORPORATION SHALL HAVE BEEN
FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, THAT
REGISTRATION OR OTHER COMPLIANCE IS NOT REQUIRED UNDER ANY OF SUCH ACTS OR LAWS.
U.S. WIRELESS DATA, INC.
8% ADJUSTABLE RATE CONVERTIBLE SUBORDINATED
DEBENTURES DUE DECEMBER 31, 1999
This Debenture Agreement is entered into between U. S. Wireless Data,
Inc., a Colorado corporation (the "Corporation") and purchasers of the
Corporation's 8% Adjustable Rate Convertible Subordinated Debentures Due
December 31, 1999 (the "Debentures"). The Debentures are due in one payment of
principal and any and all accrued but unpaid interest then due, on December 31,
1999 (the "Maturity Date"), unless earlier converted pursuant to the terms
hereof. Interest shall accrue on the Debentures at the initial rate of eight
percent (8%) per annum, subject to adjustment of such rate as provided for
herein, the primary rate of interest in effect at any time being referred to as
the "Applicable Interest Rate."
The Debentures shall be evidenced by Debenture Certificates annexed
hereto as Exhibit 1, which shall be valid only when countersigned by an
authorized representative of the Corporation.
The Debentures are issued as part of a series of 8% Adjustable Rate
Convertible Subordinated Debentures privately issued by the Corporation and
known as the "8% Adjustable Rate Convertible Subordinated Debentures, Due
December 31, 1999," each of which has been or will be issued to a Holder who has
or will represent to the Corporation that he, she or it is an accredited
investor, as that term is defined in Rule 501(a) of the Securities Act of 1933,
as amended (the "1933 Act"). The Holder of a Debenture hereby reaffirms such
representation to the Corporation and each other Holder of Debentures. The
minimum principal dollar amount of the Debentures is $2,000,000 and the maximum
principal amount may be up to $4,000,000.
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Any principal or interest on any Debenture which is payable, but is not
punctually paid or duly provided for at the Maturity Date or any Interest
Payment Record Date (herein called "Default Interest") shall bear compound
interest at a rate of two percent (2%) over the Applicable Interest Rate from
the date of default until paid.
I. Interest Payments and Adjustment of Interest Rate.
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A. The Debentures shall accrue interest from the date of original
issuance by the Corporation at the initial rate of eight percent (8%) per annum,
based on a 360 day year and 90 day quarters. The interest rate shall be reduced
to four percent (4%) per annum upon initial effectiveness of a registration
statement with the United State Securities and Exchange Commission (the "SEC")
covering the shares of Common Stock into which the Debentures (or the Preferred
Stock into which the Debentures will automatically convert upon authorization of
such Preferred Stock by the Corporation) are convertible and shall continue at
such rate until maturity, unless Default Interest becomes applicable.
B. Interest shall be payable quarterly to Debentureholders of record as
of March 31, June 31, September 30 and December 31 of each year (the "Interest
Payment Record Dates"), commencing December 31, 1997. The payment date for each
interest payment shall be on or before the 15th of the month following each
Interest Payment Record Date, or the next Business Day thereafter if such day is
not a Business Day.
C. Interest on the Debentures shall be payable in shares of the
Corporation's Common Stock, provided the Corporation has an adequate number of
authorized shares of Common Stock from which to make interest payments. Interest
payments may be paid in authorized and unissued shares of Common Stock or in
shares of Common Stock in the treasury of the Corporation. As of the date of
initial issuance of the Debentures, the Corporation has 12,000,000 shares of
Common Stock authorized and does not have an adequate number of authorized and
unissued shares of Common Stock or treasury shares of Common Stock available
from which to make interest payments on the Debentures. The Corporation shall
submit an amendment to its Articles of Incorporation to shareholders at its next
Annual Meeting of Shareholders (tentatively scheduled for December 17, 1997)
pursuant to which it shall request an increase in authorized Common Stock to
40,000,000 shares (the "Increase Amendment"). The Corporation shall use its best
efforts to secure approval for the Increase Amendment by shareholders. Following
approval of the Increase Amendment by shareholders, the Corporation shall
continuously maintain a sufficient number of authorized and unissued shares of
Common Stock to allow interest on the Debentures to be paid in shares of Common
Stock. Unless and until the Corporation obtains approval of the Increase
Amendment by shareholders, interest on the Debentures shall be payable in cash.
D. If the Corporation pays interest in shares of its Common Stock, the
number of shares of Common Stock issuable at each Interest Payment Record Date
shall be calculated as follows: The amount of the interest payment owing on the
Debenture at the Interest Payment Record Date (in dollars) shall be divided by
the average closing bid price of the Common Stock over the last five trading
days prior to the Interest Payment Record Date as quoted on the OTC Electronic
Bulletin Board or such other quotation service as is quoting
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bid and asked prices for the Common Stock. If the Common Stock is then listed on
the NASDAQ Stock Market or any other national exchange, the five day average of
the closing bid price for the Common Stock for such days as reported on NASDAQ
or such other national securities exchange shall be substituted for the five day
average closing bid price as reported by the OTC Electronic Bulletin Board or
other quotation service. In the event the Common Stock is not quoted on any
exchange or quotation service, then the Board of Directors, acting in good
faith, shall adopt a resolution valuing the Common Stock for purposes of
determining the number of shares of Common Stock issuable as interest on the
Debentures at each Interest Payment Record Date. Absent fraud, the determination
of the Board of Directors shall be binding and conclusive. The value of the
Common Stock used for purposes of determining the number of shares issuable as
interest on the Debentures or for purposes of conversion of Debentures into
Common Stock pursuant to Sections IV and/or V of this Debenture Agreement is
hereafter referred to as the "Market Price." When computed in connection with a
conversion transaction, the average shall be computed using the five trading
days prior to the Common Stock Conversion Date.
E. The Corporation shall use its best efforts to maintain the listing
of the Common Stock on the OTC Electronic Bulletin Board or such other quotation
service or exchange on which the Common Stock may be listed for trading, and
shall not take any action at any time while Debentures are Outstanding which
would result in the delisting of the Common Stock from any quotation service or
exchange upon which the Common Stock may be so listed. The Corporation shall
file all reports required to be filed by it with the SEC pursuant to the
Securities Exchange Act of 1934 (the "1934 Act") and/or the 1933 Act and shall
not take any action which would result in the deregistration of the Common Stock
under Section 12(g) of the 1934 Act.
F. No fractional shares of Common Stock will be issued as interest on
the Debentures; rather, a Debentureholder otherwise entitled to a fractional
share may receive, at the sole option of the Corporation, either (i) cash in
lieu of such fractional share, or (ii) the next higher whole number of shares of
Common Stock if the fractional share to which the Debentureholder is otherwise
entitled is equal to 0.5 or greater, or the next lower whole number of shares of
Common Stock if the fractional share to which the Debentureholder is otherwise
entitled is less than 0.5.
G. The Corporation shall provide Debentureholders with a statement
showing the manner in which it calculated the interest payable at each Interest
Payment Record Date, including the calculation used to determine the Market
Price and the number of shares of Common Stock issued as interest on the
Debenture.
H. Principal and interest on the Debentures will be payable, and
transfer of the Debentures will be registrable at the Principal Office of the
Corporation. Upon the request of the Debentureholder, payment of principal and
interest shall be made by delivery of a check and/or Common Stock certificates
(as applicable) representing interest to the registered holder mailed to such
holder's address as it appears on the Debenture register.
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I. Notwithstanding the number of Debenture certificates which may be
issued to a single Debentureholder, the Corporation shall be entitled to
aggregate the principal amounts of all Debentures held by such Holder for
purposes of calculating interest payable to such Holder.
II. Events of Default. The following shall constitute Events of Default
------------------- hereunder:
A. Default in the payment of any interest or principal upon any Debenture
when the same becomes due and payable, and continuance of such default for a
period of 30 days; or
B. Default in the performance, or breach, of any other covenant or warranty
of the Corporation in the Debentures, and continuance of such default or breach
for a period of 60 days after notice of such breach or default has been given by
any Debentureholder by registered or certified mail, to the Corporation; or
C. The entry of a decree or order by a court having proper jurisdiction
adjudging the Corporation a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Corporation under the Bankruptcy Code or any other
applicable Federal or state law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) (hereafter a
"Trustee") for the Corporation or for any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or
D. The institution by the Corporation of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the Bankruptcy Code or any
other applicable Federal or state law, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate action
by the Corporation in furtherance of any such action.
III. Acceleration.
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Within 45 days after the occurrence of any Event of Default hereunder,
the Corporation shall mail notice of such default to all Debentureholders,
unless such default shall have been cured or waived.
If an Event of Default occurs and is continuing, then the Holder of any
Debenture then Outstanding may declare the principal and all accrued interest on
such Debenture to be
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immediately due and payable, by a notice in writing to the Corporation, and upon
any such declaration such principal shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of money due has been obtained, the
Holder declaring such default may, by written notice to the Corporation and any
trustee appointed for the Corporation, may rescind and annul such declaration
and its consequences if the Corporation has paid or deposited with such trustee
a sum sufficient to pay all principal and accrued interest, including any
Default Interest, on the Debentures.
IV. Automatic Conversion of Debentures.
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A. Into Shares of Series A Preferred Stock. This Debenture will
automatically convert into one share of the Corporation's no par value Series A
Cumulative Convertible Redeemable Preferred Stock, stated value $1.00 per share
(the "Preferred Stock") for each $1.00 of Debentures, at any time prior to
maturity, unless previously redeemed or converted into Common Stock, upon
effectiveness of an amendment to the Corporation's Articles of Incorporation
authorizing the Corporation to issue the Preferred Stock (the "Preferred Stock
Amendment"). The Preferred Stock Amendment will be submitted to the
Corporation's shareholders at the next Annual Shareholder Meeting (tentatively
scheduled for December 17, 1997). The Corporation will use its best efforts to
obtain approval for the Preferred Stock Amendment. Debentureholders will be
notified as soon as practicable upon effectiveness of the Preferred Stock
Amendment.
B. Into Shares of Common Stock. The Debentures will automatically
convert into fully paid and non-assessable shares of Common Stock of the
Corporation, at the then applicable Conversion Price (as defined below),
immediately prior to the closing of a firm commitment underwritten public
offering of the shares of Common Stock of the Corporation pursuant to a
registration statement filed under the 1933 Act at an offering price per share
of not less than ten dollars ($10.00) per share (prior to underwriter
commissions and expenses and adjusted for stock splits, stock dividends,
reorganizations and the like) and with aggregate gross offering proceeds to the
Corporation of not less than Five Million Dollars ($5,000,000) (a "Qualified
Public Offering").
C. Any accrued but unpaid interest owing on the Debentures to the date
of conversion will be payable by the Corporation as described in Article I
above, either in cash or shares of Common Stock. In the case of automatic
conversion into Preferred Stock, accrued interest to the date of conversion will
be carried over and paid on the next dividend payment date applicable to the
Preferred Stock into which the Debentures have been converted. In the case of
automatic conversion into Common Stock, accrued interest to the date of
conversion will be paid at the same time as the Common Stock issuable upon
conversion of the Debenture is delivered to the Holder.
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D. The Corporation shall provide notice to the Holders as soon as
practicable after the date of the effectiveness of the Preferred Stock
Amendment. The Corporation shall provide notice to the Holders as soon as is
practicable of the time when the Corporation will close a Qualified Public
Offering. At the same time that it notifies the Debentureholder of the
effectiveness of the Preferred Stock Amendment or the closing date for a
Qualified Public Offering, the Corporation shall include a notice to the
Debentureholder of the amount of interest accrued on the Debenture to the date
of conversion, in dollars, and the manner in which it calculated the number of
shares issuable upon conversion.
E. As soon as practicable after conversion, the Debentureholder shall
surrender the Debenture Certificate representing the shares being converted to
the Corporation at the Corporation's Principal Office. The Debentures shall be
deemed to have been converted into Preferred Stock on the date of effectiveness
of the Preferred Stock Amendment (the "Preferred Stock Conversion Date") and
into Common Stock on the closing date of the Qualified Public Offering,
irrespective of the date upon which the Debenture Certificate is surrendered to
the Corporation in exchange for a certificate representing the shares of
Preferred Stock or Common Stock, as the case may be, issuable upon conversion
(the "Surrender Date"). On the Conversion Date, the Holder shall be treated for
all purposes as the record holder of the Preferred Stock or Common Stock , as
the case may be, issuable upon such conversion. As promptly as practicable on or
after the Surrender Date, the Corporation shall issue a certificate or
certificates for the number of shares of Preferred Stock or Common Stock, as the
case may be, issuable upon conversion.
F. Unless specifically requested to do otherwise by a Debentureholder
in writing, the Corporation shall be entitled to aggregate the principal amounts
of all Debentures owned by such Debentureholder and issue a single certificate
of Preferred Stock or Common Stock, as the case may be, to such Holder upon
automatic conversion.
V. Optional Conversion into Shares of Common Stock.
------------------------------------------------
A. Holder may, at any time, and from time to time on or after (1)
approval by the shareholders of the Corporation of the Increase Amendment and
(2) the earlier of (i) effectiveness of a registration statement with the SEC
covering the shares of Common Stock into which the Debenture is convertible or
(ii) the expiration of 150 days from the Initial Closing Date (as hereafter
defined), convert all or any whole number multiple of one thousand dollars
($1000) of the principal amount of Debentures, plus any accrued but unpaid
interest thereon, to whole shares of the Corporation's Common Stock. The number
of shares of Common Stock issuable upon such conversion shall be the result of
dividing (a) the dollar amount of the principal of, and accrued interest on, the
Debenture being converted by (b) the lesser of (i) $6.00 or (ii) 80% of the
Market Price (the "Conversion Price"). Notwithstanding the foregoing, for the
first 270 days following the initial closing of the offering by which any of the
Debentures were first sold (the "Initial Closing Date"), the Conversion Price
shall not be less than $4.00 per share, which $4.00 price shall be appropriately
adjusted in the event of any stock splits or other transactions affecting the
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<PAGE>
Common Stock (the "Minimum Conversion Price"). After such 270 day period, the
Minimum Conversion Price shall be eliminated.
B. The Corporation has agreed under terms contained in a separate
agreement entered between the Corporation and the Debentureholders to register
the shares of Common Stock issuable by the Corporation as interest on, and upon
conversion of, Debentures with the SEC. In the event such registration is not
declared effective by the SEC within 150 days of the Initial Closing Date, the
Conversion Price and the Minimum Conversion Price shall thereafter be reduced by
two percent (2%) from the Conversion Price or Minimum Conversion Price, as the
case may be, otherwise in effect at the time of conversion. The Conversion Price
shall be reduced an additional two percent (2%) off the then applicable
Conversion Rate for each additional 30 days (or any fractional part of such
30-day period) during which such registration is not effective. Such reduced
Conversion Price shall remain in effect for the remainder of the time the
Debentures remain outstanding.
C. In order to effect conversion, the Holder shall surrender the
Debenture Certificate representing the Debentures being converted to the
Corporation at its principal office, accompanied by written notice (the
"Conversion Notice") to the Corporation that the Holder elects to convert the
Debentures. The Conversion Notice shall be in the form attached to the Debenture
Certificate(s) being converted. The Holder may submit an irrevocable Conversion
Notice to the Corporation in advance of physical delivery of a Debenture
Certificate(s) by transmitting a copy of the completed Conversion Notice
relating to the Debenture Certificate(s) to be tendered to the Corporation by
facsimile (the "Advance Conversion Notice"). Physical delivery of the Debenture
Certificates which are the subject of the Advance Conversion Notice shall be
made to the Corporation within three (3) business days thereafter. The
Debentures tendered for conversion shall be deemed to have been converted on the
date the Corporation receives the Advance Conversion Notice for such Debentures,
provided the Advance Conversion Notice is received by 6:00 p.m. (Eastern Time)
on a Business Day (the "Common Stock Conversion Date"), and provided further,
that the original Conversion Notice and the Debenture Certificate representing
the Debentures then being converted is actually delivered to the Corporation
within such three (3) business day period. If the Advance Conversion Notice is
received on a day that is not a Business Day or after 6:00 p.m. (Eastern Time)
on a day that is a Business Day, then the Common Stock Conversion Date shall be
the next day that is a Business Day. The Company will cause its transfer agent
to issue certificates for the shares of Common Stock issuable upon conversion
and will transmit the certificates representing such shares (together with
certificates or instruments representing the balance of Debentures not being so
converted) to the Holder via express courier, by electronic transfer, or
otherwise, within three (3) business days after receipt by the Company of the
original Conversion Notice and the Debenture certificates for the Debentures
being converted (the "Delivery Date"). On the Common Stock Conversion Date, such
Holder shall be treated for all such purposes as the record Holder of the Common
Stock issuable upon such conversion.
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<PAGE>
D. The Company understands that a delay in the issuance of the shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Holder. As compensation to the converting Holder for such loss, the Company
agrees to pay a late payment penalty to the Holder for late delivery of such
shares of Common Stock deliverable upon conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond five (5) business days from the Delivery Date):
<TABLE>
<CAPTION>
Late Payment for Each $10,000
of Debenture Principal Amount
No. Business Days Late Being Converted to Common Stock
---------------------- -------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
10 1,000 + $200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any penalties incurred under this Subsection in
immediately available funds upon demand. Nothing herein shall limit the
converting Holder's right to pursue actual damages for the Company's failure to
issue and deliver the Common Stock to the converting Holder. Furthermore, in
addition to any other remedies which may be available to the converting Holder,
in the event the Company fails for any reason to effect delivery of such shares
of Common Stock within five (5) business days after the Delivery Date (other
than as a result of an event in the nature of a force majeure which is totally
beyond the control of the Company), the converting Holder shall be entitled to
revoke the relevant Conversion Notice by delivering a notice to that effect to
the Company, whereupon the Company and the Holder shall be restored to their
respective positions immediately prior to delivery of the Conversion Notice. Any
shares of Common Stock delivered to Holder after such revocation shall be
forthwith returned to the Company and a new Debenture Certificate shall be
forthwith issued in replacement for the Debenture for which conversion has been
so revoked.
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<PAGE>
E. Only whole shares of the Corporation's Common Stock will be issued
on any conversion. In the event that a Holder of Debentures is entitled to a
fraction of a share of Common Stock, the Corporation shall, at its sole option,
either (i) pay such holder the cash equivalent of that fractional share,
computed by multiplying the fraction by the applicable Conversion Price or (ii)
the next higher whole number of shares of Common Stock if the fractional share
to which the Debentureholder is otherwise entitled is equal to 0.5 or greater,
or the next lower number of whole shares of Common Stock if the fractional share
to which the Debentureholder is otherwise entitled is less than 0.5.
F. Subject to the foregoing, no payment or adjustment shall be made
upon any conversion in respect of any interest accrued on any Debenture
surrendered for conversion prior to a Interest Payment Record Date, or for any
dividends on the Common Stock delivered upon conversion.
G. Following effectiveness of the Increase Amendment, the Corporation
covenants that it will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock or its issued Common Stock held in its treasury, or both, for the purpose
of effecting conversions of Debentures, the full number of shares of Common
Stock then deliverable upon the conversion of all Outstanding Debentures not
theretofore converted; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
said Outstanding Debentures, the Corporation will use its best efforts to take
such corporate action as may in the opinion of its counsel be necessary to
increase its authorized but unissued Common Stock to such number of shares as
shall be sufficient for that purpose.
H. The Corporation will pay any and all United States Federal, state or
local documentary stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Common Stock on conversions of Debentures
pursuant hereto; provided, however, that the Corporation shall not be required
to pay any tax which may be payable in respect of any registration of transfer
involved in the issue or delivery of Common Stock in a name other than that of
the Holder of the Debentures to be converted and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
VI. Reorganization. If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of its assets
to another corporation shall be affected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder of Debentures shall thereafter have the right
to (but not be obligated to) receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the Common Stock of the
Corporation immediately theretofore
-9-
<PAGE>
receivable upon the conversion of Debentures, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
outstanding shares of such Common Stock of the Corporation, and in any such case
appropriate provision shall be made with respect to the rights and interest of
the Debentureholders to the end that the provisions hereof (including without
limitation provisions for the number of shares receivable upon the conversion of
the Debentures and the method for calculation of the Conversion Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter receivable upon the conversion of such
Debentures. The Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor corporation (if
other than the Corporation) resulting from such consolidation or merger or the
Corporation purchasing such assets shall assume by written instrument executed
and mailed to the Holders, the obligation to deliver to such Holders such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such Holders may be entitled to receive.
VII. Notice of Certain Events. If, at any time:
-------------------------
A. The Corporation shall declare any cash dividend on its Common Stock;
B. the Corporation shall pay any dividend payable in stock upon its Common
Stock or make any distribution (other than the regular cash dividends) to the
holders of its Common Stock;
C. the Corporation shall offer for subscription (including by grants of
rights or warrants) pro rata to the holders of its Common Stock any additional
shares of stock of any class or other rights;
D. there shall be any capital reorganization, reclassification of the
capital stock of the Corporation (other than a subdivision or combination or
change in the par value of its Common Stock), or consolidation or merger of the
Corporation with, or sale or lease of all or substantially all of its assets to,
another corporation requiring the approval of any shareholders of the
Corporation (in their capacity as shareholders) if such consolidation, merger,
sale or lease will result in a change in the shares held by the holders of
Common Stock; or
E. there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written
notice, addressed to the Holders of the Debentures, of the date on which (i) the
books of the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (ii) such reorganization,
reclassification, consolidation, merger, sale, lease, dissolution, liquidation
or winding up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of Common Stock of record shall
participate in such
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<PAGE>
dividend distribution or subscription rights, or shall be entitled to exchange
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease,
dissolution, liquidation or winding up, as the case may be. Such written notice
shall be at least twenty days prior to the record date or the date on which the
Corporation's transfer books are closed in respect thereto or the effective date
of such event.
VIII. Subordination.
--------------
A. In the event and during the continuation of any default in the
payment of the principal of, or premium or sinking fund installments, if any,
due, with respect to, or interest on, any Superior Indebtedness (as hereinafter
defined in Section XII), or any default, or any event which, with notice or
lapse of time or both, would constitute a default, in any other agreement, term
or condition contained in any agreement under which any Superior Indebtedness is
issued, no cash payment of principal or interest shall be made on the Debentures
unless and until such default shall have been remedied, nor shall any such
payment be made if after giving effect, as if paid, to such payment, any such
default would exist in the performance or observance of any covenant or
agreement of the Corporation contained in any agreement under which any Superior
Indebtedness shall have been issued or pursuant to which Superior Indebtedness
shall have been incurred.
B. Upon any payment by the Corporation, or distribution of assets of
the Corporation of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution or winding-up or total or partial
liquidation or reorganization of the Corporation, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
amounts due or to become due upon all Superior Indebtedness shall first be paid
in full, or payment thereof provided for, in money or money's worth, in
accordance with its terms, before any payment is made on account of the
principal (and premium, if any) or interest on the Debentures; and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by the
Corporation, or distribution of assets of the Corporation of any kind or
character, whether in cash, property or securities, to which the
Debentureholders would otherwise be entitled but for the provisions of this
Section VIII, shall be paid by the Corporation or by any receiver, trustee in
bankruptcy, liquidating trustee, custodian, agent or other person making such
payment or distribution directly to the holders of Superior Indebtedness or
their representative or representatives or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Superior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Superior Indebtedness in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of Superior Indebtedness, before any payment or distribution is made to
the Holders of the Debentures.
C. In the event that notwithstanding the preceding paragraphs, any
payment or distribution of assets of the Corporation of any kind or character,
whether in cash, property or securities, prohibited by the preceding paragraphs
shall be received by the holders of the
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<PAGE>
Debentures, such payment or distribution shall be paid over or delivered to the
holders of Superior Indebtedness of their representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Superior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Superior
Indebtedness remaining unpaid to the extent necessary to pay all Superior
Indebtedness in full in money or money's worth in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
holders of such Superior Indebtedness.
D. For purposes of this Section VIII, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Corporation as
reorganized or readjusted, or securities of the Corporation or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this Section
VIII with respect to the Debentures to the payment of all Superior Indebtedness
which may at the time be outstanding; provided that (i) the Superior
Indebtedness is assumed by the new corporation, if any, resulting from any such
reorganization or readjustment, and (ii) the rights of the holders of the
Superior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment. The consolidation of the Corporation with,
or the merger of the Corporation into, another corporation or the liquidation or
dissolution of the Corporation following the conveyance, lease or transfer of
its property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided in Section VIII hereof shall
not be deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section if such other corporation shall, as a part of such
consolidation, merger, conveyance, lease or transfer, comply with the conditions
stated in Section VIII hereof.
E. Subject to the payment in full of all Superior Indebtedness, the
rights of the holders of the Debentures shall be subrogated to the rights of the
holders of Superior Indebtedness to receive payments or distributions of cash,
property or securities of the Corporation applicable to the Superior
Indebtedness until the principal of (and premium, if any) and interest on the
Debentures shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Superior Indebtedness of any
cash, property or securities to which the Holders of the Debentures or a Trustee
would be entitled except for the provisions of this Section, and no payment over
pursuant to the provisions of this Section to the holders of Superior
Indebtedness by Holders of the Debentures or the Trustee, shall, as between the
Corporation, its creditors other than holders of Superior Indebtedness, and the
Holders of the Debentures, be deemed to be a payment by the Corporation to or on
account of the Superior Indebtedness. It is understood that the provisions of
this Section are and are intended solely for the purpose of defining the
relative rights of the Holders of the Debentures, on the one hand, and the
holders of the Superior Indebtedness, on the other hand.
F. The terms "paid in full" and "payment in full" as used in this
Section with respect to Superior Indebtedness mean the receipt, in cash or
securities (taken at their market
-12-
<PAGE>
value at the time of the receipt thereof), of the principal amount of the
Superior Indebtedness (and any premium due thereon) and full interest thereon to
the date of such payment of principal and all other amounts due to holders of
Superior Indebtedness pursuant to the provisions of the instruments providing
therefor.
G. Nothing herein shall be construed as preventing a Debentureholder
from converting Debentures to Common Stock during any period of continuing
default respecting Superior Indebtedness, nor shall a Debentureholder be
prohibited from selling any shares of Common Stock issued upon such conversion
which are otherwise saleable.
IX. Redemption.
-----------
A. The Debentures may be redeemed in whole or in part at the election
of the Corporation upon not less than 30 nor more than 60 days prior written
notice by mail, at any time up to 270 days following the Initial Closing Date,
if, during such 270 day period, the closing bid price for the Common Stock for
any 20 trading days within any 30 consecutive trading day period as quoted on
the OTC Electronic Bulletin Board (or such other quotation service as is quoting
bid and asked prices for the Common Stock), or the closing bid price for the
Common Stock as reported by the NASDAQ Stock Market or any other national
exchange upon which the Common Stock is listed for trading which has closing bid
reporting, is less than the Minimum Conversion Price per share. Notwithstanding
the foregoing, if the 20 day period during which the price of the Common Stock
is less than the Minimum Conversion Price falls totally with the last 60 days of
the 270 days following the Initial Closing Date, the Corporation shall have a
full 60 days from the end of such 270 day period to exercise its rights of early
redemption.
B. To redeem the Debentures, the Corporation shall pay the Holders 118%
of the principal face amount of the Debentures being redeemed, together with
accrued but unpaid interest owing to the date of redemption. Any Debentures
which are redeemed in part only shall be redeemed in principal amounts of $1,000
or whole multiples of $1,000.
C. The notice of redemption to be sent to all Debentureholders (the
"Redemption Notice") shall state the Redemption Date, the Paying Agent with whom
funds sufficient to make the redemption have been deposited, and the dollar
amount of principal and interest to be redeemed from each such holder. Any
partial redemption shall be pro rata as between the Debenture holders.
D. Notwithstanding the above, any Debentureholder may convert the
principal and accrued interest so called for redemption into shares of the
Corporation's Common Stock at any time prior to the Redemption Date if, prior to
such date, the Increase Amendment has been approved by shareholders of the
Corporation.
X. Periodic Reports.
------------------
Debentureholders shall be sent the same reports of the Corporation as
holders of Common Stock are sent, at the same time as sent to holders of Common
Stock.
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<PAGE>
XI. Debenture Register.
------------------
The Corporation shall cause to be kept at its principal office a register
in which, subject to such reasonable regulations as it may prescribe, the
Corporation shall provide for the registration of Debentures and the
registration of transfers of Debentures.
At the option of the Holder, Debentures may be exchanged for other
Debentures, of a like aggregate principal amount upon surrender of the
Debentures to be exchanged. Whenever any Debentures are so surrendered for
exchange, the Corporation shall execute the Debentures which the Debentureholder
making the exchange is entitled to receive.
Subject to reasonable bonding, indemnification or other requirements as
the Corporation may determine, the Corporation shall replace lost, stolen or
mutilated Debenture certificates with replacement certificates.
XII. Definitions.
------------
In addition to the terms defined elsewhere in this Debenture Agreement, the
following terms have the meanings stated herein:
"Advance Conversion Notice" means the notice of conversion to be delivered
in advance of actual physical delivery of a Debenture Certificate as specified
in Subsection V.C. of this Debenture Agreement.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Business Day" means each day which is neither a Saturday, Sunday nor other
day on which banking institutions in Emeryville, California are authorized by
law to remain closed.
"Common Stock" means the Common Stock of the Corporation of the class
authorized at the date of issuance of the Debentures and stock of any other
class into which such presently authorized Common Stock may be changed, and any
other shares of stock of the Corporation which do not have any priority in the
payment of dividends or upon liquidation over any other class of stock.
"Common Stock Conversion Date" means the date a Debentureholder surrenders
a Debenture certificate to the Corporation at its Principal Office, accompanied
by the "Conversion Notice", or the first Business Day thereafter if such date is
not a Business Day.
"Conversion Notice" means a written notice from the Debentureholder
addressed to the Corporation advising the Corporation that a Debentureholder is
converting the Debenture
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<PAGE>
into shares of the Corporation's Common Stock, accompanied by the Debenture
certificate being so converted.
"Conversion Price" means the per share price of the Common Stock then
applicable to determine the number of shares of Common Stock issuable upon
conversion of the Debenture into Common Stock.
"Corporation" means the person named as the "Corporation" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions hereof, and thereafter "Corporation"
shall mean such successor corporation.
"Debentureholder" or "Holder" when used with respect to any Debenture
means the person in whose name such Debenture is registered in the Corporation's
books of record.
"Default Interest" means two percent (2%) per annum over the Applicable
Interest Rate, as defined in the first paragraph of this Debenture Agreement.
"Delivery Date" means the date three (3) business days after the date
on which the Company receives an original Conversion Notice and Debenture
Certificate as described in Subsection V.C. of this Debenture Agreement.
"Increase Amendment" means the proposed amendment to the Corporation's
Articles of Incorporation by which approval from shareholders for an increase in
authorized Common Stock to 40,000,000 shares is to be sought by the Corporation
at the next Annual meeting of Shareholders of the Corporation after the date of
first issuance of the Debentures.
"Initial Closing Date" means the date upon which any Debentures were
first sold, and consideration therefor received by, the Corporation.
"Interest Payment Record Dates" mean March 31, June 30, September 30
and December 31 of each year.
"Market Price" means the price of the Common Stock as calculated
pursuant to the formula contained in Paragraph I.D of this Debenture Agreement.
"Maturity Date" means December 31, 1999, or the first Business Day
thereafter.
"Minimum Conversion Price" means the minimum Conversion Price
applicable over the first 270 days following the Initial Closing Date, which
price shall be not less than $4.00 per share, subject to appropriate adjustment
in the event of any stock splits or other transactions affecting the Common
Stock.
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<PAGE>
"Outstanding" when used with respect to Debentures means, as of the
date of determination, all the 8% Adjustable rate Convertible Subordinated
Debentures due December 31, 1999 theretofore authenticated and delivered,
except:
A. Debentures theretofore cancelled or delivered to the
Corporation for cancellation;
B. Debentures for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Paying Agent
in trust for the Holders of such Debentures, provided that, if such
Debentures are to be redeemed, notice of such redemption has been duly
given pursuant to this Debenture Agreement or satisfactory provision
therefor has been made; and
C. Debentures in exchange for or in lieu of which other
Debentures have been authenticated and delivered; provided, however,
that in determining whether the Holders of the requisite principal
amount of Debentures Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder,
Debentures owned by the Corporation or any other obligor upon the
Debentures or any Affiliate of the Corporation or such other obligor
shall be disregarded and deemed not to be outstanding. Debentures so
owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the
Corporation the pledgee's right so to act with respect to such
Debentures and that the pledgee is not the Corporation or any other
obligor upon the Debentures or any Affiliate of the Corporation or such
other obligor.
"Paying Agent" means any person (which may include the Corporation)
authorized by the Corporation to pay the principal of (and premium, if any) or
interest on any Debentures on behalf of the Corporation.
"Place of Payment" means the principal office or agency of the
Corporation, presently located in Emeryville, California, which may be changed
by the Corporation by written notice to Debentureholders.
"Preferred Stock" means the Corporation's no par value Series A
Cumulative Convertible Redeemable Preferred Stock, stated value $1.00 per share,
to be designated by the Corporation's Board of Directors following approval of
the Preferred Stock Amendment by the Corporation's shareholders.
"Preferred Stock Amendment" means the proposed amendment to the
Corporation's Articles of Incorporation by which approval from shareholders for
authority to issue up to a total of 15,000,000 shares of preferred stock
(4,000,000 of which are to be designated by the Board of Directors as no par
value Series A Cumulative Convertible Redeemable Preferred Stock, stated value
$1.00 per share) is to be sought by the Corporation at the next Annual meeting
of Shareholders of the Corporation after the date of first issuance of the
Debentures.
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<PAGE>
"Preferred Stock Conversion Date" means the effective date of the
Preferred Stock Amendment upon which the Debentures shall be deemed
automatically converted into shares of the Corporation's Preferred Stock without
any further action by the Debentureholders.
"Principal Office" means the offices of the Corporation in Emeryville,
California, or such other office as designated by the Corporation through notice
to the Debentureholders.
"Qualified Public Offering" has the meaning ascribed to it in Section IV.B.
"Redemption Date" when used with respect to any Debenture to be
redeemed means the date fixed for such redemption.
"Redemption Notice" means the written notice of redemption to be sent
to all Debentureholders advising that the Corporation is exercising its right of
redemption and stating the Redemption Date, the Paying Agent with whom funds
sufficient to make the redemption have been deposited, and the dollar amount of
principal and interest to be redeemed from each Debentureholder.
"SEC" means the United States Securities and Exchange Commission, or any
successor thereto.
"Subsidiary" means any corporation of which the Corporation, and one or
more Subsidiaries, or any one or more Subsidiaries, directly or indirectly own
more than 50% of the outstanding capital stock having under ordinary
circumstances (not dependent upon the happening of a contingency) voting power
in the election of members of the board of directors, managers or trustees of
such corporation.
"Superior Indebtedness" means (a) the principal of, premium, if any,
and accrued and unpaid interest on (i) indebtedness of the Corporation for money
borrowed, whether outstanding on the date of execution of this Indenture or
thereafter created, incurred or assumed, (ii) guarantees by the Corporation of
indebtedness for money borrowed by any other person, whether outstanding on the
date of execution of this Indenture or thereafter created, incurred or assumed,
(iii) indebtedness evidenced by notes, Debentures, bonds or other instruments of
indebtedness for the payment of which the Corporation is responsible or liable,
by guarantees or otherwise, whether outstanding on the date of execution of this
Indenture or thereafter created, incurred or assumed, (iv) obligations of the
Corporation under any agreement to lease, or lease of, any real or personal
property, whether outstanding on the date of execution of this Indenture or
thereafter created, incurred or assumed, (b) any other indebtedness, liability
or obligation, contingent or otherwise, of the Corporation and any guarantee,
endorsement or other contingent obligation in respect thereof, whether
outstanding on the date of execution of this Indenture or thereafter created,
incurred or assumed, and (c) modifications, renewals, extensions and refundings
of any such indebtedness, liabilities or obligations; unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is provided that such indebtedness,
-17-
<PAGE>
liabilities or obligations, or such modification, renewal, extension or
refunding thereof, or the obligations of the Corporation pursuant to such a
guarantee, are not superior in right of payment to the Debentures; provided,
however, that Superior Indebtedness shall not be deemed to include (i) the
obligation of the Corporation to OMRON SYSTEMS, INC., under that certain Secured
Installment Note dated March 27, 1995 in the principal amount of $387,866 (as of
June 30, 1997), (ii) any obligation of the Corporation to any Subsidiary, (iii)
obligations in respect of shares of capital stock of the Corporation (except for
obligations to issue capital stock outstanding as of the date of issuance of the
Debentures) and (iv) obligations specifically subordinate to the Debentures.
"Surrender Date" means the date upon which Debentures are physically
surrendered to the Corporation in exchange for a certificate representing the
shares of Preferred Stock or Common Stock, as the case may be, issuable upon
conversion of the Debenture.
XIII. Miscellaneous.
--------------
A. There is no Indenture or Indenture Trustee in respect of the
Debentures.
B. The terms and conditions of this Debenture Agreement, including but
not limited to the payment of interest hereunder, shall at all times be
construed so as to conform to the laws of the State of Colorado, without regard
to provisions regarding conflict or choice of laws.
C. In the event any term or provision of this Debenture Agreement or
the Debentures is declared to be illegal or invalid, for any reason, this
Debenture Agreement and the Debentures shall remain in full force and effect and
the same shall be interpreted as though such invalid or illegal provision were
not a part thereof.
D. In the event that suit is instituted to enforce any provision of
this Debenture Agreement, the parties agree that the exclusive proper venue
shall be in any court of competent jurisdiction in a judicial district (Federal
or state) in Denver, Colorado. Further, the parties agree that, in the event an
attorney is engaged to enforce the terms of this Debenture Agreement and/or the
Debentures, the prevailing party shall be reimbursed by the other party for all
its reasonable costs and attorney's fees.
E. Elections and demands hereunder are irrevocable. Elections, notices
and demands to Debentureholders by the Corporation are deemed made when sent by
the Corporation and election, notices and demands hereunder by a Holder to the
Corporation are deemed made when received by the Corporation.
F. The principal and the Redemption Price of, and interest on, the
Debentures shall be payable at the Principal Office of the Corporation ("Place
of Payment"), provided, that principal and interest may be paid, at the option
of the Corporation, by check or share
-18-
<PAGE>
certificate mailed to the Person entitled thereto at such Person's address last
appearing on the Corporation's records.
G. Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Debenture shall bind the Holder of
every Debenture issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done or suffered to be done
by the Corporation in reliance thereon, whether or not notation of such action
is made upon such Debenture.
H. In any case where notice to Debentureholders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Debentureholder shall affect the sufficiency of such notice
with respect to other Debentureholders.
I. In any case where the date of Redemption Date, or the Stated
Maturity of any Debenture shall not be a Business Day, then (notwithstanding any
other provision of this Debenture Agreement) payment of the principal of (and
premium, if any) or interest on, or conversion of, any Debentures need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the nominal date of any such Redemption
Date, or on such last date for conversion, and no interest shall accrue for the
period from and after any such nominal date.
J. No right or remedy herein conferred upon or reserved to the
Debentureholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
K. No recourse under or upon any obligation, covenant or agreement of
this Debenture Agreement or the Debentures, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer, director or agent, as such, past, present or future, of
the Corporation or of any successor corporation, either directly or through the
Corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that the obligations hereunder are solely corporate obligations of
the Corporation, and that no such personal liability whatever shall attach to,
or is or shall be incurred by, the incorporators, stockholders, officers,
directors or agents, as such, of the Corporation or of any successor
corporation, or any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Debenture Agreement or the Debentures or implied therefrom;
and that any and all such personal liability, either at common law or in equity
or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director, as such,
because of the creation of the indebtedness hereby
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<PAGE>
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Debenture Agreement or the Debentures, or implied therefrom,
are hereby expressly waived and released as a condition of and as a
consideration for, the issue of such Debentures.
U.S. WIRELESS DATA, INC.,
a Colorado corporation
ATTEST:
By /s/ Evon A. Kelly
--------------------------
Chief Executive Officer
/s/ Robert E. Robichaud
- -----------------------
Secretary or Assistant Secretary Date December 8, 1997
----------------
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<PAGE>
EXHIBIT 1
Debenture Number: [SAMPLE]
--------
THIS DEBENTURE IS SUBJECT TO ALL TERMS AND CONDITIONS OF THAT CERTAIN DEBENTURE
AGREEMENT DATED AS OF ____________________, 1997, BETWEEN THE UNDERSIGNED AND
THE HOLDERS OF DEBENTURE CERTIFICATES EVIDENCED HEREBY.
THIS DEBENTURE CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY AN AUTHORIZED
REPRESENTATIVE OF THE CORPORATION.
THE DEBENTURES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE OR FOREIGN LAW. THE DEBENTURES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS (i) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND ANY APPLICABLE STATE AND FOREIGN SECURITIES ACT OR OTHER LAW OR (ii)
THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION, THAT REGISTRATION OR OTHER COMPLIANCE IS NOT
REQUIRED UNDER ANY OF SUCH ACTS OR LAWS.
[LEGENDS REQUIRED BY STATE LAWS]
U.S. WIRELESS DATA, INC.
8% ADJUSTABLE RATE CONVERTIBLE SUBORDINATED
DEBENTURES DUE DECEMBER 31, 1999
Amount: $ ________________ Emeryville, California
U. S. Wireless Data, Inc., a Colorado corporation (the "Corporation"), for value
received, promises to pay to or registered assigns, the principal sum of ($ ),
payable in one payment of principal --------------------------------------
- ------------------------ and all accrued but unpaid interest then due, on
December 31, 1999 (the "Maturity Date"), unless earlier converted pursuant to
the terms of this Debenture.
Interest shall accrue on this Debenture at the initial rate of eight percent
(8%) per annum, subject to adjustment of such rate as provided for herein, the
primary rate of interest in effect at any time being referred to as the
"Applicable Interest Rate."
<PAGE>
This Debenture is issued as part of a series of 8% Adjustable Rate Convertible
Subordinated Debentures privately issued by the Corporation and known as the "8%
Adjustable Rate Convertible Subordinated Debentures, Due December 31, 1999,"
each of which has been or will be issued to a Holder who has or will represent
to the Corporation that he, she or it is an accredited investor, as that term is
defined in Rule 501(a) of the Securities Act of 1933, as amended (the "1933
Act"). The Holder of this Debenture hereby re-affirms such representation to the
Corporation and each other Holder of Debentures. All such Debentures are
collectively known as the "Debentures". The minimum principal dollar amount of
the Debentures is $2,000,000 and the maximum principal amount may be up to
$4,000,000.
Any principal or interest on this Debenture which is payable, but is not
punctually paid or duly provided for at the Maturity Date or any Interest
Payment Record Date (herein called "Default Interest") shall bear compound
interest at a rate of two percent (2%) over the Applicable Interest Rate from
the date of default until paid.
Transfers and/or conversions of this Debenture must be accompanied by the form
attached hereto, duly completed by the Holder.
Duly executed, authorized and witnessed by the undersigned authorized officers
of the Corporation:
U.S. WIRELESS DATA, INC.,
a Colorado corporation
ATTEST:
By ______________________________
Chief Executive Officer
________________________________
Secretary or Assistant Secretary Date ____________________________
-2-
<PAGE>
U.S. WIRELESS DATA, INC.
8% ADJUSTABLE RATE CONVERTIBLE SUBORDINATED
DEBENTURES DUE DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FORM REQUIRED FOR TRANSFERS
FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO
__________________________________ WHOSE ADDRESS IS:__________________________,
__________________________________ DOLLARS OF THE DEBENTURES REPRESENTED BY THE
WITHIN CERTIFICATE NO. , AND DOES HEREBY APPOINT THE SECRETARY OF THE
CORPORATION ATTORNEY TO TRANSFER THE SAID DEBENTURES ON THE BOOKS OF THE WITHIN
NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
SIGNATURE:______________________________
PRINT NAME AND ADDRESS: _______________________________________________________
_______________________________________________________________________________
DATED:
------------------------------------------------------------------------
WITNESS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM REQUIRED FOR CONVERSION
THE UNDERSIGNED HEREBY CONVERTS A TOTAL OF ______________________ DOLLARS OF THE
DEBENTURES REPRESENTED BY THE WITHIN CERTIFICATE NO.___________________ , AND
DOES HEREBY APPOINT THE SECRETARY OF THE CORPORATION ATTORNEY TO CANCEL THE
DEBENTURES BEING SO CONVERTED AND, IF LESS THAN ALL DEBENTURES REPRESENTED
HEREBY ARE BEING CONVERTED, TO TRANSFER ANY REMAINING PORTIONS OF THE DEBENTURES
OF THE WITHIN NAMED CORPORATION, WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
SIGNATURE:
---------------------------------------------------------------------
PRINT NAME AND ADDRESS:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DATED:
--------------------------------------------------------------------------
WITNESS:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
COMPANY USE ONLY:
DATE NOTICE RECEIVED FOR CONVERSION:__________________________________________
DATE ORIGINAL DEBENTURE CERTIFICATE AND NOTICE RECEIVED:______________________
SIGNATURE OF COMPANY REPRESENTATIVE:__________________________________________
CALCULATION OF CONVERSION PRICE AND NUMBER OF SHARES ISSUABLE UPON CONVERSION:
DATE INSTRUCTION SENT TO TRANSFER AGENT: ____________________________________
DEBENTURE CERTIFICATE REISSUE (CERTIFICATE NUMBER AND AMOUNT):________________
- ------------------------------------------------------------------------------
Exhibit 10.2
U.S. WIRELESS DATA, INC.
FORM OF PROPOSED
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
FIRST: That the name of the Corporation is U.S. Wireless Data, Inc.
SECOND: That the text of the Amendment to the Articles of Incorporation of
the Corporation determining the designations, preferences, limitations and
relative rights of the Series A Preferred Stock is set forth on Exhibit A
attached hereto and is incorporated herein by reference.
THIRD: That the Amendment was adopted on ______________________, 1997.
FOURTH: That the Amendment was duly adopted by the Board of Directors of
the Corporation. IN WITNESS WHEREOF, U.S. Wireless Data, Inc. has caused these
Articles of Amendment to be duly executed this _____ day of __________________,
1997.
U.S. Wireless Data, Inc.
By:_________________________
Evon A. Kelly,
Chief Executive Officer
ATTEST:
__________________________
Robert E. Robichaud,
Assistant Secretary
<PAGE>
EXHIBIT A
DESIGNATION OF SERIES A CUMULATIVE
CONVERTIBLE REDEEMABLE PREFERRED STOCK
U.S. Wireless Data, Inc., a Colorado corporation (the "Corporation"),
hereby designates the preferences, limitations and relative rights of its Series
A Cumulative Convertible Redeemable Preferred Stock as follows:
1. DESIGNATION
Four Million (4,000,000) shares of the Corporation's
15,000,000 total authorized shares of no par value preferred stock are hereby
designated as Series A Cumulative Convertible Redeemable Preferred Stock
(hereinafter referred to as the "Series A Preferred").
2. STATED VALUE
The Series A Preferred shall have a stated value of one dollar
($1.00) per share (hereafter the "Stated Value").
3. DIVIDENDS
a. Right to Dividends and Initial Dividend Rate. The holders
of outstanding Series A Preferred shall be entitled to receive cumulative
dividends at the initial rate of eight percent (8%) per share, per annum, based
on the Stated Value of the Series A Preferred. Cumulative dividends shall accrue
and be paid quarterly to record holders of Series A Preferred as of March 31,
June 30, September 30 and December 31 of each year (the "Dividend Record
Dates"), in arrears, if, as and when declared by the Board of Directors, out of
assets at the time legally available for such dividends.
b. Adjustment of Dividend Rate. The dividend payable on the
Series A Preferred shall be reduced to four percent (4%) per annum upon initial
effectiveness of a registration statement with the United State Securities and
Exchange Commission (the "SEC") covering the shares of Common Stock into which
the Series A Preferred is convertible. Thereafter, interest shall continue at
such rate until all of the Series A Preferred has been converted to Common Stock
or all shares of the Series A Preferred have been redeemed by the Corporation.
<PAGE>
c. Payment Dates for Dividends. Dividends shall be paid on or
before the 15th of the month following each Interest Payment Record Date, or the
next Business Day thereafter if such day is not a Business Day.
d. Payment of Dividends. The Corporation shall pay all
dividends on the Series A Preferred in shares of its no par value common stock
(the "Common Stock") to the extent the Corporation has a sufficient number of
shares of Common Stock available to pay such dividends. Shares of Common Stock
used to pay dividends may be authorized and unissued shares or treasury shares
of the Corporation. The Corporation agrees to use its best efforts to maintain a
sufficient number of shares of Common Stock available at all times to allow for
the payment of dividends on the Series A Preferred in shares of Common Stock. If
the Corporation has an insufficient number of shares of Common Stock available
at any time to pay all dividends then owing in shares of Common Stock, the
Corporation may pay all or any part of such dividend in cash or other property
(including other securities of the Corporation) having a value equal to the
dividend then payable.
e. Number of Shares of Common Stock Issuable as Dividends. For
any dividend being paid in shares of Common Stock, the number of shares of
Common Stock issuable per share of Series A Preferred shall be calculated as
follows: The amount of the dividend owing on the Series A Preferred at the
Dividend Record Date (in dollars) shall be divided by the average closing bid
price of the Common Stock over the last five trading days prior to the Dividend
Record Date as quoted on the OTC Electronic Bulletin Board, or such other
quotation service as is quoting bid and asked prices for the Common Stock. If
the Common Stock is then listed on the NASDAQ Stock Market or any other national
exchange which has closing bid price reporting, the five day average of the
closing bid price for the Common Stock for such days as reported on NASDAQ or
such other national securities exchange shall be substituted for the five day
average closing bid price as reported by the OTC Electronic Bulletin Board or
other quotation service. In the event the Common Stock is not quoted on any
exchange or quotation service, then the Board of Directors, acting in good
faith, shall adopt a resolution valuing the Common Stock for purposes of
determining the number of shares of Common Stock issuable as a dividend at such
Dividend Record Date. The price of the Common Stock used for purposes of
determining the number of shares issuable as dividends on the Series A Preferred
or for purposes of conversion of Debentures into Common Stock pursuant to
Section 5 of this designation is hereafter referred to as the "Market Price."
When computed in connection with a conversion transaction, the average shall be
computed using the five trading days prior to the Conversion Date.
f. Payment of Dividends to Holders Based on Total Shares of
Series A Preferred Registered in the Name of Such Holder. Notwithstanding the
number of certificates held by an individual holder of Series A Preferred, the
Corporation shall be entitled to cumulate the number of shares represented by
all such certificates held in the name of the same holder, and the cumulative
total shall then be multiplied by the number of Common Shares issuable as a
dividend per share of Series A Preferred to determine the total number of shares
of Common Stock issuable to such holder at each Dividend Record Date.
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<PAGE>
g. No Issuance of Fractional Shares. No fractional shares of
Common Stock will be issued as a dividend on the Series A Preferred; rather, a
holder of Series A Preferred otherwise entitled to a fractional share of Common
Stock as a dividend may receive, at the sole option of the Corporation, either
(i) cash in lieu of such fractional share, or (ii) the next higher whole number
of shares of Common Stock if the fractional share to which such holder is
otherwise entitled is equal to 0.5 or greater, or the next lower whole number of
shares of Common Stock if the fractional share to which such holder is otherwise
entitled is less than 0.5.
h. Dividend Statements. At the time of each dividend payment,
the Corporation shall provide each holder of Series A Preferred with a statement
showing the manner in which it calculated the dividend payable at such Dividend
Record Date, including the calculation used to determine the number of shares of
Common Stock issued as such dividend.
i. Place of Dividend Payment. Dividends shall be payable, and
transfer of the Series A Preferred will be registrable, at the Principal Office
of the Company. Upon request by a holder of Series A Preferred, payment of
dividends shall be made by delivery of a check or Common Stock certificates to
the registered holder mailed to such holder's address as it appears on the
Series A Preferred register.
j. Priority of Dividends. The Corporation shall make no
Distribution (as defined below) to the holders of Common Stock in any fiscal
year unless and until any and all unpaid dividends shall have been paid upon all
Series A Preferred. "Distribution" as used in this Section means the transfer of
cash or property without consideration, whether by way of dividend or otherwise
(except a dividend in shares of the Corporation), or the purchase or redemption
of shares of the Corporation for cash or property, but does not include (i) the
repurchase of shares from a terminated employee or consultant of the Corporation
within the terms of an agreement approved by the Corporation's Board of
Directors or (ii) a distribution which is part of a voluntary liquidation,
dissolution or winding up of the Corporation.
k. Dividends Cumulative. All dividends owing on the Series A
Preferred shall be cumulative. Dividends shall accrue or accumulate to the
extent they are unpaid. Unpaid dividends shall bear and accrue interest at the
same rate applicable to the Series A Preferred as of the time of the Dividend
Record Date for the unpaid dividend. The unpaid dividends, together with
interest thereon, shall be paid as soon as the Corporation is legally able to
pay any such dividends and interest. Interest on unpaid dividends shall also be
paid in shares of Common Stock, if possible, with the number of shares of Common
Stock issuable as interest being calculated in the same manner as for dividends.
4. LIQUIDATION PREFERENCE
a. Basic Preference Rights. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation (a "Liquidation"):
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<PAGE>
(1) Payments to Holders of Series A Preferred. Each holder of shares
of Series A Preferred then outstanding shall be entitled to receive an
amount equal to $1.00 for each share of Series A Preferred (the "Series A
Liquidation Preference"), plus all accrued and unpaid dividends thereon to
the date fixed for distribution, before any payment shall be made in
respect of the Corporation's Common Stock.
(2) Payments to Holders of Common Stock. After payment has been made
to the holders of Series A Preferred of the full amounts to which they are
entitled under Paragraph 4(a)(1) above, the holders of Common Stock shall
be entitled to receive all declared and unpaid dividends thereon to the
date fixed for distribution.
(3) Should Assets Exceed Payments. The remaining assets of the
Corporation available for distribution to shareholders after payments are
made under Paragraphs 4(a)(1) and 4(a)(2) above, shall be distributed pro
rata among all of the Corporation's shareholders. For purposes of this
Paragraph 4(a)(3), holders of Series A Preferred shall share in this
distribution in proportion to the number of shares of Common Stock they
would hold had full conversion of their Series A Preferred occurred on the
day prior to the Liquidation, according to the provisions of Sections 5 and
6, below.
(4) Should Assets Be Insufficient. If upon a Liquidation the assets of
the Corporation available for distribution to its shareholders shall be
insufficient to make full payments due under Paragraph 4(a)(1), then the
holders of the Series A Preferred then outstanding shall share ratably in
proportion to the total number of such shares owned by each such holder,
first in proportion to the respective Series A Liquidation Preference, and
next, in proportion to the amount of unpaid dividends.
(5) Source of Liquidation Payment. The holders of stock shall be paid
under this Subsection 4(a) out of the assets of the Corporation available
for distribution to shareholders, whether from capital, surplus or
earnings.
(6) Merger or Acquisition. The Corporation shall not effect a merger,
reorganization, or consolidation of the Corporation into or with another
corporation or the sale or transfer of all or substantially all of the
assets of the Corporation until the Corporation shall have provided notice
to all holders of Series A Preferred pursuant to Subsection 4(b), below.
Unless otherwise agreed to by the holders of a majority of the Series A
Preferred which is then outstanding, a merger, consolidation,
reorganization or sale of all or substantially all of the Corporation's
assets shall be deemed to be a Liquidation.
b. Notice. In the event of any Liquidation of the Corporation, or in the
event of any merger, reorganization, or consolidation of the Corporation into or
with another corporation, or the sale or transfer of all or substantially all of
the assets of the Corporation, the Corporation shall give each holder of Series
A Preferred initial written notice of the proposed action within fifteen (15)
days after the date the Board of Directors approves such
-4-
<PAGE>
action, or twenty (20) days prior to any shareholders' meeting called to approve
such action, or twenty (20) days after the commencement of any involuntary
proceeding, whichever is earlier.
(1) Content of Notice. Such initial written notice (the "Initial
Notice") shall describe the material terms and conditions of the proposed
action, including a description of the stock, cash, and property to be
received by the holders of Series A Preferred upon consummation of the
proposed action. If any material change in the facts set forth in the
Initial Notice shall occur, the Corporation shall promptly give another
written notice (the "Subsequent Notice") to each holder of the Series A
Preferred of that material change.
(2) Notice Precedes Consummation. The Corporation shall not consummate
any Liquidation of the Corporation before the expiration of twenty (20)
days after the mailing of the Initial Notice or ten (10) days after the
mailing of any Subsequent Notice, whichever is later. But any such 20-day
or 10-day period may be shortened upon the written consent of the holders
of a majority of the Series A Preferred then outstanding.
c. Non-Cash Distributions on Liquidation. In the event of any
Liquidation of the Corporation which will involve the distribution of
assets other than cash, the Corporation shall promptly engage a competent
independent appraiser to determine the value of the assets to be
distributed. With respect to the valuation of securities, the Corporation
shall engage such appraiser as shall be approved by the holders of a
majority of the Series A Preferred then outstanding. The Corporation shall,
upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Series A Preferred of the appraiser's valuation.
5. CONVERSION
a. Conversion Rights.
(1) Optional Conversion. Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, into fully paid and
non-assessable shares of Common Stock of the Corporation at any time after
the date of issuance and following (a) the authorization of an increase in
the Corporation's authorized Common Stock to no less than 40,000,000 shares
and (b) the first to occur of (i) effectiveness with the SEC of a
registration statement covering the shares of Common Stock issuable upon
conversion of the Series A Preferred or (ii) the lapse of 150 days from the
Initial Closing Date. The Series A Preferred shall be so convertible up to
and including the earlier of (i) the day prior to the closing of a
Qualified Public Offering (as defined below) or (ii) the day fixed for
redemption of any and all remaining outstanding shares of Series A
Preferred (the "Conversion Period").
(2) Automatic Conversion. All outstanding shares of Series A Preferred
shall automatically be converted into fully paid and non-assessable shares
of
-5-
<PAGE>
Common Stock of the Corporation, at the then applicable Conversion Price
(as defined below), immediately prior to the closing of a firm commitment
underwritten public offering of the shares of Common Stock of the
Corporation pursuant to a registration statement filed under the Securities
Act of 1933, as amended, at a price per share of not less than ten dollars
($10.00) per share (prior to underwriter commissions and expenses and
adjusted for stock splits, stock dividends, reorganizations and the like)
and with aggregate gross offering proceeds to the Corporation of not less
than Five Million Dollars ($5,000,000) (a "Qualified Public Offering").
b. Conversion Formula. Each share of Series A Preferred shall be valued at
one dollar ($1.00) (the "Series A Purchase Price") for purposes of either
optional or automatic conversion, notwithstanding any accrued but unpaid
dividends owing on the Series A Preferred at the time of conversion. The number
of shares of Common Stock into which each share of the Series A Preferred shall
be converted shall be determined by dividing the Series A Purchase Price by the
Series A Conversion Price or the Minimum Series A Conversion Price (as
determined as provided below) which is in effect at the time of the conversion.
The Corporation shall make provision for all necessary payments as of the
Conversion Date or Automatic Conversion Date (as defined in Subsection 5(d),
below) on account of any dividends accrued and unpaid on the Series A Preferred
surrendered for conversion.
c. Conversion Price.
(1) The conversion price per share at which shares of Common Stock
shall be initially issuable upon conversion of any shares of Series A
Preferred (the "Series A Conversion Price") shall be equal to the lesser of
(i) $6.00 or (ii) 80% of the Market Price. Notwithstanding the foregoing,
for the first 270 days following the initial closing of the offering by
which the Debentures (which were converted into Series A Preferred) were
sold to investors (the "Initial Closing Date"), the Conversion Price shall
be not less than $4.00 per share, which $4.00 price shall be appropriately
adjusted in the event of any stock splits or other transactions affecting
the Common Stock (the "Minimum Series A Conversion Price"). After such 270
day period, the Minimum Series A Conversion Price shall be eliminated. The
Minimum Series A Conversion price shall be further subject to adjustment as
provided in Section 6 below.
(2) The Corporation has agreed under terms contained in a separate
agreement entered between the Corporation and the holders of Series A
Preferred to register the shares of Common Stock issuable by the
Corporation as dividends on, and upon conversion of, Series A Preferred,
with the SEC. In the event such registration is not declared effective by
the SEC within 150 days of the Initial Closing Date, the Conversion Price
or the Minimum Conversion Price, as then applicable, shall thereafter be
reduced by two percent (2%) from the Conversion Price or Minimum Conversion
Price otherwise in effect at the time of conversion. The Conversion Price
or Minimum Conversion Price shall be reduced an additional two percent (2%)
off the then applicable Conversion Price or
-6-
<PAGE>
Minimum Conversion Price for each additional 30 days (or any fractional
part of such 30-day period) during which such registration is not
effective. Such reduced Conversion Price or Minimum Conversion Price shall
thereafter be effective until all Series A Preferred has been converted or
redeemed.
d. Mechanics of Conversion.
(1) Optional Conversion. Before any holder of Series A Preferred will
be entitled to convert the same into shares of Common Stock pursuant to
Paragraph 5(a)(1) hereof, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
of any transfer agent for the Series A Preferred, and shall give written
notice to the Corporation at such office that such holder elects to convert
the same and will state therein the name or names in which the certificate
or certificates for shares of Common Stock should be issued (the
"Conversion Notice"). The Conversion Notice shall be in the form printed on
the certificate(s) representing the Series A Preferred being converted. The
Holder may submit an irrevocable Conversion Notice to the Corporation in
advance of physical delivery of a specific Series A Preferred share
certificate(s) by transmitting a copy of the completed Conversion Notice
relating to the specific certificate(s) of Series A Preferred to be
tendered to the Corporation for conversion by facsimile (the "Advance
Conversion Notice"), followed by delivery to the Corporation of the
certificate(s) representing the shares of Series A Preferred that are the
subject of the Advance Conversion Notice within three (3) business days
thereafter. The Series A Preferred certificate(s) so tendered for
conversion shall be deemed to have been converted on the date the
Corporation receives the Advance Conversion Notice for such Series A
Preferred (the "Conversion Date"), provided the Advance Conversion Notice
is received by 6:00 p.m. (Eastern Time) on a Business Day, and provided
further, that the certificate representing the shares of Series A Preferred
then being converted is actually delivered to the Corporation within such
three (3) business day period. If the Advance Conversion Notice is not
received on a Business Day or by 6:00 p.m. (Eastern Time) on a Business
Day, then the Conversion Date for the Series A Preferred to which the
Advance Conversion Notice relates shall be deemed to have occurred on the
next day which is a Business Day. The Company will cause its transfer agent
to issue certificates for the shares of Common Stock issuable upon
conversion and will transmit the certificates representing such shares
(together with certificates representing the balance of any shares of
Series A Preferred not being so converted) to the Holder via express
courier, by electronic transfer, or otherwise, within three (3) business
days after receipt by the Company of the original Conversion Notice and the
Series A Preferred certificates being converted (the "Delivery Date"). If
the Holder in whose name the Series A Preferred being surrendered for
conversion requests that the Corporation issue shares of Common Stock (or
shares of Series A Preferred in replacement for shares of Series A
Preferred not being converted at the time) in a name other than such
holder's, then such holder shall be required to demonstrate, at such
holder's expense and to the Corporation's satisfaction, that an exemption
from registration under federal and state securities laws is available for
the requested issuance of shares. The Corporation may require the delivery
of an opinion of counsel to the effect that such an exemption is available
-7-
<PAGE>
for the transaction. Conversion shall be deemed to have occurred
immediately prior to the close of business on the date of surrender of the
certificate(s) for shares of Series A Preferred being converted or in the
case of an Advance Conversion Notice, the date such Advance Conversion
Notice is deemed received by the Corporation as provided above. The person
or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holder of such shares of Common Stock on such Conversion Date.
(2) Penalty for Late Delivery of Share Certificates Issuable upon
Conversion. The Company understands that a delay in the issuance of the
shares of Common Stock beyond the Delivery Date could result in economic
loss to the Holder. As compensation to the converting Holder for such loss,
the Company agrees to pay a late payment penalty to the converting Holder
for late delivery of such shares of Common Stock in accordance with the
following schedule (where "No. Business Days Late" is defined as the number
of business days beyond five (5) business days from the Delivery Date):
<TABLE>
<CAPTION>
Late Payment for Each $10,000
of Debenture Principal Amount
No. Business Days Late Being Converted to Common Stock
---------------------- -------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
10 1,000 + $200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any penalties incurred under this Paragraph in immediately
available funds upon demand. Nothing herein shall limit the converting Holder's
right to pursue actual damages for the Company's failure to issue and deliver
the Common Stock to the converting Holder. Furthermore, in addition to any other
remedies which may be available to the converting Holder, in the event the
Company fails for any reason to effect delivery of such shares of Common Stock
within five (5) business days after the Delivery Date (other than as
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<PAGE>
a result of an event in the nature of a force majeure which is totally beyond
the control of the Company), the converting Holder shall be entitled to revoke
the relevant Conversion Notice by delivering a notice to that effect to the
Company, whereupon the Company and the Holder shall be restored to their
respective positions immediately prior to delivery of the Conversion Notice. Any
shares of Common Stock delivered to Holder after such revocation shall be
forthwith returned to the Company and a replacement certificate for the shares
of Series A Preferred shall be forthwith issued in replacement for the shares
for which conversion has been so revoked.
(3) Automatic Conversion. Conversion of all the outstanding shares of
Series A Preferred into shares of Common Stock pursuant to Paragraph
5(a)(2) hereof shall be deemed to have been made automatically and
immediately prior to the closing of a Qualified Public Offering, as set
forth in Paragraph 5(a)(2) hereof (an "Automatic Conversion Date"). Upon
such automatic conversion, the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion will be treated for
all purposes as the record holder or holders of such Common Stock on the
Automatic Conversion Date whether or not such holder or holders shall have
surrendered certificates for such holder's shares of Series A Preferred to
the Corporation. Upon the Automatic Conversion Date, the certificates
representing all the shares of Series A Preferred shall be deemed void; as
soon as practicable after the surrender by any holder of a Series A
Preferred certificate, accompanied by a statement from the holder as to the
name or names in which the certificate or certificates for shares of Common
Stock should be issued (subject to the right of the Corporation to require
proof satisfactory to it, including an opinion of counsel, demonstrating
that a registration exemption is available under federal and state
securities laws for any transfer of shares into a name other than that of
the original holder), the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates
for the number of shares of Common Stock to which the holder is entitled.
(4) New Certificates. Upon conversion of only a portion of the number
of shares of Series A Preferred represented by a certificate surrendered
for conversion, the Corporation shall issue and deliver upon the written
order of the holder at the expense of the Corporation, a new certificate
covering the number of shares of Series A Preferred representing the
unconverted portion of the certificate so surrendered. The Corporation may
charge a reasonable fee for any transfer of a Series A Preferred
Certificate into the name of any person who is not the original Holder.
(5) Payment of Accrued but Unpaid Dividends on Conversion. If there
remain any accrued and unpaid dividends on Series A Preferred being
converted, the Corporation shall pay such dividends to the converting
holder at the time of conversion in the form of additional shares of Common
Stock, determined by dividing the amount of the unpaid dividends to be
applied for such purpose by the Series A Conversion Price (or, if
applicable, the Minimum Series A Conversion Price) then in effect.
-9-
<PAGE>
(6) No Fractional Shares. The Corporation shall issue no fractional
shares of Common Stock or scrip upon conversion of shares of Series A
Preferred. If more than one share of Series A Preferred shall be
surrendered for conversion at any one time by the same holder, the number
of full shares of Common Stock issuable upon their conversion shall be
computed on the basis of the aggregate number of shares of Series A
Preferred surrendered for conversion by such holder. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series A Preferred, the Corporation may, at its
sole option, pay a cash adjustment in respect of such fractional share in
an amount equal to the same fraction of the Series A Conversion Price or
Minimum Series A Conversion Price in effect as of the day of conversion,
or, in lieu of cash, issue to such holder the next higher whole number of
shares of Common Stock if the fractional share to which the holder is
otherwise entitled is equal to 0.5 or greater, or the next lower number of
whole shares of Common Stock if the fractional share to which the holder is
otherwise entitled is less than 0.5.
e. Taxes Incident to Conversion. The Corporation shall pay any and all
issue taxes and other taxes (excluding income taxes) that may be payable in
respect to any issue or delivery of shares of Common Stock on conversion of
Series A Preferred. The Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series A Preferred
so converted was registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation the
amount of any such tax, or has established, to the satisfaction of the
Corporation, that such tax has been, or will be, paid.
f. Sufficient Reserves of Stock. The Corporation shall at all times use it
s best efforts to reserve and keep available, out of its authorized but unissued
Common Stock or treasury shares, solely for the purpose of effecting the
conversion of the Series A Preferred, the full number of shares of Common Stock
deliverable upon the conversion of all Series A Preferred from time to time
outstanding.
g. Valid Issue for Conversion. All shares of Common Stock which may be
issued upon conversion of the shares of Series A Preferred shall, upon issuance
by the Corporation, be validly issued, fully paid, non-assessable and free from
all taxes, liens and charges with respect to their issuance.
h. Listing of Common Stock; Registration under Exchange Act. The
Corporation shall use its best efforts to maintain the listing of the Common
Stock on the OTC Electronic Bulletin Board or such other quotation service or
exchange on which the Common Stock may be listed, and shall not take any action
at any time while Series A Preferred is outstanding which would result in the
delisting of the Common Stock from any quotation service or exchange upon which
the Common Stock may be listed. The Corporation shall file all reports required
to be filed by it with the SEC pursuant to the Securities Exchange Act of 1934
(the "1934 Act") and/or the Securities Exchange Act of 1933 (the "1933 Act"),
and
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<PAGE>
shall not take any action which would result in the deregistration of the Common
Stock under Section 12(g) of the 1934 Act.
6. ADJUSTMENT OF CONVERSION PRICE
a. Adjustment. The Series A Conversion Price or Minimum Series
Conversion Price in effect at any time shall be adjusted from time to time as
provided in this Section 6.
b. No Adjustment for Certain Grants, Sales, or Issuances. Anything in
these Articles of Incorporation to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Series A Conversion Price or
Minimum Series A Conversion Price, as the case may be, in the case of the grant
of options or other rights to purchase, or the sale of, or the issuance of,
shares of Common Stock or obligations or securities convertible into Common
Stock of the Corporation:
(1) to its officers, employees, directors, and consultants
pursuant to the Corporation's 1992 Stock Option Plan or otherwise, so long as
any such grants, sales or issuances do not exceed in the aggregate 3,500,000
shares of Common Stock or obligations or securities convertible into Common
Stock;
(2) upon the exercise of warrants to purchase Common Stock
which are outstanding as of the initial date of the Corporation's Private
Offering Memorandum by which the Debentures convertible into Series A Preferred
were offered to investors; and
(3) upon the issuance of any shares of Common Stock as a
dividend on, or in conversion of, any shares of the Series A Preferred.
c. Stock Splits, Stock Dividends, Stock Combinations. In case the
Corporation shall at any time subdivide the outstanding shares of Common Stock,
issue a stock dividend on the outstanding Common Stock, combine the outstanding
shares of Common Stock or reclassify the outstanding shares of Common Stock into
securities of a different class, the Series A Conversion Price and/or the number
of shares of Common Stock and/or the type of securities issuable upon conversion
of the Series A Preferred in effect immediately prior to such subdivision,
dividend or combination shall be equitably adjusted to account for any such
transaction. The Board of Directors of the Corporation shall determine in good
faith any such adjustments and its good faith determination, absent a showing of
fraud, shall be binding and conclusive. Notice shall be provided to all holders
of Series A Preferred advising of any adjustments to the conversion terms
applicable to the Series A Preferred as soon as practicable following the date
of any such adjustment.
d. Adjustment Formulas for Certain Issuances. Should the Corporation,
at some point after the first issuance of the Series A Preferred and before the
lapse of the Minimum Series A Conversion price, issue or sell Common Stock, a
right or option to purchase Common Stock, or shares of stock or an obligation
convertible into Common Stock for a
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<PAGE>
certain consideration receivable by the Corporation per share ("Consideration
Receivable") (with the product of the number of such shares times such
Consideration Receivable being the "Aggregate Consideration Receivable") which
is less than the Minimum Series A Conversion Price in effect at the time of such
issuance, then the Minimum Series A Conversion Price shall immediately and
automatically be adjusted as determined to the nearest cent by the following
formula:
Where z = new Minimum Series A Conversion Price;
x = current Minimum Series A Conversion Price;
y = the Aggregate Consideration Receivable on such
issuance, sale, etc.;
a = number of shares of Common Stock outstanding just
prior to such issuance, sale, etc.;
b = number of shares of Common Stock
to which all holders of Options (as
defined in 6(d)(1) below) are
entitled to subscribe for, or
purchase immediately prior to, such
issuance, sale, etc.;
c = number of shares of Common Stock
issuable to all holders of
Convertible Securities (as defined
in 6(d)(2) below), immediately prior
to such issuance, sale, etc. (using
the Series A Conversion Price then
in effect); and
d = number of shares of Common Stock
to be issued, or deemed to be issued
under 6(d)(1) and (2) below, upon
and immediately after such issuance,
sale, etc.;
then z = (x x (a + b + c)) + y
a + b + c + d
<PAGE>
provided, however, that the Minimum Series A Conversion Price shall not be
adjusted in the case of an equity financing of the Corporation made to holders
of Series A Preferred at a price per share which is less than the Minimum Series
A Conversion Price to the extent any such holder (together with its affiliates,
if any) does not purchase securities of the Corporation in such financing
sufficient to retain its or their total pro rata ownership of the Corporation,
with such ownership being calculated immediately after the closing of such
financing as if all securities of the Corporation other than its outstanding
Common Stock were converted or exercised, as appropriate, into shares of the
Corporation's Common Stock.
For purposes of this Subsection 6(d) only, the following
provisions shall apply:
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<PAGE>
(1) Options or Warrants. In case of the issuance or sale by the
Corporation in any manner of any options for the purchase of shares of Common
Stock or of any rights to subscribe for or to purchase shares of Common Stock
("Options"), all shares of Common Stock which the holders of such Options shall
be entitled to subscribe for or purchase pursuant to such Options shall be
deemed to be issued or sold as of the date of the offering of such rights or the
granting of such Options.
(2) Convertible Securities. In the case of the issuance or sale
by the Corporation in any manner of any obligations or of any shares of stock of
the Corporation that shall be convertible into or exchangeable for Common Stock
("Convertible Securities"), all shares of Common Stock issuable upon the
conversion or exchange of such obligations or shares shall be deemed issued as
of the date such obligations or shares are issued.
(3) Cash Consideration for Common Stock. In the case of an
issue or sale for cash of shares of Common Stock, the Consideration Receivable
by the Corporation therefor shall be the amount of cash received, before
deducting any commissions or expenses paid by the Corporation.
(4) Non-Cash Consideration for Common Stock. In the case of the
issuance or sale (otherwise than upon conversion or exchange of obligations or
shares of stock of the Corporation) of shares of Common Stock for a
consideration other than cash or a consideration partly other than cash, the
amount of the consideration other than cash receivable by the Corporation for
such shares shall be deemed to be the value of such consideration as determined
in good faith by the Board of Directors.
(5)Consideration Receivable for Options or Convertible Securities.
(a) The amount of the Aggregate Consideration Receivable by the
Corporation upon the issuance of any Options referred to in Subsection (1)
above shall be the minimum aggregate consideration named in such Options
for the shares of Common Stock covered thereby, plus the consideration, if
any, received by the Corporation for such Options.
(b) The amount of Consideration Receivable by the Corporation upon the
issuance of any obligations or shares which are convertible or exchangeable
as described in Subsection (2) above as Convertible Securities, shall be
the amount of consideration received by the Corporation upon the issuance
of such obligations or shares, plus the minimum aggregate consideration, if
any, other than such obligations or shares, receivable by the Corporation
upon such conversion or exchange, except in adjustment of dividends.
(c) The amount of Aggregate Consideration Receivable under
Subparagraphs 6(d)(5)a and 6(d)(5)b and the amount of Aggregate
Consideration Receivable upon the exercise of Options or upon the
conversion or exchange of convertible securities
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<PAGE>
under this Paragraph 6(d)(5), shall be determined in the same manner
provided in Paragraphs 6(d)(3) and 6(d)(4) above with respect to the
Aggregate Consideration Receivable by the Corporation as in the case of the
issuance of additional shares of Common Stock. But if such obligations or
shares of stock so convertible or exchangeable are issued in satisfaction
of any dividend upon any stock of the Corporation other than Common Stock,
the amount of the consideration received upon the original issuance of such
obligations or shares of stock shall be the value of such obligations or
shares of stock, as of the date of the adoption of the resolution declaring
the dividend, as determined in good faith by the Board of Directors at or
as of that date.
(6) Other Particulars Concerning Options and Convertible
Securities. In the event that the Minimum Series A Conversion Price shall be
adjusted with respect to the issuance of Options or Convertible Securities (as
defined in Paragraphs 6(d)(1) and 6(d)(2)), the following provisions apply:
(a) No further adjustment in the Minimum Series A Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares
of Common Stock when those Options are exercised or those Convertible
Securities are converted.
(b) Such Options or Convertible Securities may by their terms provide,
with the passage of time or otherwise, for any decrease in the
consideration payable to the Corporation, or increase in the number of
shares of Common Stock issuable, upon their exercise, conversion or
exchange. In such a case, the Minimum Series A Conversion Price computed
upon the original issue thereof, and any subsequent adjustments shall, upon
any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects those Options or the rights
of conversion or exchange under those Convertible Securities.
(c) Upon the expiration of any such Options or any rights of
conversion under such Convertible Securities which shall not have been
exercised, the Minimum Series A Conversion Price computed upon the original
issue thereof, and any subsequent adjustments shall, upon such expiration,
be recomputed as if:
i) in the case of Convertible Securities or
Options for Common Stock, the only additional shares
of Common Stock issued were the shares of Common Stock
actually issued upon the exercise of such Options or
the conversion of such Convertible Securities; and the
Aggregate Consideration Receivable was the
consideration actually received by the Corporation for
the issue of such Convertible Securities which were
actually converted, and
ii) in the case of Options for Convertible
Securities, only the Convertible Securities actually
issued upon the exercise thereof were
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<PAGE>
issued at the time of issue of such Options; and the
Aggregate Consideration Receivable for the additional
shares or Common Stock deemed to have been then issued
was the consideration actually received by the
Corporation for the issue of all such Options for
Convertible Securities, whether or not exercised, plus
the consideration deemed to have been received by the
Corporation (determined pursuant to Paragraph 6(d)(5))
upon the issue of the Convertible Securities when such
Options were actually exercised.
(d) No readjustment pursuant to Subparagraph 6(d)(6)b or
Subparagraph 6(d)(6)c shall have the effect of increasing the Minimum Series A
Conversion Price by an amount greater than the amount of the adjustment
originally made when the Options or Convertible Securities were issued.
(e) In the case of any Options which expire by their terms not
more than thirty (30) days after the date of issue or sooner, no adjustment of
the Minimum Series A Conversion Price shall be made until the expiration or
exercise of all such Options.
(f) Waiver of Adjustment.
i) In the event that holders of a majority of the then currently
outstanding shares of the Series A Preferred shall consent to limit,
or waive in its entirety, any anti-dilution adjustment to which the
holders of such series would otherwise be entitled under Subsection
6(d) hereof, the Corporation shall not be required to make any
adjustment whatsoever with respect to any shares of Series A
Preferred, or to make any adjustment with respect to any shares of
Series A Preferred in excess of any limit set by such consent.
ii) Moreover, any holder of Series A Preferred shall be permitted
to waive in whole or in part, currently or prospectively, by contract
or any other writing, any anti-dilution adjustment to which he or it
would otherwise be entitled pursuant to the provisions of this Section
6.
e. No Adjustment of Series A Conversion Price Under Certain
Circumstances. Following the lapse of the Minimum Series A Conversion Price, no
adjustment to the Series A Conversion Price shall be made for transactions
described in Subsection 6(d).
7. REORGANIZATION, RECLASSIFICATION, AND SALE OF ASSETS.
If any capital reorganization or reclassification of the capital stock
of the Corporation, including any such reorganization or reclassification in
connection with any merger, consolidation, or transfer of substantially all of
the assets of the Corporation, shall not be deemed to be a Liquidation pursuant
to Section 4 hereof, and if it shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets
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<PAGE>
with respect to or in exchange for Common Stock, then the following shall be an
express condition of such reorganization or reclassification.
a. Lawful and adequate provisions in a form satisfactory to the holders
of a majority of the Series A Preferred shall be made whereby each holder of
shares of Series A Preferred shall thereafter have the right to receive, upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock of the Corporation immediately theretofore receivable upon the conversion
of such shares of the Series A Preferred, such shares of stock, securities, or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore so receivable had such reorganization or
reclassification not taken place.
b. Moreover, in any such case, appropriate provision shall be made with
respect to the rights and interests of each such holder of Series A Preferred to
the end that the provisions hereof (including without limitation provisions for
adjustments of the Minimum Series A Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities,
or assets thereafter deliverable upon the exercise of such conversion rights. In
the event of a merger or consolidation of the Corporation as a result of which a
greater or lesser number of shares of Common Stock of the surviving Corporation
are issuable to holders of the Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation, the Minimum Series A
Conversion Price and terms of conversion in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock of
the Corporation.
c. The Corporation shall not effect any such reorganization,
reclassification, consolidation, merger, or sale unless, prior to the
consummation thereof: (i) the Corporation shall have obtained the consent of the
holders of a majority of the Series A Preferred then outstanding, and (ii) the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger, or the corporation purchasing such assets, shall assume
by written instrument, in a form satisfactory to the holders of a majority of
the Series A Preferred then outstanding the obligation to deliver to such holder
such shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive. Such written instrument
shall be promptly mailed or delivered to each holder of shares of Series A
Preferred at the last address of such holder appearing on the books of the
Corporation.
8. REDEMPTION
a. Early Redemption by the Corporation.
(1) The Series A Preferred may be redeemed in whole or in part
at the election of the Corporation upon not less than 30 nor more than 60 days
prior written notice
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<PAGE>
by mail, at any time up to 270 days following the Initial Closing Date, if,
during such 270 day period, the closing bid price for the Common Stock for any
20 trading days within any 30 consecutive trading day period as quoted on the
OTC Electronic Bulletin Board (or such other quotation service as is quoting bid
and asked prices for the Common Stock), or the closing bid price for the Common
Stock as reported by the NASDAQ Stock Market or any other national exchange upon
which the Common Stock is listed for trading which has closing bid price
reporting, is less than the Minimum Conversion Price. Notwithstanding the
foregoing, if the 20 day period during which the price of the Common Stock is
less than the Minimum Conversion Price falls totally with the last 60 days of
the 270 days following the Initial Closing Date, the Corporation shall have a
full 60 days from the end of such 270 day period to exercise its right of early
redemption.
(2) To redeem the Series A Preferred pursuant to this
Subsection 8(a), the Corporation shall pay the holders of Series A being
redeemed 118% of the Stated Value of the Series A Preferred being redeemed,
together with accrued but unpaid interest owing to the date of redemption, in
cash. Any Series A Preferred which is redeemed in part only shall be redeemed in
principal amounts of $1,000 or whole multiples of $1,000.
b. Other Redemption Rights of the Corporation. The Corporation shall be
entitled to redeem any shares of Series A Preferred remaining outstanding 36
months after the Initial Closing Date by paying to the holders thereof the
Stated Value of the shares of Series A Preferred being redeemed, plus any
accrued and unpaid dividends on such shares of Series A Preferred to the date of
redemption, upon no less than 30 and not more than 60 days advance written
notice of the date fixed for such redemption. The Corporation shall pay cash for
all amounts due on such redemption.
c. Redemption Notices. The notice of redemption to be sent to all
holder of Series A Preferred (the "Redemption Notice") shall state the date
fixed for redemption (the "Redemption Date"), the paying agent with whom funds
sufficient to make the redemption have been deposited, and the number of shares
to be redeemed from each such holder, together with the amount of any accrued
and unpaid dividends to be paid as of the Redemption Date. Any partial
redemption shall be pro rata as between the holders of all Series A Preferred.
d. Right to Convert Series A Preferred Pending Redemption.
Notwithstanding the above, any holder of Series A Preferred may convert the
shares of Series A Preferred so called for redemption, plus all dividends
accrued and unpaid on such shares to the Redemption Date, into shares of Common
Stock, at any time following the giving of the Notice of Redemption and prior to
the Redemption Date.
9. NO IMPAIRMENT
The Corporation shall not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or
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<PAGE>
sale of securities or any other voluntary action, avoid or seek to avoid the
observance of performance of any of the terms in this Article to be observed or
performed by the Corporation. The Corporation shall at all times in good faith
assist in the carrying out of all the provisions of Sections 5, 6 and 7 hereof.
10. CERTIFICATE AS TO ADJUSTMENTS
a. Upon the occurrence of each adjustment of the Series A Conversion
Price pursuant to Section 6, or any transaction requiring a change in the
conversion terms applicable to the Series A Preferred as required by any other
provision of this Article, the Corporation, at its expense, shall promptly
compute any such adjustment and prepare and furnish to each holder of Series A
Preferred a certificate setting forth such adjustment and/or any other change in
the conversion terms applicable to the Series A Preferred, showing in detail the
facts upon which such adjustment and/or change is based; and
b. Upon the written request at any time from any holder of Series A
Preferred the Corporation shall furnish to such holder a like certificate
setting forth (i) such adjustment, (ii) the Series A Conversion Price at the
time in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon conversion of
Series A Preferred.
11. NOTICE OF RECORD DATES
In the event:
a. that the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to vote upon any matter
to be submitted to shareholders of Common Stock or other votable
securities of the Corporation;
b. that the Corporation shall take a record of the holders of its
Common Stock entitling them to receive a dividend, or any other
distribution, payable in cash or other property of the Corporation;
c. that the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or
purchase any shares of stock of any class or to receive any other
rights;
d. of any capital reorganization of the Corporation, reclassification
of the capital stock of the Corporation (other than a subdivision or
combination of its outstanding shares of Common Stock), consolidation,
or merger of the Corporation with or into another corporation or
conveyance of all or substantially all of the assets of the Corporation
to another corporation; or
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<PAGE>
e. of the voluntary or involuntary dissolution, liquidation, or winding
up of the Corporation;
then, the Corporation shall cause to be mailed to the holders of record of
outstanding Series A Preferred, at least twenty (20) days prior to the date
specified therein, a notice stating the date on which that record is to be taken
or that event is to take place. The notice shall also specify the date, if any
is to be fixed, as of which holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation, or winding up.
12. FORM OF NOTICES
Any notice required by the provisions of this Article to be given either to
the holders of shares of Series A Preferred or the Corporation shall be in
writing and shall be deemed given if hand delivered, delivered by courier, or
deposited in the United States mail, postage prepaid, addressed to each holder
of record of Series A Preferred at such holder's address appearing on the books
of the Corporation or, in the case of notice to the Corporation, to its
Principal Office, sent to the attention: "Chief Financial Officer."
13. VOTING
The shares of Series A Preferred shall not be entitled to vote on
matters submitted to shareholders of the Corporation except for matters upon
which a vote of Series A Preferred is specifically required under this Article
or the law of the State of Colorado.
14. AMENDMENTS AND CHANGES
As long as any of the Series A Preferred shall be issued and
outstanding, the Corporation shall not take any action without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
a majority of the Series A Preferred then outstanding, if such action would
materially and adversely affect such Series A Preferred by way of:
a. Any amendment, or repeal of any provision of, the Corporation's
Articles of Incorporation or Bylaws;
b. Any action that increases the number of authorized shares of
preferred stock or which would materially and adversely alter or change the
preferences, rights, privileges, or powers of, or the restrictions provided
for the benefit of, the Series A Preferred;
c. Authorize, create, or issue shares of any class of stock, bonds,
debentures, notes, or other obligations convertible into or exchangeable
for or having option rights to purchase, any shares of stock of the
Corporation having any preference or priority, as to
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<PAGE>
dividends, assets or otherwise on a parity with or superior to any
preferences or priority of the Series A Preferred; or
d. Reclassify any outstanding shares into shares having any preference
or priority as to dividends, assets or otherwise on a parity with or superior to
any such preference or priority of Series A Preferred.
15. DEFINITIONS
Unless the context otherwise clearly requires, or unless specifically
defined elsewhere in this Designation, definitions of capitalized terms used in
this Designation are as follows:
a. "1933 Act" means the Securities Act of 1933, as amended and in effect at
any particular time.
b. "1934 Act" means the Securities Exchange Act of 1934, as amended and in
effect at any particular time.
c. "Advance Conversion Notice" has the meaning ascribed to it in Paragraph
5(d)(1) of this Designation.
d. "Aggregate Consideration Receivable" has the meaning ascribed to it in
Subsection 6(d) of this Designation.
e. "Automatic Conversion Date" has the meaning ascribed to it in Paragraph
5(d)(3) of this Designation.
f. "Common Stock" means the no par value common stock of the Corporation of
the class authorized at the date of issuance of the Series A Preferred and stock
of any other class into which such presently authorized common stock may be
changed, and any other shares of stock of the Corporation which do not have any
priority in the payment of dividends or upon liquidation over any other class of
stock.
g. "Consideration Receivable" has the meaning ascribed to it in Subsection
6(d) of this Designation.
h. "Conversion Date" has the meaning ascribed to it in Paragraph 5(d)(1) of
this Designation.
i. "Conversion Period" has the meaning ascribed to it in Paragraph 5(a)(1)
of this Designation.
j. "Convertible Securities" has the meaning ascribed to it in Paragraph
6(d)(2) of this Designation.
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<PAGE>
k. "Corporation" means the person named as the "Corporation" in the first
paragraph of this Designation until a successor corporation shall have become
such pursuant to the applicable provisions hereof, and thereafter "Corporation"
shall mean such successor corporation.
l. "Debentures" means the Corporation's 8% Adjustable Rate Convertible
Subordinated Debentures Due December 31, 1999, which are convertible into shares
of Series A Preferred.
m. "Delivery Date" means three (3) business days after receipt by the
Corporation of the original Conversion Notice and the Series A Preferred
certificates being converted, as described in paragraph 5(d)(1).
n. "Distribution" has the meaning ascribed to it in Subsection 3(j) of this
Designation.
o. "Dividend Record Dates" means March 31, June 30, September 30 and
December 31 of each year, as described in Subsection 3(a) of this Designation.
p. "Initial Closing Date" has the meaning ascribed to it in Paragraph
5(c)(1) of this Designation.
q. "Initial Notice" has the meaning ascribed to it in Paragraph 4(b)(1) of
this Designation.
r. "Liquidation" has the meaning ascribed to it in Subsection 4(a) of this
Designation.
s. "Market Price" has the meaning ascribed to it in Subsection 3(e) of this
Designation.
t. "Minimum Series A Conversion Price" has the meaning ascribed to it in
Subsection 5(c) of this Designation.
u. "Options" has the meaning ascribed to it in Paragraph 6(d)(1) of this
Designation.
v. "Qualified Public Offering" has the meaning ascribed to it in
Subparagraph 5(a)(2)a of this Designation.
w. "Private Offering Memorandum" means the Corporation's offering document
by which the Debentures were offered to investors.
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<PAGE>
x. "Redemption Date" has the meaning ascribed to it in Subsection 8(c) of
this Designation.
y. "Redemption Notice" has the meaning ascribed to it in Subsection 8(c) of
this Designation.
z. "SEC" means the United States Securities and Exchange Commission or any
successor agency of the United States.
aa. "Series A Conversion Price" has the meaning ascribed to it in
Subsection 5(c) of this Designation.
bb. "Series A Liquidation Preference" has the meaning ascribed to it in
Paragraph 4(a)(1) of this Designation.
cc. "Series A Preferred" means the Corporation's no par value Series A
Cumulative Convertible Redeemable Preferred Stock, stated value $1.00 per share,
with the rights, preferences and designation set forth in this Designation.
dd. "Series A Purchase Price" has the meaning ascribed to it in Subsection
5(b) of this Designation.
ee. "Stated Value" means $1.00 per share, as described in Section 2 of this
Designation.
ff. "Subsequent Notice" has the meaning ascribed to it in Paragraph 4(b)(1)
of this Designation.
16. HEADINGS
The headings of the Sections, Subsections, Paragraphs and Subparagraphs
of this Article are inserted for convenience only and shall not be deemed to
constitute a part of this Article.
[END OF CERTIFICATE OF DESIGNATION]
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Exhibit 10.3
U.S. WIRELESS DATA, INC.
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REGISTRATION RIGHTS AGREEMENT
RELATING TO THE
8% ADJUSTABLE RATE
CONVERTIBLE SUBORDINATED DEBENTURES
DUE DECEMBER 31, 1999
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December 8, 1997
<PAGE>
TABLE OF CONTENTS
1. REGISTRATION UNDER THE SECURITIES ACT OF 1933...................... 1
Section 1.1 Certain Definitions.............................. 1
Section 1.2 Proposed Transfers............................... 3
Section 1.3 Company Registration............................. 4
Section 1.4 Mandatory Registration .......................... 5
Section 1.5 Expenses of Registration......................... 7
Section 1.6 Registration Procedures.......................... 8
Section 1.7 Indemnification.................................. 9
Section 1.8 Information by Holder............................ 12
Section 1.9 No Transfer of Registration Rights............... 12
Section 1.10 Termination of Registration Rights............... 12
Section 1.11 Lockup........................................... 12
2. MISCELLANEOUS...................................................... 12
Section 2.1 Survival of Covenants; Successors and Assigns.... 12
Section 2.2 Assignability of Rights.......................... 12
Section 2.3 Communications and Notices....................... 12
Section 2.4 Law Governing.................................... 13
Section 2.5 Subsequent Instruments and Acts.................. 13
Section 2.6 Severability..................................... 13
Section 2.7 Entire Agreement; Amendments..................... 13
Section 2.8 Delays, Omissions, and Waivers................... 13
Section 2.9 Authorization.................................... 14
Section 2.10 Gender, Number and Tense......................... 14
Section 2.11 Headings......................................... 14
Section 2.12 Counterparts..................................... 14
Section 2.13 Remedies......................................... 14
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of this
8th day of December, 1997, among U.S. WIRELESS DATA, INC., a Colorado
corporation (the "Company"), and the purchaser of the Company's 8% Adjustable
rate Convertible Subordinated Debentures Due December 31, 1999 (the
"Debentures") who has signed the signature page of this Agreement (the
"Holder").
RECITALS
A. The Holder and the Company are parties to the Subscription Agreement
of even date herewith (the "Agreement") whereby Holder has been issued
$________________ of Debentures in exchange for cash paid to the Company in like
amount.
B. The Debenture automatically converts into shares of the Company's
Series A Cumulative Convertible Preferred Stock (the "Preferred Stock") at the
rate of one share of Preferred Stock per $1.00 of Debenture at such time as the
Preferred Stock has been legally authorized by the Company.
C. Upon satisfaction of certain conditions: the Debenture and the
Preferred Stock into which it may convert are convertible into shares of the
Company's no par value Common Stock (the "Conversion Stock"); interest due on
the Debenture and dividends payable on the Preferred Stock are payable in shares
of Common Stock (the "I/D Stock"), all pursuant to the formulas stated in the
Debenture and Designation of Preferred Stock, respectively.
D. The Holder is willing to have all of its rights with respect to
registration of their Registrable Securities (as defined below) under the
Securities Act of 1933 governed by this Agreement.
TERMS
NOW, THEREFORE, in consideration of the promises and covenants and the
mutual obligations of the parties hereto, as stated herein, the parties agree as
follows:
1. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
Section 1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
<PAGE>
"Blue Sky Laws" shall mean the securities regulation laws of
any political subdivision of the United States.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Holder" shall mean the holder of outstanding Registrable Securities.
The terms "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement by the Commission.
"Potential Material Event" shall mean any of the following:
(a) possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by a determination made in
good faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be seriously detrimental to the
business and affairs of the Company; (b) any material engagement or activity of
the Company which would, in the good faith determination of the Board of
Directors of the Company, be adversely affected by disclosure in a registration
statement at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent inclusion of such information.
"Registrable Securities" means (i) the Conversion Stock (ii)
the I/D Stock; and (iii) any other securities issued with respect to any of the
above securities by way of dividends, stock-splits, recapitalization,
adjustments or the like. Registrable Securities do not include any of the above
securities which have been registered pursuant to a registration statement under
the Act and sold pursuant thereto or which have otherwise become eligible for
sale.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 1.6 below, including, by way of
illustration only and without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company,
underwriting expenses not included in Selling Expenses, and the expense of any
audits or financial statement reviews incident to or required by any such
registration (including the expense of any cold comfort letters), and Blue Sky
fees and expenses (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Restricted Securities" shall mean the securities of the
Company required to bear the legend substantially the same as the legend set
forth in Section 1.2(D) of this Agreement.
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<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean the underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and any
fees of any counsel or other advisors retained by or to represent any Holder.
Section 1.2 Proposed Transfers. The Holder, by entering into this
Agreement, agrees to comply in all respects with the following provisions:
(A) Prior to any proposed transfer of any Registrable
Securities (other than under circumstances described in Section 1.3 and Section
1.4 below), Holder shall give written notice to the Company of Holder's
intention to effect the transfer, together with a detailed statement of the
circumstances surrounding the proposed transfer; provided, however, that the
Holder need not provide such notice with respect to Registrable Securities for
which the Company has previously issued unlegended certificates.
(B) Except with respect to transactions not involving a change
in beneficial ownership, such notice shall, if reasonably requested by the
Company, also be accompanied by a written opinion of legal counsel (which shall
be reasonably satisfactory to the Company and its counsel) stating that the
proposed transfer of the Registrable Securities may be effected without
registration under the Securities Act and without Blue Sky qualification, and
which opinion may be "reasoned" and/or based upon (i) no action letters issued
by the Commission which are based on similar facts or circumstances and/or (ii)
telephone conversations or written correspondence with the staff of the
Commission.
(C) Having satisfied Subsection 1.2(B) above, the Holder shall
be entitled to transfer the Registrable Securities in accordance with the terms
of the notice delivered by the Holder to the Company.
(D) Each certificate evidencing Registrable Securities shall
(unless otherwise permitted by the provisions of this Agreement) be stamped or
otherwise imprinted with a legend in substantially the following form in
addition to any legend acquired under applicable state securities laws:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND SUCH LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
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<PAGE>
The Company shall remove such restrictive legend upon the request of Holder if
(1) the Company has received an opinion of counsel who is reasonably acceptable
to it and its counsel to the effect that registration of any and all future
transfers is not required, (2) an appropriate registration statement with
respect to such Registrable Securities has been filed by the Company with the
Commission and declared effective by the Commission and the shares of
Registrable Securities to be sold under the registration statement have been
sold thereunder and in compliance with the applicable plan of distribution
contained therein and any qualifications required under any Blue Sky Laws, (3)
such transfer shall be made in compliance with the requirements of Rule 144 or
its successor, or (4) Holder has met the requirements of subparagraph (k) of
Rule 144 or its successor. Under any of these circumstances, the Company shall
cause new certificates without the above legend to be issued promptly to the
Holder or the Holder's designee in exchange for outstanding legended
certificates.
Section 1.3 Company Registration.
(A) Notice and Piggyback Rights. If at any time the Company
shall decide to register any of its securities, the Company will:
(1) promptly give to Holder written notice of the registration (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable Blue Sky laws); and
(2) include in such registration (and any related Blue Sky
qualification or other compliance reasonably requested by Holder in order
to sell such securities), and in any underwriting involved, all the
Registrable Securities specified in a written request, made within 30 days
after receipt of such written notice from the Company, by the Holder,
except as set forth in Subsection 1.3(B) below.
The provisions of this Subsection 1.3(A) do not apply to any
of the following: (i) a registration on any registration form which would not
permit secondary sales by Holder, (ii) a registration which relates solely to
employee benefit plans, or (iii) a registration which relates solely to a
Commission Rule 145 transaction.
(B) Underwriting; Limits. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holder as a part of the written
notice given pursuant to Subsection 1.3(A). If Holder proposes to distribute its
Registrable Securities through such underwriting, it shall enter into an
underwriting agreement in customary form with the underwriters selected by the
Company. Notwithstanding any other provision of this Section 1.3, if the
underwriter determines that marketing factors require a limitation of the amount
of securities to be registered, the Company may exclude from such registration
any Registrable Securities requested to be included. If Holder disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the underwriter
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<PAGE>
within five (5) days after receipt of such notice, and any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
registration.
(C) Waiver. The Holder's rights under this Section 1.3 may be
waived as to any particular offering by the Holder.
Section 1.4 Mandatory Registration upon Issuance of Debentures
(A) Mechanics. On or after the initial date of issuance of the
Debentures to the Holder, the Company shall use its best efforts to prepare and
file a shelf registration statement and other qualifications or compliances with
respect to all Registrable Securities requested to be included therein by the
Holder. Holder shall only be entitled to have included in such registration
statement that number of shares which Holder reasonably expects to sell within
sixteen months of June 30, 1998. Holder shall advise the Company of the number
of shares intended to be sold during such period and shall further advise the
Company as to those specific jurisdictions in which Holder reasonably expects to
offer the Registrable Securities for sale during such period. Holder shall not
be entitled to fulfill the requirements of this designation by stating "all
states" or by listing each and every state in the United States. Holder shall
further advise the Company of any plan of distribution for the Registrable
Securities and shall enter such further agreements as the Company shall
reasonably request setting forth additional terms applicable to the distribution
of Registrable Securities.
The Company will:
(1) Use its diligent best efforts to file as soon as practicable, but
in any event within ninety days (90) days after the initial closing of the
offering by which the Debentures were first sold, all such registrations,
qualifications and compliances as may be so requested and as would
facilitate the sale and distribution of all or such portion of such
Holder's Registrable Securities as are specified in the request.
(2) Use its diligent best efforts to prepare, file and obtain
effectiveness of the registration statement under this Section 1.4 on no
more than one (1) occasion, excluding offerings by Holder pursuant to
Section 1.3 above. If any proceeds of the offering are received by the
Company, the offering will be deemed to be pursuant to Section 1.3 above.
(3) The Company shall use its best efforts to keep the registration
statement effective continuously for no less than sixteen (16) months from
June 30, 1998, subject to the right of the Company to suspend sales under
the registration statement during such period as described in Subsection
1.6(E). Any suspension of sales during such period of effectiveness shall
not toll the sixteen month period, unless the Company shall suspend the
period during which sales may be made for greater than a total of 90 days
in the aggregate during such period. In that case, the period during which
the registration statement shall be
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<PAGE>
maintained as effective shall be extended for a like number of days in excess of
such 90 days during which suspension(s) of sales was required by the Company. By
way of example, if the Company suspends sales of Registrable Securities for a
total of 120 days during the sixteen month period, then the Company shall be
obligated to extend the period for which a registration statement is effective
for 30 additional days.
(B) Exceptions. The Company shall not be obligated to effect
any registration, qualification, or compliance requested by Holder with respect
to a proposed distribution of Registrable Securities by Holder under this
Section 1.4:
(1) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification or compliance or where such registration,
qualification or compliance would be legally unattainable or unreasonably
expensive or onerous for the Company, in light of all circumstances and
other avenues available to the Holder for disposing of Registrable
Securities; or
(2) if the Company has effected one (1) such registration pursuant to
this Section 1.4 and such registration has been declared and ordered
effective.
If the Company shall furnish to Holder a certificate signed by
the President of the Company stating that there exist a Potential Material
Event, then the Company's obligation to use its best efforts to file a
registration statement under this Section 1.4 shall be deferred for a period
during which such Material Potential Event exists, provided that this period
will not exceed ninety (90) days after the expiration of the initial ninety (90)
days within which to file such registration statement, and provided further that
the Company shall not defer its obligations in this manner more than once in any
twelve-month period. Nothing done by the Company pursuant to this paragraph
shall in any way prevent application of the penalty provisions contained in the
Debentures and/or the Designation of Preferred Stock that effect a decrease in
the conversion price applicable to conversions of such instruments into Common
Stock should the effectiveness of the registration statement be delayed beyond
150 days from the date of the initial closing of the offering by which the
Debentures were first sold.
(C) Underwriting. If the Holder intends to distribute the
Registrable Securities covered by its request by means of an underwriting, it
shall so advise the Company as a part of its request made pursuant to Section
1.4.
(1) The Holder shall negotiate with an underwriter selected by Holder
and reasonably approved by the Company with regard to the underwriting of
the requested registration.
(2) The right of Holder to include its Registrable Securities in a
registration pursuant to Section 1.4 shall be conditioned upon the Holder's
participation in
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<PAGE>
such underwriting on the terms and conditions of such underwriting and upon
the inclusion of the Holder's Registrable Securities sought to be
registered in the underwriting.
(3) The Company shall (together with Holder) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for the underwriting by the Holder.
(4) Notwithstanding any other provision of this Section l.4, if the
underwriter advises the Holder in writing that marketing factors require a
limitation of the number of shares to be underwritten, the Company will
then include in such registration, prior to the inclusion of any other
securities which are not Registrable Securities, the number of shares of
Registrable Securities that the underwriter believes may be included in the
registration. A registration will not count as the registration request
permitted under this Section 1.4 unless the Holder is able to register and
sell at least 75% of the Registrable Securities requested to be included in
such registration.
(D) Holder understands and agrees that other securityholders
of the Company may have registration rights that will be activated by the
Company's obligations to register Registrable Securities hereunder. Holder
agrees that such rights may be honored by the Company and that such other
securities may be included in the registration(s) filed pursuant to Sections 1.3
and 1.4 of this Agreement. The Company agrees that it shall not grant any
additional rights to any person which would entitle such person to have shares
of the Company's Common Stock (or other securities exercisable for or
convertible into Common Stock) included in any registration statement filed
hereunder.
(E) Holder agrees to advise the Company in writing of each and
every sale of Registrable Securities made by Holder under any registration
statement within 10 days following the date of each sale. Holder understands and
agrees that any Registrable Securities remaining unsold by Holder at the time
the Registration Statement expires will be deregistered and cannot thereafter be
sold absent reregistration or compliance with Section 1.2 of this Agreement.
Section 1.5 Expenses of Registration.
(A) Registration Expenses. All Registration Expenses incurred
in connection with registration, qualification or compliance under Section 1.3
and Section 1.4 shall be borne by the Company; provided that with respect to
securities being registered pursuant to Section 1.3, Holder agrees that it will
pay all Blue Sky fees associated with the registration of Registrable Securities
in those states in which the Company is not otherwise registering or qualifying
shares of its stock for sale in such registration.
(B) Selling Expenses. All Selling Expenses incurred in
connection with these transactions shall be borne by the Holder.
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<PAGE>
(C) Legal Expenses. Holder shall bear its own expenses, if
any, for the fees and disbursements of counsel or other advisors to such Holder
incurred in connection with these transactions.
(D) Ineffective Requested Registration. The Company shall not
be required to pay any Registration Expenses if the registration statement does
not become effective as a result of the withdrawal of the request for
registration by the Holder pursuant to Subsection 1.4(A), which withdrawal was
not caused by the Company's failure to comply with applicable registration
requirements and regulations. In such a case, the Holder shall bear such
Registration Expenses and such registration shall not be counted as a
registration pursuant to Subsection 1.4(A), or the Holder will not bear such
expenses and such registration shall be counted as a registration pursuant to
Subsection 1.4(A).
Section 1.6 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
(A) Advise the Holder within forty eight (48) hours of the
effectiveness with the SEC of any registration statement which includes shares
eligible for sale by the Holder thereunder.
(B) Keep such registration, qualification or compliance
effective until the Holder has completed the distribution described in the
registration statement), but for not more than sixteen months from June 30, 1998
(or if the registration is underwritten, 90 days from the date of
effectiveness).
(C) Furnish such number of prospectuses (including preliminary
prospectuses, sticker supplements and amendments) and other documents incident
to the registration as Holder from time to time may reasonably request.
(D) At the time when any registration statement becomes
effective, and at the time when any post-effective amendment becomes effective,
request counsel to furnish to the Holder an opinion of counsel in customary form
and reasonably satisfactory to the Holder.
(E) Notify Holder, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and at the request of
Holder, the Company will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein not misleading.
Between such time as the
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<PAGE>
Company notifies a Holder pursuant to this Subsection and the time any such
supplement or amendment is effective and available for use, the registration
shall be suspended and no sales by Holder shall be made of Registrable Shares
thereunder during such period.
(F) Cause all such Registrable Securities to be listed on each
securities exchange, quotation system or other market on which similar
securities issued by the Company are then listed.
(G) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement.
(H) Obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the Holder may
reasonably request.
(I) Furnish an opinion of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering.
Section 1.7 Indemnification.
(A) Company's Obligation to Indemnify.
(1) Generally. Subject to subparagraph (3) below, with respect to any
registration, qualification or compliance which has been effected pursuant
to this Agreement, the Company will indemnify Holder, its officers,
directors, and partners and each person controlling Holder, each legal
counsel, and each underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue or alleged untrue statement of, or omission or alleged omission of a
material fact contained in, or required to be stated in any registration
statement, including any preliminary or final prospectus, offering circular
or other document incident to any such registration, qualification, or
compliance. The Company will further indemnify such persons against any
violation or alleged violation by the Company of any rule or regulation
promulgated under the Securities Act or any applicable state securities law
in connection with any such registration, qualification or compliance.
(2) Reimbursement. The Company will promptly reimburse Holder, and
each of its officers, directors, partners and controlling persons, each
legal counsel and each such underwriter, for any legal and any other
expenses reasonably incurred, as such expenses are incurred, in connection
with investigating or defending any such claim, loss, damage, liability or
action.
(3) Limitation. The Company will not be liable in any such case to the
extent that any claim, loss, damage, liability or expense arises out of any
untrue
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<PAGE>
statement (or alleged untrue statement) or omission (or alleged omission) made
in such registration statement, including any preliminary or final prospectus,
offering circular or other document, is based upon written information furnished
to the Company by an instrument duly executed by Holder or underwriter and which
is stated to be specifically for use therein.
(4) Survival of Obligation. The obligations of the Company under this
Section 1.7 shall survive the completions of the offerings of Registrable
Securities under the registration statements, and otherwise.
(B) Holder's Obligation to Indemnify.
(1) Generally. Subject to subparagraph (3) below, Holder will
indemnify the Company, each legal counsel and independent accountant of the
Company, each underwriter of the Company's securities covered by such a
registration statement, and each person who controls the Company within the
meaning of the Securities Act, and all of their respective officers,
directors and partners, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue or
alleged untrue statement of, or omission or alleged omission of a material
fact contained in, or required to be stated in, any registration statement,
including any preliminary or final prospectus, offering circular or other
document.
(2) Reimbursement. Furthermore, Holder will promptly reimburse the
Company, underwriters, legal counsel and independent accountants and all of
their respective officers, directors, partners, and controlling persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action.
(3) Limitation. In any case, Holder's obligation under this Subsection
1.7(B) shall extend only so far as the untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement (including any preliminary or final prospectus), offering
circular, or other document in reliance upon written information furnished
to the Company by an instrument duly executed by Holder and which is stated
to be specifically for use therein.
(4) Survival of Obligation of the Holder. The obligations of Holder
under this Section 1.7 shall survive the redemption and conversion, if any,
of the Purchased Stock, the completions of the offerings of Registrable
Securities under the registration statements, and otherwise.
(C) Indemnifying Party May Assume Defense.
(1) Generally. Each party entitled to indemnification under this
Section 1.7 (the "Indemnified Party") shall give notice to the party
required to provide
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<PAGE>
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought. Unless in
such Indemnified Party's reasonable judgment a conflict of interest between such
Indemnified and Indemnifying Parties may exist with respect to such claim, the
Indemnified Party shall permit the Indemnifying Party to assume the defense of
any such claim or any resulting litigation. But counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at its own
expense. Failure by the Indemnified Party to provide such written notice shall
not relieve the Indemnifying Party from its obligation under this Section 1.7.
In the event that the Indemnifying Party does not assume the defense of any such
claim or any resulting litigation within a reasonable period of time, or in the
event disparate interests of the Indemnified and Indemnifying Parties require
the Indemnified Party to seek separate counsel, the Indemnified Party may assume
the defense with counsel of its choice, and the Indemnifying Party will pay the
reasonable expense of such counsel; provided, however, that the Indemnifying
Party will be required to assume the expense of only one single counsel for all
Indemnified Parties in connection with any given claim or litigation.
(2) Settlement Approval, Release Required. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term the giving
by the claimant or plaintiff to the Indemnified Party of a release from all
liability in respect to such claim or litigation. Furthermore, the failure
of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 1.7.
(D) Contribution. If recovery is not available under the
foregoing indemnification provisions of this section for any reason other than
as specified therein, the parties entitled to indemnification by the terms
thereof shall be entitled to contribution for liabilities and expenses, except
to the extent that contribution is not permitted under the Securities Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the relative benefits received by each party
from the offering of the securities (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted, the party who supplied or failed to supply the information as to which
the claim is asserted, the opportunity to correct and prevent any statement or
omission, and any other equivalent considerations appropriate under the
circumstances.
Section 1.8 Information by Holder. The Holder shall furnish to the
Company such information regarding the Holder and the distribution proposed by
the Holder, as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
-11-
<PAGE>
Section 1.9 No Transfer of Registration Rights. The right to cause the
Company to register Registrable Securities pursuant to this Section may not be
assigned by Holder without the express written consent of the Company, which may
be withheld by the Company at its reasonable discretion.
Section 1.10 Termination of Registration Rights. The registration
rights granted pursuant to this Section 1 shall terminate with respect to any
particular Registrable Securities upon the earlier to occur of: (i) two (2)
years from the date of this Agreement; or (ii) the date on which such
Registrable Securities are eligible for resale pursuant to the provisions of
Rule 144(k) of the Commission
Section 1.11 Lockup. In the event the Company files a registration
statement with the Commission in connection with a public offering of the
Company's securities, Holder agrees, if so requested by the Company or the
underwriter of such offering, that Holder will not effect, or permit to be
effected on Holder's behalf, any public sale or distribution of any shares of
capital stock of the Company (except as part of such registration and public
offering, if so permitted) during the 30-day period beginning on the first date
of the effectiveness of such registration.
2. MISCELLANEOUS.
Section 2.1 Survival of Covenants; Successors and Assigns. All
covenants, agreements, representations and warranties made by the parties in
this Agreement shall survive the closing of the transactions contemplated by
this Agreement. All such covenants, agreements, representations and warranties
will inure to the benefit of, and be binding upon, any successors, assigns,
heirs, transferees, executors, and administrators of the parties hereto.
Section 2.2 Assignability of Rights. The Company may not assign any of
its rights or delegate any of its duties under this Agreement without the
written consent of Holder.
Section 2.3 Communications and Notices. Except as otherwise provided
for in this Agreement, all communications and notices provided for in this
Agreement shall be in writing and will be given by telegram, facsimile (with
delivery confirmed by the party giving notice), express courier holding itself
out as able to make delivery within one business day of receipt, hand delivery
receipted by the addressee, or by mail (postage-paid, certified mail, return
receipt requested) to such address and for such attention, as any party may from
time to time designate by notice in writing to the Company or to the Holder as
the case may be. Notice will be effective one business day after delivery to a
telegraph company or express courier, three business days after deposit in the
U.S. Mail as provided above, or upon receipt if hand-delivered or
facsimile-delivered, as the case may be.
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<PAGE>
Section 2.4 Law Governing. This Agreement shall be governed by the Laws
of the State of Colorado in all respects, as such laws are applied to agreements
among Colorado residents entered into and to be performed entirely within
Colorado.
Section 2.5 Subsequent Instruments and Acts. The parties agree that
they will execute any further instruments and perform any acts that may become
necessary to carry out this Agreement.
Section 2.6 Severability. If any term, provision, covenant, or
condition of this Agreement, or its application to any person or circumstance,
shall be held by a court of competent jurisdiction to be invalid, unenforceable,
or void, the remainder of this Agreement and such term, provision, covenant, or
condition as applied to other persons or circumstances shall remain in full
force and effect.
Section 2.7 Entire Agreement; Amendments.
(A) This Agreement and the other documents and agreements
delivered pursuant hereto constitute the full and entire agreement and
understanding among the parties with regard to the subjects hereof and thereof.
(B) This Agreement may not be amended orally. Amendment to
this Agreement, or of any supplement, and of the rights and obligations of the
Company and of the Holder, may be made only by the Company and Holder in
writing.
Section 2.8 Delays, Omissions, and Waivers. No delay or omission to
exercise any right, power or remedy (with the exception of a delay by an
Indemnified Party in providing notice to the Indemnifying Party pursuant to
Section 1.7(C) hereof) accruing to the Company or Holder, upon any breach or
default of any party hereto under this Agreement, will impair any such right,
power or remedy of the Company or Holder nor will it be construed to be a waiver
of any such breach or default, or an acquiescence therein, nor will any similar
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring; nor will any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of the Company or Holder of any provision or conditions of this
Agreement, must be in writing and will be effective only to the extent
specifically set forth in such writing. No waiver by the Holder of any provision
of this Agreement will be effective without a written consent signed by Holder.
Section 2.9 Authorization. Each of the undersigned representatives of
the parties warrants and represents that he is duly authorized to execute this
Agreement on behalf of the respective party for which he signs, and that the
organization on whose behalf he signs is currently in good standing in the
jurisdiction where organized.
-13-
<PAGE>
Section 2.10 Gender, Number and Tense. Throughout this Agreement, as the
context may require:
(A) The masculine gender includes the feminine and neuter; and
the neuter gender includes the masculine and feminine; and
(B) The singular number includes the plural, and the plural
number includes the singular.
Section 2.11 Headings. The headings of the Sections and Subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
Section 2.12 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 2.13 Remedies. No remedy herein conferred upon the parties
hereto is intended to be exclusive of any other remedy herein or provided by
law, but each shall be cumulative and shall be in addition to every other remedy
set forth in this Agreement or existing at law, in equity, or by statute. The
parties specifically acknowledge that under certain circumstances the parties
may be entitled to specific performance and/or injunctive relief where without
such remedies the damage to the injured parties may be irreparable and money
damages inadequate. Moreover, in any suit between or among the parties hereto
for such breach of the provisions hereof, the prevailing party in such suit
shall be entitled to receive from the breaching party, reasonably attorneys'
fees and disbursements incurred in the prosecution of such suit.
[The remainder of this page has been left intentionally blank.]
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<PAGE>
Signature Page to Registration Rights Agreement - 8% Debentures
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
THE COMPANY:
U.S. WIRELESS DATA, INC., a Colorado corporation
By:________________________
Its:_______________________
THE HOLDER:
____________________________
[Print or Type Name]
____________________________
[Signature]
____________________________
____________________________
[Address for Notices]
____________________________
[Telephone Number, including area codes]
____________________________
[FAX Number, including area codes]
[Date]_____________________
-15-
Exhibit 10.4
8% ADJUSTABLE RATE CONVERTIBLE DEBENTURES
of
U.S. WIRELESS DATA, INC.
(A Colorado Corporation)
SUBSCRIPTION AGREEMENT
1. General. This Agreement sets forth the terms under which
the undersigned ("Investor") agrees to purchase 8% Adjustable Rate Convertible
Debentures (the "Debentures") of U.S. Wireless Data, Inc., a Colorado
corporation (the "Company") in the amount set forth below. This Agreement is
delivered in connection with the offering being made pursuant to the Private
Offering Memorandum dated November 3, 1997 (the "Memorandum"). Execution of this
Agreement by the Investor shall constitute an offer by the Investor to subscribe
for Debentures, in the amount and on the terms and conditions specified herein.
The Company shall have the right to reject this subscription offer, or to accept
such offer by executing a copy of this Agreement. If the Investor's offer is
accepted, the Company will execute a copy of this Agreement and return it to
Investor.
By execution hereof, Investor acknowledges that Investor
understands that the Company is relying upon the accuracy of the representations
and warranties of Investor contained herein. Unless otherwise stated herein,
capitalized terms shall have the same meaning as stated in the Memorandum.
2. Subscription Amount and Payment. Investor hereby subscribes
for $___________________ of Debentures and hereby submits to the Company, c/o of
its escrow agent, Popkin & Associates, Attorneys at Law, full payment for the
Debentures.
3. Investor's Representations and Warranties. Investor represents,
warrants and covenants to the Company that:
(a) Investor has been advised that no person is authorized to
give any information or to make any statement concerning the Company
that is not contained in the Memorandum. Investor acknowledges
Investor has received, read, understood and become thoroughly familiar
with the Memorandum (including, without limitation, the "Risk Factors"
section set forth therein). Investor has not relied on any information
or statement not contained in the Memorandum.
(b) Investor has had an adequate opportunity to discuss the
Company's business, management and financial affairs with the
Company's management and has received satisfactory responses to such
inquiries.
<PAGE>
U.S. Wireless Data, Inc.
Subscription Agreement for 8%
Adjustable Rate Convertible Debentures
Page 2
(c) By reason of Investor's business and financial experience,
Investor has the capacity to evaluate the merits and risks of the
prospective investment in the Debentures.
(d) Investor has been informed that all documents, records and
books pertaining to the Company and this investment were at all times
available to Investor. Investor has utilized such access to Investor's
satisfaction for the purpose of obtaining information regarding the
investment. All documents, records and books pertaining to this
investment requested by Investor have been made available to Investor
and the persons Investor has retained to advise Investor with respect
to this investment. Investor and such persons have been supplied with
such additional information concerning this investment as they have
requested.
(e) To the extent Investor deemed necessary, Investor has
consulted with Investor's attorney and/or Investor's accountant
regarding all aspects of the proposed investment, including the tax
aspects thereof, and if requested by Investor, said attorney and/or
accountant have reviewed and analyzed the Memorandum on Investor's
behalf.
(f) Investor has adequate means of providing for Investor's
current needs and possible financial contingencies, and has no need,
and anticipates no need in the foreseeable future, to sell the
Debentures. Investor is able to bear the economic risks of this
investment and, consequently, without limiting the generality of the
foregoing, is able to hold the Debentures for an indefinite period of
time and has a sufficient net worth to sustain a loss of the entire
investment in the Company in the event such loss should occur.
(g) Investor is the sole party in interest as to Debentures being
acquired by the Investor and is acquiring the Debentures for
Investor's own account, for investment only and not with a view toward
the resale or distribution thereof.
(h) Investor understands that the Debentures, the shares of
Series A Preferred Stock into which the Debentures are convertible and
the shares of Common Stock issuable as interest on the Debentures,
dividends on the Preferred Stock and into which the Debentures and/or
the shares of Series A Preferred Stock are convertible (collectively
the Debentures, Series A Preferred Stock and the Common Stock are
referred to as the "Securities") are not registered under the
Securities Act of 1933 (the "1933 Act") and may not be resold unless
registered under the 1933 Act or
<PAGE>
U.S. Wireless Data, Inc.
Subscription Agreement for 8%
Adjustable Rate Convertible Debentures
Page 3
an exemption from such registration is available. Investor agrees that
Investor will not attempt to dispose of Investor's Securities except in
compliance with the Act. The certificates representing the Securities
shall bear appropriate legends describing the restricted character of
the Securities.
(i) Investor has not distributed the Memorandum to anyone other
than Investor's advisors, accountant and/or attorney, and no one other
than Investor's advisors, accountant and/or attorney and Investor have
used the Memorandum.
(j) Investor has the authority to purchase the Debentures and to
execute any other instruments or documents required to be executed in
connection with a purchase of Debentures.
(k) Except as Investor has specifically advised the Company in
writing, a copy of which has been attached to this Subscription
Agreement, neither Investor, nor any immediate relative of Investor
(closer than a first cousin) is affiliated with any company,
partnership or firm that is registered as a broker/dealer with the
national Association of Securities Dealers, Inc. and/or under the
Securities Exchange Act of 1934, or as an investment advisor under the
Investment Advisor's Act.
(l) The Investor represents and warrants that Investor is an
accredited investor because (please initial all that are applicable):
___ The Investor is a director or executive
officer of the Company.
___ The Investor and Investor's spouse (if any)
have an aggregate net worth exceeding
$1,000,000.
___ The Investor has had an individual income in
excess of $200,000 or joint income with
Investor's spouse in excess of $300,000 in
each of the two most recent years and
reasonably expects the same income in the
current year.
___ The Investor is an entity in which all of
the equity owners are accredited investors
within the meaning of Rule 501(a) under the
Act.
<PAGE>
U.S. Wireless Data, Inc.
Subscription Agreement for 8%
Adjustable Rate Convertible Debentures
Page 4
___ The Investor is a bank, savings and loan
association, broker or dealer, insurance
company, investment company, business
development company, small business
investment company, employee benefit plan,
non-profit organization, or trust meeting
the requirements of Rule 501(a) under the
Act.
4. Prohibited Transactions. The Investor agrees that he, she
or it shall not effect any short sales of the Company's Common Stock at any time
while the Investor holds any Debentures or Preferred Stock (into which the
Debentures are convertible) at any time while such securities are convertible
into shares of the Company's Common Stock.
5. Indemnification. The Investor shall indemnify and hold
harmless the Company and any selling broker/dealers, any corporation or entity
affiliated with any of the above, the officers, directors and employees of any
of the foregoing and any professional advisors thereto, from and against any and
all loss, damage, liability or expense, including costs and reasonable
attorneys' fees, to which they may be put or which they may incur by reason of
or in connection with any failure of the Investor's representations and
warranties to be fully true, correct, and complete or Investor's failure to
fulfill any of Investor's covenants or agreements under this Agreement.
6. Representations and Warranties of the Company.
(a) The Company has full power and authority to enter into the
transactions contemplated by this agreement.
(b) Debentures are duly authorized obligations of the Company,
enforceable per their terms.
(c) The Company shall not conduct any private offerings of its equity
securities in reliance upon the registration exemptions contained in
Regulations D or S under the 1933 Act or otherwise for 150 days from the
date of the initial closing of this offering, without the written consent
of the Investor. After such period, and continuing until the Company has
obtained the effectiveness of a registration statement registering the
shares of Common Stock issuable upon conversion of the Debentures and/or
the Series A Preferred Stock (unless such registration has been made
impossible by failure of the Investor to cooperate in such registration),
the Company shall not conduct any private offerings of its equity
securities in reliance upon the registration exemptions contained in
Regulations D or S under the 1933 Act or otherwise without first giving a
first right of refusal to the Investor to
<PAGE>
U.S. Wireless Data, Inc.
Subscription Agreement for 8%
Adjustable Rate Convertible Debentures
Page 5
meet any bona fide offer which the Company has for such financing. The
Investor shall have two business days from the date notice of any such
offer (including the specific terms thereof) is first provided to the
Investor, to meet any such offer. Should the Investor fail to respond to
the offer within such time, or determine not to meet such offer, then the
Company shall be free to accept and complete such financing, provided it is
on terms no less favorable to the third party than those offered to the
Investor. In the event there is a material change in the terms of such
financing which results in terms more favorable to the third party as
compared to those offered to the Investor, or if the Company fails not
complete the financing on terms no less favorable to third party than those
offered to the Investor, within sixty (60) days of the date it became able
to do so free of the rights granted to the Investor hereunder, then the
Company shall again offer such financing to the Investor, and a new right
of first refusal period shall commence to run in favor of the Investor.
7. Conditions to be Met by the Company On or Before Closing. At or before
the closing of the offering the Investor shall receive:
(a) an opinion of Ireland Stapleton Pryor and Pascoe, P.C., counsel to
the Company, in the form attached hereto as Exhibit A hereto;
(b) copies of the Shareholder Voting Agreement executed by management
of the Company and certain significant shareholders, in the form of Exhibit
B hereto; and
(c) copies of a Lock-up Agreement executed by Liviakis Financial
Communications, Inc., John M. Liviakis and Robert B. Prag, in the form of
Exhibit C hereto.
8. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado, excluding, however, so much of said
law as relates to conflict of laws and/or choice of law.
(b) This Agreement contains the entire agreement between the parties
regarding the purchase of the Debentures. The provisions of this Agreement
may not be modified or waived except in writing.
<PAGE>
U.S. Wireless Data, Inc.
Subscription Agreement for 8%
Adjustable Rate Convertible Debentures
Page 6
IN WITNESS WHEREOF, Investor has executed this Subscription
Agreement the ____ day of ____________________, 1997.
-----------------------------------
(Print Name)
-----------------------------------
(Signature)
Social Security or Tax I.D. Number:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
ACCEPTED:
U.S. WIRELESS DATA, INC.
By:________________________
Evon A. Kelly,
Chief Executive Officer
Date:______________________
<PAGE>
Exhibit 10.5
THIS WARRANT AND THE STOCK ISSUABLE UPON THE EXERCISE HEREOF CAN BE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT,
UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY OR COUNSEL FOR THE REGISTERED
HOLDER (WHICH SHALL BE IN FORM AND FROM SUCH COUNSEL AS SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY), SUCH REGISTRATION IS NOT THEN REQUIRED.
U.S. Wireless Data, Inc.
2200 Powell Street, Suite 450
Emeryville, California 94608
COMMON STOCK PURCHASE WARRANT
Warrant No. JWC-001
Right to Purchase 50,000 shares of No Par Value
Common Stock (subject to adjustment)
Date of Issuance:
As of December 10, 1997
Expiration Date:
As of December 09, 2000
THIS CERTIFIES THAT, for value received,
the party named immediately below
JW CHARLES SECURITIES, INC.
("JWC"), or permitted transferee in accordance with Section 12 hereof, or its
registered assigns (the "Registered Holder" or "Registered Holders"), is
entitled to purchase from U.S. Wireless Data, Inc., a Colorado corporation (the
"Company"), the number of shares of common stock, no par value per share (the
"Common Stock"), of the Company set forth above, subject to adjustment pursuant
to Section 4 hereof, at the price of Six and 525/1000 Dollars ($6.525) per share
of Common Stock, subject to adjustment pursuant to Section 3 hereof (the
"Exercise Price"). These purchase rights are granted as contemplated by
Paragraph 2 of that certain Finder's Agreement dated as of October 14, 1997,
among the Company and JWC, subject to the following provisions:
<PAGE>
SECTION 1.
CERTAIN DEFINITIONS
As used in this Warrant, the following terms have the meanings set
forth below:
"Agreement" is the Finder's Agreement dated as of October 14, 1997,
among the Company and JWC.
"Agreement Date" means the date of the Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, no par value per share.
"Common Stock Deemed Outstanding" means the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding at any given time pursuant to Section 3 of this
Warrant.
"Date of Issuance" is the date set forth on the front page of this
Warrant, and the terms "date hereof," "date of this Warrant," and similar
expressions shall be deemed to refer to the Date of Issuance.
"Debentures" means the 8% Convertible Subordinated Debentures of the
Company Due December 31, 1999, being issued by the Company in the private
offering described in the Agreement.
"Exercise Period" means the period of time commencing at 12:01 A.M.,
Eastern Time, on the Date of Issuance and ending at 5:00 P.M., Eastern Time, on
the third anniversary date of the Date of Issuance.
"Fair Value" means a value determined in good faith by the Board of
Directors of the Company. Anytime a Fair Value is required to be determined for
purposes of this Warrant, a certificate executed by an appropriate officer of
the Company shall be prepared and delivered to the Registered Holder to reflect
the action taken by the Board of Directors to determine such Fair Value.
"Market Price" means, as to any security immediately transferable
without restriction, the average of the closing prices of such security's sales
on the principal domestic securities exchange on which such security may at the
time be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day, or, if on any day such security is not so listed, the
average of the bid and asked prices quoted on Nasdaq as of the close of trading
in New York City on such day, in each such case averaged over a period of five
(5) consecutive days consisting of the business day immediately preceding the
day as of which Market Price is
-2-
<PAGE>
being determined and the four (4) consecutive business days prior to such day;
provided that if such security is listed on any principal domestic securities
exchange or quoted on Nasdaq, the terms "business day" and "business days" means
a day or days, as applicable, on which such exchange or Nasdaq is open for
trading or quotation, as the case may be, notwithstanding whether any quotation
is available on any particular business day and, if not, then the Market Price
shall be determined based upon those remaining days during the aforesaid 5-day
period for which quotations are available. If any security is not immediately
transferable without restriction, or is not listed on any principal domestic
securities exchange or quoted on Nasdaq, the Market Price shall be the Fair
Value thereof.
"Nasdaq" means the National Market System or the Small Cap Market of
the Nasdaq Stock Market, including the Nasdaq Bulletin Board, or successor
interdealer quotation systems having substantially the same listing criteria
that may in the future be used generally by members of the National Association
of Securities Dealers, Inc. for over-the-counter transactions in securities.
"Person" means an individual, a partnership, a corporation, a trust, a
joint venture, an unincorporated organization, a government and any department
and agency thereof.
"Stock" means shares of the Company's Common Stock authorized but
unissued as of the Date of Issuance, issued or issuable upon exercise of this
Warrant, provided that if there is a change such that the securities issued or
issuable upon exercise of this Warrant are issued by an entity other than the
Company, or there is a change in the class of securities so issuable, then the
term "Stock" shall mean shares of any security issued or issuable upon exercise
of the Warrant if such security is issuable in shares, or shall mean units of
any such security issued or issuable, if such security is not issuable in
shares.
"Warrant" and "Warrants" means this Warrant and all other warrants
issued as contemplated by the Agreement, and all warrants issued or issuable in
exchange or substitution for this Warrant or any such other warrant pursuant to
the terms hereof or thereof, as the case may be.
SECTION 2.
EXERCISE OF WARRANT
2.1. Exercise Period. The Registered Holder may exercise this Warrant,
in whole or in part, at any time and from time to time, during the Exercise
Period, and the exercise hereof may be for such whole number of Stock as the
Registered Holder may, in its sole discretion, decide.
-3-
<PAGE>
2.2. Exercise Procedure.
(a). This Warrant shall be deemed to have been exercised at such time
as the Company has received all of the following items (the "Exercise
Date"):
i. A completed Exercise Agreement, as described below, executed
by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
ii. This Warrant (subject to delivery by the Company of a new
Warrant with respect to any unexercised portion, as provided in
Paragraph (b) of Subsection 2.2);
iii. If this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments substantially in the form set
forth as Exhibit II hereto, evidencing the assignment of this Warrant
to the Purchaser; and
iiii. If the Purchaser has elected not to make a Cashless
Exercise as provided in Paragraph (b) of this Subsection 2.2, a
certified or bank check or other certified funds payable to the
Company in an amount equal to the product of the Exercise Price
multiplied by the number of Stock being purchased upon such exercise.
(b) Certificates for Stock purchased upon exercise of this Warrant
shall be delivered by the Company to the Purchaser within five (5) business
days after the Exercise Date. However, if the Purchaser has elected to make
a "Cashless Exercise" as herein described, the Company shall deliver
certificates for the number of shares that results from subtracting, from
the total number of Stock otherwise deliverable upon exercise, the number
of Stock whose value, calculated using the Market Price, is equal to the
value of the payment otherwise required for exercise by Paragraph (a)(iv)
of this Subsection 2.2. Unless this Warrant has expired or all of the
purchase rights represented hereby have been exercised, the Company shall,
in addition to certificates for Stock, prepare upon exercise of this
Warrant, a new Warrant representing the rights formerly represented by this
Warrant that have not expired or been exercised. The Company shall, within
five (5) business days after the Exercise Date, deliver such new Warrant to
the Persons designated for delivery in the Exercise Agreement.
(c) Except as otherwise required by Paragraph (b) of this Subsection
2.2, the Stock issuable upon the exercise of this Warrant shall be deemed
to have been issued to the Purchaser on the Exercise Date, and the
Purchaser shall be deemed for all purposes to have become the record holder
of such Stock on the Exercise Date.
(d) The issuance of certificates for Stock upon exercise of this
Warrant shall be made without charge to the Registered Holder or the
Purchaser for any issuance tax
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<PAGE>
in respect thereof or any other cost incurred by the Company in connection
with such exercise and the related issuance of Stock.
(e) The Company shall not close its books for the transfer of this
Warrant or of any Stock in any manner that interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Stock is at all times equal to or less than the Exercise Price
then in effect.
2.3. Exercise Agreement. The Exercise Agreement shall be substantially
in the form set forth as Exhibit I hereto, except that if Stock is not to be
issued in the name of the Registered Holder of this Warrant, the Exercise
Agreement shall also state the name of the Persons to whom Stock is to be
issued, and if the number of Stock purchased does not include all of such Stock
purchasable hereunder, it shall also state the name of the Persons to whom new
Warrants for the unexercised portion of the rights hereunder are to be
delivered. Any transfer of Stock to a person other than a prior Registered
Holder shall occur only in compliance with the provisions regarding transfer
contained in Section 12 of this Warrant.
2.4. Fractional Portions of Stock. If a fractional portion of Stock
would be issuable upon exercise of the rights represented by this Warrant, the
Company shall, within three (3) business days after the Exercise Date, deliver
to the Purchaser a check payable to the Purchaser, in lieu of such fractional
portion of Stock, in an amount equal to the Market Price of such fractional
portion of Stock as of the close of business on the Exercise Date.
SECTION 3.
EXERCISE PRICE
3.1. General.
(a) The initial Exercise Price of this Warrant is set forth on the
front page of this Warrant. In order to prevent dilution of the rights
granted under this Warrant, the Exercise Price shall be subject to
adjustment from time to time pursuant to this Section 3.
(b) If and whenever the Company issues or sells, or in accordance with
Subsection 3.3 is deemed to have issued or sold, any shares of its Common
Stock for a consideration per share less than the Market Price in effect
immediately prior to the time of such issuance or sale (except as otherwise
provided by Subsection 3.2), then immediately upon each such issuance or
sale, the Exercise Price shall be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the issuance
or sale by a fraction, the numerator of which shall be the sum of (i) the
number of shares of Common Stock actually outstanding prior to the issuance
or sale, and (ii) the number of shares of Common Stock that the minimum
aggregate amount receivable by the Company upon such issuance or sale on
that occasion would purchase at the initial Exercise Price, and the
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denominator of which shall be the number of shares of Common Stock actually
outstanding and Common Stock Deemed Outstanding under Subsection 3.3
immediately after such issuance or sale.
3.2. No Adjustments in Certain Cases. No adjustment to the Exercise
Price under Paragraph (b) of Subsection 3.1 or under Subsection 3.3, or to the
number of shares issuable upon exercise of this Warrant under Section 4 shall be
made:
(a) for the existence of, and any exercise, conversion or issuance of,
any Common Stock or other security of the Company under (a) the Warrants;
(b) any option, warrant, or other right to purchase Common Stock that is
outstanding on the Agreement Date, (c) any option issued under the
Company's 1992 Stock Option Plan, as in effect on the Agreement Date, (d)
the Debentures (including the issuance of preferred stock upon conversion
of the Debentures and the issuance of Common Stock as interest, dividends
or upon conversion of the Debentures and/or such preferred stock); or
(b) upon the issuance of Common Stock upon exercise or conversion of
any option, warrant or other right or Convertible Securities for which
adjustments have previously been made upon issuance of such option,
warrant, right or Convertible Securities.
3.3. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Subsection 3.1 above, the
following provisions shall be applicable:
(a) Issuance of Rights and Options. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock
or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange
of such Convertible Securities is less than the Market Price in effect
immediately prior to the time of the granting of such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise
of such Options or upon conversion or exchange of the total maximum amount
of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of
such Convertible Securities" shall be determined by dividing (i) the total
amount, if any, received by the Company as consideration for the granting
of such Options plus the minimum aggregate amount of additional
consideration payable to the Company upon exercise of all such Options
plus, in the case of Options that relate to the Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to
the Company upon the conversion or exchange of such Convertible Securities,
by (ii) the total maximum number of shares of Common Stock
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issuable upon the exercise of such Options and upon the conversion or
exchange of all Convertible Securities issuable upon the exercise of such
Options.
(b) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities, and the price per share for
which Common Stock is issuable upon conversion or exchange or such
Convertible Securities is less than the Market Price in effect immediately
prior to the time of such issuance or sale, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of
this paragraph, the "price per share for which Common Stock is issuable
upon such conversion or exchange" shall be determined by dividing (i) the
total amount received by the Company as consideration for the issuance or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(c) Change in Option Price and Conversion Rate. If any change shall
occur in the price per share provided for in any of the options, rights or
warrants referred to in Paragraph (a) of this Subsection 3.3, or in the
price per share at which the Convertible Securities referred to in
Paragraph (b) of this Subsection 3.3 are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case
may be, shall be deemed to have expired or terminated on the date when such
price change became effective in respect of shares not theretofore issued
pursuant to the exercise or conversion or exchange thereof, and the Company
shall be deemed to have issued upon such date new options, rights or
warrants or Convertible Securities at the new price in respect of the
number of shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such Convertible Securities.
(d) Calculation of Consideration Received. If any Common Stock,
Options, or Convertible Securities are issued or sold or deemed to have
been issued or sold or consideration that includes unrestricted cash, then
the amount of cash consideration actually received by the Company shall be
deemed to be the full monetary value of the unrestricted cash portion
thereof. If any Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for a consideration part or
all of which is other than unrestricted cash, then the amount of the
consideration other than unrestricted cash received by the Company shall be
deemed to be the Fair Value of such consideration.
(e) Integrated Transactions. If any Option is issued in connection
with the issuance or sale of other securities of the Company, together
compromising one integrated transaction in which no specific consideration
is allocated to such Option by the parties thereto, the Option shall be
deemed to have been issued without consideration.
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(f) Treasury Shares. The number of shares of Common Stock Deemed
Outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned
or held shall be considered an issuance or sale of Common Stock.
(g) Readjustment Upon Expiration of Options or Convertible Securities.
Upon the expiration of any of the options, warrants or rights referred to
in Paragraph (a) of this Subsection 3.3, or the Convertible Securities
referred to in Paragraph (b) of this Subsection 3.3, if such options,
warrants, rights or Convertible Securities shall not have been exercised,
converted or exchanged, as the case may be, the Exercise Price, to the
extent that Warrants have not been exercised, shall, upon such expiration,
be readjusted and shall thereafter be set (A) if any of such options,
warrants or rights have been exercised or such Convertible Securities have
been converted or exchanged, as the case may be, at a level at which the
Exercise Price would have been if originally adjusted on the basis of (i)
the fact that the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such
options, warrants or rights or the conversion or exchange of such
Convertible Securities and (ii) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company for
the issuance, sale or grant of all such options, warrants, rights or
Convertible Securities, whether or not exercised, plus the consideration
actually received by the Company upon the exercise, conversion or exchange
of such options, warrants, rights or Convertible Securities, or (B) if none
of such options, warrants or rights have been exercised or such Convertible
Securities have been converted or exchanged, as the case may be, at a level
at which the Exercise Price would have been if such original adjustment had
not been required; provided, however, that no such readjustment shall have
the effect of increasing the Exercise Price in effect immediately prior to
such readjustment by a proportion greater than the aggregate proportional
adjustment originally made upon the issue, sale or grant of such options,
warrants, rights, or Convertible Securities.
3.4. Subdivision and Combination of Common Stock; Stock Dividends. If
the Company shall at any time after the date hereof (a) issue any shares of
Common Stock or Convertible Securities, or any rights to purchase Common Stock
or Convertible Securities as a dividend upon Common Stock, (b) issue any shares
of Common Stock in subdivision of outstanding shares of Common Stock by
reclassification, stock split or otherwise, or (c) combine outstanding shares of
Common Stock by reclassification, reverse stock split or otherwise, then the
Exercise Price that would apply if purchase rights hereunder were being
exercised immediately prior to such action by the Company shall be adjusted by
multiplying it by a fraction, the numerator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately prior to such dividend,
subdivision or combination and the denominator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately after such dividend,
subdivision or combination.
3.5. Certain Dividends and Distributions. If the Company shall declare a
dividend or distribution upon the Common Stock payable otherwise than out of
earnings or
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earned surplus and otherwise than in Common Stock, Options or Convertible
Securities, the Exercise Price shall be reduced by an amount equal, in the case
of a dividend or distribution in cash, to the amount thereof payable per share
of the Common Stock or, in the case of any other dividend or distribution, to
the Fair Value of such dividend or distribution per share of Common Stock. For
purposes of the foregoing, a dividend or distribution other than in cash shall
be considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the Fair Value of
such dividend or distribution. Such reductions shall take effect as of the date
on which a record is taken for the purpose of such divided or distribution, or,
if a record is not taken, the date as of which the holders of Common Stock of
record entitled to such dividend or distribution are to be determined. The
adjustment called for by this Subsection 3.5 shall not apply to dividends
payable on the preferred stock issuable upon conversion of the Debentures.
3.6. Manner of Calculating Adjustments; No De Minimis Adjustments. The
calculation of each adjustment of the Exercise Price shall be made accurate to
the nearest ten- thousandth. No adjustment of the Exercise Price shall be made
if the amount of such adjustment would be less than one cent per share. In such
case any adjustment that otherwise would be required to be made shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment that, together with any adjustment or adjustments so carried forward,
shall amount to not less than one cent per share.
SECTION 4.
ADJUSTMENT OF NUMBER OF STOCK ISSUABLE UPON EXERCISE
Upon each reduction of the Exercise Price pursuant to Section 3 hereof,
the Registered Holder shall thereafter (until another such reduction) be
entitled to purchase, at the Exercise Price in effect on the date purchase
rights under this Warrant are exercised, the number of Stock, calculated to the
nearest whole number of Stock, determined by (a) multiplying the number of Stock
purchasable hereunder immediately prior to the reduction of the Exercise Price
by the Exercise Price in effect immediately prior to such reduction, and (b)
dividing the product so obtained by the Exercise Price in effect on the date of
such exercise.
SECTION 5.
EFFECT OF REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER, SALE OR OTHER DISPOSITION
If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the capital stock of the Company (other
than a subdivision or combination of shares provided for in Subsection 3.4
hereof), any consideration or merger of the Company with another corporation
(other than a consolidation or merger in which the Company is the surviving
entity and which does not result in any change in the Common
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Stock), or any sale or other disposition by the Company of all or substantially
all of its assets to any other corporation, then the Registered Holder shall
thereafter upon exercise of this Warrant be entitled to receive the Stock and
other securities and property of the Company, or of the successor corporation
resulting from consolidation or merger, as the case may be, to which Purchasers
of Stock would have been entitled upon such reorganization, reclas- sification
of capital stock, consolidation, merger, sale or other disposition if this
Warrant has been exercised immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition. In any such
case, appropriate adjustment (as determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth in this Warrant with respect to the rights and interests thereafter of the
Registered Holder to the end that the provisions set forth in this Warrant shall
thereafter be applicable, as near as reasonably may be, in relation to any Stock
or other securities or property thereafter deliverable upon the exercise hereof
as if this Warrant had been exercised immediately prior to such reorganization,
reclassification of capital stock, consolidation, merger, sale or other
disposition and the Registered Holder hereof had carried out the terms of the
exchange as provided for by such reorganization, reclassification of capital
stock, consolidation, merger, sale or other disposition. If in any such
reorganization, reclassification of capital stock, consolidation, merger, sale
or other disposition, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for or of a
security of the Company other than Common Stock deliverable from exercise of
this Warrant, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Section 3, with the amount of the consideration
received upon the issue thereof being determined under Paragraph (e) of
Subsection 3.3. The Company shall not effect any such reorganization,
reclassification of capital stock, consolidation, merger, sale or other
disposition unless, upon or prior to the consummation thereof, the successor
corporation shall assume by written instrument the obligation to deliver to the
Registered Holder such shares of stock or other securities, cash or property as
such Registered Holder shall be entitled to purchase in accordance with this
Warrant's provisions.
SECTION 6.
NOTICE OF ADJUSTMENT
Immediately upon any adjustment of the Exercise Price, the Company
shall send written notice thereof to all Registered Holders, stating the
adjusted Exercise Price and the number of Stock purchasable upon exercise of
this Warrant and setting forth in reasonable detail the method of calculation
for such adjustment. When possible, such notice shall be given in advance and
included as part of any notice required to be given pursuant to Section 7 below.
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SECTION 7.
PRIOR NOTICE OF CERTAIN EVENTS
If at any time:
(a) The Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the
holders of its Common Stock of record;
(b) The Company shall offer for subscription pro rata to the holders
of its Common Stock of record any additional shares of stock of any class
or any other rights;
(c) There shall be any reorganization or reclassification of the
capital stock of the Company, any consolidation or merger of the Company
with another corporation, or a sale or other disposition of all or
substantially all its assets;
(d) There shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) The Company shall file any registration statement pursuant to the
Securities Act of 1933, as amended (the "Act"),
then, in each such case, the Company shall give prior written notice of the date
on which (i) the books of the Company shall close or a record shall be taken for
such stock dividend, distribution, subscription or other rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or other
disposition, dissolution, liquidation, winding up or filing of a registration
statement shall take place, as the case may be. A copy of each such notice shall
be sent simultaneously to each transfer agent of the Company's Common Stock.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in said dividend, distribution, subscription,
registration or other rights or shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reclassification,
consolidation, merger, sale or other disposition, dissolution, liquidation,
winding up or filing, as the case may be, and in any case contemplated by
Paragraph (d) of Subsection 3.3, shall include the Company's calculation of the
Fair Value of the consideration whose Fair Value requires determination. Such
written notice shall be given at least thirty (30) days prior to the record date
or the effective or filing date, whichever is earlier, of the subject action or
other event. The failure by the Company to give any such notice shall not serve
to invalidate any action otherwise validly taken by the Company.
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SECTION 8.
RESERVATION OF COMMON STOCK
The Registered Holder understands that as of the Date of Issuance, the
Company does not have an adequate number of shares of authorized Common Stock
available to satisfy the outstanding rights of all securityholders who hold
options, warrants or other rights which are exercisable for or convertible into
shares of the Company's Common Stock. The Company has implemented steps to hold
a meeting of shareholders to authorize an increase in authorized Common Stock to
no less than 40,000,000 shares (the "Capital Increase"). The Company agrees that
it shall use its best efforts to hold such shareholder meeting no later than
April 30, 1998. Assuming adoption of the Capital Increase at such meeting, the
Company shall at all times thereafter reserve and keep available for issuance
upon the exercise of the Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in full of
all outstanding Warrants, and upon such issuance such shares of Common Stock
will be validly issued, fully paid and nonassessable. In the event the Company
does not hold a meeting of its shareholders by April 30, 1998 at which it
presents the Capital Increase, or in the event the Capital Increase is not
approved by the Company's shareholders at such meeting, then at any time after
April 30, 1998, any registered Holder exercising Warrants for which the Company
is unable to issue shares of Common Stock shall be entitled to have their
Warrants repurchased by the Company for a price equal to the number of shares
not issuable by the Company as a result of such deficiency times the difference
between the Market Price on the Exercise Date and the Exercise Price.
SECTION 9.
NO SHAREHOLDER RIGHTS OR OBLIGATION
This Warrant shall not entitle the Registered Holder to any voting
rights or other rights as a shareholder of the Company. No provision of this
Warrant, in the absence of affirmative action by the Registered Holder to
purchase Stock, and no enumeration in this Warrant of the rights or privileges
of the Registered Holder, shall give rise to any obligation of such Registered
Holder for the payment of the Exercise Price of Stock acquirable by exercise
hereof (in absence of such actual exercise) or as a shareholder of the Company.
SECTION 10.
EXCHANGEABLE FOR DIFFERENT DENOMINATIONS
This Warrant is exchangeable, upon the surrender hereof by the
Registered Holder at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the purchase rights hereunder, as set
forth on the front page hereof, and each of such new Warrants will represent
such portion of such rights as is designated by the Registered Holder at the
time of such surrender. The date the Company initially issued this Warrant,
which is set forth on the front page hereof, shall be deemed to be the "Date of
Issuance" of this Warrant and any Warrant exchanged or substituted therefore,
regardless of
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the dates on which new Warrants representing the unexpired and unexercised
rights formerly represented by this Warrant are issued.
SECTION 11.
TRANSFERABILITY
Subject only to the transfer conditions referred to in this Section 11,
this Warrant and all rights hereunder are transferable, in whole or in part,
without restriction and without charge to the Registered Holder, upon surrender
of this Warrant with a properly executed Assignment (substantially in the form
of Exhibit II hereto) at the principal office of the Company. This Warrant and
the Stock issued upon exercise hereof may not be offered, sold or transferred
except in compliance with the Act and any applicable state securities laws, and
then only against receipt of an agreement of the Person to whom such offer or
sale is made to comply with the provisions of this Section 11 with respect to
any resale or other disposition of such securities; provided, that no such
agreement shall be required from any Person purchasing this Warrant or any Stock
pursuant to a registration statement effective under the Act. The Registered
Holder agrees that, prior to the disposition of any Stock purchased on the
exercise hereof under circumstances that might require registration of such
Stock under the Act, or any similar statute then in effect, the Registered
Holder shall give written notice to the Company, expressing its intention as to
such disposition. Within three (3) business days after receiving such notice,
the Company shall present a copy thereof to its securities counsel. If, in the
opinion of such counsel, which shall be rendered within five (5) business days
after receiving such notice, or in the opinion of the Registered Holder's own
counsel (which shall be in form and from such counsel as shall be reasonably
satisfactory to the Company), the proposed disposition does not require
registration of such Stock under the Act, or any similar statute then in effect,
the Company shall, within two (2) business days of the rendering of such
opinion, notify the Registered Holder of such opinion, whereupon the Registered
Holder shall be entitled to dispose of such Stock in accordance with the terms
of the notice delivered by the Registered Holder to the Company. The above
agreement by the Registered Holder shall not be deemed to limit or restrict in
any respect the exercise of rights set forth in Section 12 hereof.
SECTION 12.
REGISTRATION RIGHTS
12.1. Demand Rights.
(a) Right to Demand Registration. On one (1) occasion, at any time
during the Exercise Period, the Registered Holders of Warrants or Stock
whose holdings thereof comprise a majority of Stock purchasable upon the
exercise of outstanding Warrants and of outstanding Stock not previously
covered by a registration statement as contemplated by this Section 12
(collectively, the "Warrant Securities") shall have the right to require
the Company to prepare and file with the Commission, within 60 days of the
date of a written
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demand, a filing on a registration form other than Form S-8 or Form S-3 (or an
equivalent short-form registration procedure that the Commission may hereafter
prescribe), and to use its best efforts to obtain promptly and maintain the
effectiveness thereof for at least one hundred twenty (120) days and (b)
register or qualify the subject Stock for sale in up to ten (10) states
identified by such Registered Holders. On two (2) additional occasions, the
Registered Holders of a majority of the Warrant Securities shall have the right
to require the Company to prepare and file with the Commission, within thirty
(30) days of the date of a written demand, up to two (2) additional registration
statements under the Act (or, in lieu of either, a post-effective amendment or
amendments to a registration statement, if then permitted under the Act), on
Form S-8 or Form S-3 (or an equivalent short-form registration procedure that
the Commission may hereafter prescribe), if such forms are available to register
the Stock at the time, covering all or any portion of the Stock underlying the
Warrants, and to use its best efforts to obtain promptly and maintain the
effectiveness thereof for at least one hundred twenty (120) days and (b)
register or qualify the subject Stock for sale in up to ten (10) states
identified by such Registered Holders. The Company shall bear all expenses
incurred in the preparation and filing of the registration statement or
post-effective amendment (and related state registrations, to the extent
permitted by applicable law) and the furnishing a reasonable number of copies of
the preliminary and final prospectus thereof to such Registered Holders,
provided that such registration can be done by including therein financial
statements that are prepared in the normal course of the Company's reporting
obligations under the federal securities laws. The Registered Holders shall bear
all expenses incurred in the preparation and filing of the registration
statement or post-effective amendment (and related state registrations, to the
extent permitted by applicable law) including the costs of furnishing a
reasonable number of copies of the preliminary and final prospectus thereof to
such Registered Holders, if, after notice is given to the Registered Holders to
the effect that the Company would be required to include therein financial
statements that would be required to be prepared otherwise than in the normal
course of the Company's reporting obligations under the federal securities laws,
the Registered Holders continue in their demand for registration and the Company
is required to include in such registration financial statements required to be
prepared other than in the ordinary course of the Company's reporting
requirements under federal securities laws.
(b) Termination of Demand Rights. The demand rights granted hereunder
shall terminate at such time as all of the Stock may be sold without
restriction under the Act and applicable state securities laws and
regulations, and the Registered Holders have received an opinion from
counsel for the Company (in such form and from counsel reasonably
satisfactory to the Registered Holders) that all of the Stock is so
saleable under SEC Rule 144 or otherwise within the immediate 90-day period
commencing on the date a sale is requested.
12.2. "Piggyback" Rights. In addition, if at any time during the Exercise
Period, the Company shall prepare and file one or more post-effective amendments
to a registration statement or a new registration statement under the Act, with
respect to a public offering of equity or debt securities of the Company,
whether by the company or by other Persons, then
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the Company shall include in any such post-effective amendment or registration
statement such information as may be required to permit a public offering of
Stock held by any Registered Holders requesting inclusion of their Stock;
provided that where such offering is to be an underwritten offering, and in the
opinion of the Company's managing underwriter the inclusion of the Stock
requested to be registered, when added to the other securities being registered,
would exceed the maximum amount of the company's securities that can be marketed
without otherwise materially and adversely affecting the entire offering, then
the Company may exclude from such offering a portion of the Stock requested to
be so registered, so that the total number of securities to be registered is
within the maximum number of shares that, in the opinion of the managing
underwriter, may be marketed without otherwise materially and adversely
affecting the entire offering. In the event there are previously issued
securities other than the Stock that are proposed to be registered in the
registration pursuant to registration rights that were granted prior to the
rights granted hereunder (the "Prior Rights"), then, the rights granted under
this Subsection 12.2 shall be subject to all such Prior Rights, and the Stock
may be excluded from such registration to the extent that the Prior Rights
require; provided, however, that the entire amount of any other securities
without Prior Rights shall be excluded from such registration before the
exclusion of any portion of the Stock for which registration was requested by a
Registered Holder. Each Registered Holder of Warrant Securities for whose
account any Stock may be included in a post-effective amendment or registration
statement shall have the unrestricted right to withhold Stock from inclusion in
the underwritten offering, without regard to whether registration was requested.
The Company shall bear all fees and expenses incurred by it in connection with
the preparation and filing of such post-effective amendment or new registration
statement. In the event of such a proposed registration, the Company shall
furnish the then Registered Holders of Warrant Securities with not less than
thirty (30) days' written notice prior to the proposed date of filing of such
post-effective amendment or new registration statement. Such notice shall
continue to be given by the Company to Registered Holders of Warrant Securities,
with respect to subsequent registration statements or post-effective amendments
filed by the Company, until such time as all of the Stock may be sold without
restriction under the Act and applicable state securities laws and regulations,
and the Registered Holders have received an opinion from counsel for the Company
(in such form and from counsel reasonably satisfactory to the Registered
Holders) that all of the Stock is so saleable under SEC Rule 144 or otherwise
within the immediate 90-day period commencing on the date a sale is requested.
The Registered Holders of Warrant Securities shall exercise the rights provided
for in this Subsection 12.2 by giving written notice to the Company, within
twenty (20) days of receipt of the Company's notice of its intention to file a
post-effective amendment or new registration statement.
12.3. Use of Prospectus. The Registered Holder, upon receipt of notice
from the Company of the occurrence of an event which requires a post-effective
amendment to a registration statement or an amendment or a supplement to the
prospectus included therein, shall promptly discontinue the sale of his Stock
until it has received copies of a supplemented or amended prospectus from the
Company, and until such receipt, the running of any minimum period of
effectiveness required by Subsection 12.1 shall be tolled.
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12.4. Failure to Supply Information. Registered Holders requesting
inclusion of Stock in any registration statement filed by the Company shall, at
such Holder's cost and expense, cooperate fully and promptly with the Company
and its counsel in supplying such information concerning the Registered Holder
and such Holder's plan of distribution as may reasonably be required to effect
such registration. Any Registered Holder who fails to so cooperate and to supply
information to the Company that is required to obtain effectiveness of a
registration statement shall have such Registered Holder's Stock excluded from
the registration statement, and such registration shall count as a completed
registration with respect to such Registered Holder.
12.5. Withdrawal of Stock from Registration. Any Registered Holder who
withdraws such Holder's Stock from any registration statement commenced pursuant
to Subsection 12.1 hereof, at such Holder's request, shall be deemed to have
received full benefit of a completed registration under Subsection 12.1 hereof.
SECTION 13.
INDEMNIFICATION
(a) By the Company. The Company shall indemnify, to the full extent
permitted by law, the Registered Holder, its directors and officers (if
applicable) and each person, if any, who controls the Registered Holder
within the meaning of Section 15 of the Act, against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact necessary to make the statements
therein (in the case of the prospectus or any preliminary prospectus, in
light of the circumstances under which they were made) not misleading,
except insofar as the same are caused by or contained in any information
with respect to the Registered Holder furnished in writing to the Company
by the Registered Holder expressly for use therein.
(b) By the Registered Holder. In connection with any registration
statement in which the Registered Holder is participating, the Registered
Holder shall indemnify, to the full extent permitted by law, the Company,
its directors and officers and each person who controls the Company (within
the meaning of Section 15 of the Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, but only insofar
as the same are caused by or contained in any information with respect to
the Registered Holder furnished in writing to the Company by the Registered
Holder expressly for use therein.
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<PAGE>
(c)Indemnification Procedures. Any person who is entitled to
indemnification under this Section 13 shall (i) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party. Whether or not such defense is assumed by the
indemnifying party, the indemnifying party shall not be subject to any
liability for any settlement made without its consent. No indemnifying
party shall consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim shall
not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such
claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and other
indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason an indemnification provision of
this Section 13 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim,
damage, liability or expense referred to therein, then the indemnifying
party, in lieu of indemnifying each indemnified party thereunder, shall
contribute to the amount paid or payable by the indemnified party as a
result of any such loss, claim, damage, liability or expense in such
proportion as is applicable to reflect not only the relative benefits
received by the indemnified party and the indemnifying party, but also the
relative fault of the indemnified party and indemnifying party, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of a material fact or omission to state material fact relates to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) Actions by Registered Holder. The Registered Holder shall, at his
cost and expense, complete, execute and deliver all questionnaires, powers
of attorney, undertakings and other documents and instruments, and take all
such other actions, as are from time to time reasonably requested by the
Company.
(f) Survival. The rights and obligations set forth in this Section 13
shall survive the exercise and surrender of this Warrant.
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<PAGE>
SECTION 14.
MISCELLANEOUS
14.1. Original Issue Taxes. The Company shall pay all United States,
state and local (but not foreign) original issue taxes, if any, upon the
issuance of this Warrant or the Stock deliverable upon exercise hereof.
14.2. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended, and the Company make take any action
herein prohibited or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of Warrants representing at least fifty percent (50%) of the Stock
obtainable upon the exercise of the Warrants outstanding at the time of such
consent.
14.3. Notices. Any notices required to be sent to a Registered Holder
shall be delivered to the address of such Registered Holder shown on the books
of the Company. All notices referred to herein shall be delivered in person or
sent by registered or certified mail, postage prepaid, and shall be deemed to
have been given when so delivered in person, or on the third business day
following the date so sent by mail. Whether or not JWC or an affiliate thereof
shall then be a Registered Holder, a copy of any notice sent to any Registered
Holder shall be sent to JWC in the manner provided above, at the following
addresses:
JW Charles Financial Services, Inc.
980 North Federal Highway
Boca Raton, Florida 33432
Attention: Joel Marks, Vice Chairman
In each case with a copy to:
Kilpatrick Stockton
1100 Peachtree Street
Suite 2800
Atlanta, Georgia 30309
Attention: W. Randy Eaddy
Any notices required to be sent to the Company shall be sent by the
same means as notices to be sent to the Registered Holders, at the following
address:
U.S. Wireless Data, Inc.
2200 Powell Street
Suite 450
Emeryville, California 94608
Attention: Evon Kelly, President
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[The remainder of this page left intentionally blank]
<PAGE>
14.4. Attorney's Fees; Costs. In any litigation between the Company and
Registered Holders or former Registered Holders, including actions for
enforcement or interpretation, arising out of this Warrant, the prevailing party
shall be entitled to recover reasonable attorney's fees, costs and expenses.
14.5. Descriptive Headings; Governing Law. The descriptive headings of
the sections, subsections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The construction,
validity and interpretation of this Warrant shall be governed by the laws of the
State of Colorado, without giving effect to choice of law or conflict of laws
principals, and the venue shall be Denver, Colorado.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and attested by its duly authorized officers under its corporate seal.
U.S. WIRELESS DATA, INC., a Colorado corporation
By: __________________________________
Evon Kelly
Chief Executive Officer
[Corporate Seal]
Attest:
_______________________________
Robert E. Robichaud
Corporate Assistant Secretary
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<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated: _________________
THE UNDERSIGNED Registered Holder, pursuant to the provisions set forth
by the within Warrant, hereby subscribes for and purchases _________________
shares of Stock covered by such Warrant and herewith elects to make:
( ) a Cashless Exercise at the Exercise Price provided by such Warrant.
( ) full cash payment of $ --------------------- for such shares at
the Exercise Price provided by such Warrant.
____________________________________
(Signature)
____________________________________
(Print or type name)
____________________________________
____________________________________
(Address)
NOTICE: The signature on this Exercise Agreement must correspond with
the name as written upon the face of the within Warrant, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement, or
any change whatsoever, and must be Medallion guaranteed by a bank, other than a
savings bank, having an office or correspondent in New York, New York, Boca
Raton or Miami, Florida, or Atlanta, Georgia, or by a firm having membership on
a registered national securities exchange and an office in New York, New York,
Boca Raton or Miami, Florida, or Atlanta, Georgia.
SIGNATURE GUARANTEE
Authorized Signature: ________________________________
Name of Bank or Firm: ________________________________
Dated: ___________________________
-21-
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,____________________ , the undersigned Registered Holder
hereby sells, assigns, and transfers all the rights of the undersigned under the
within Warrant No. ___________ with respect to the number of Securities covered
thereby set forth below, unto the Assignee identified below, and does hereby
irrevocably constitute and appoint to effect such transfer of rights on the
books of the Company, with full power of substitution:
No. of Shares
Name of Assignee Address of Assignee of Stock No. of Warrants
- ---------------- ---------------------------- ---------------
Dated: _____________________________________
(Signature of Registered Holder)
_____________________________________
(Print or type name)
NOTICE: The signature on this Assignment must correspond with the name
as written upon the face of the within Warrant, in every particular, without
alteration, enlargement, or any change whatsoever, and must be Medallion
guaranteed by a bank, other than a savings bank, having an office or
correspondent in New York, New York, Boca Raton or Miami, Florida, or Atlanta,
Georgia, or by a firm having membership on a registered national securities and
an office in New York, New York, Boca Raton or Miami, Florida, or Atlanta,
Georgia.
SIGNATURE GUARANTEE
Authorized Signature: ________________________________
Name of Bank or Firm: ________________________________
Dated: ___________________________
-22-
<PAGE>
Exhibit 10.6
Robert B. Prag John M. Liviakis
One Sable Court 3521 East Curtis Drive
Sacramento, CA 95846 Sacramento, CA 95818
October 20, 1997
U.S. Wireless Data, Inc.
2200 Powell Street, Suite 450
Emeryville, CA 94608
Re: Exercise Terms of Warrants
Gentlemen:
Reference is made to certain Common Stock purchase warrants of U.S.
Wireless Data, Inc. (the "Company") owned by the undersigned and which are
exercisable pursuant to their terms commencing on January 15, 1998 and
continuing through August 4, 2002, to purchase up to 1,600,000 shares of the
Common Stock of the Company at $.01 per share (the "Warrants"). Reference is
also made to the Subscription Agreements dated as of August 4, 1997, by which
the undersigned purchased the Warrants (the "Subscription Agreements").
The undersigned holders of Warrants (in the amounts set next to their
names below) hereby agree that in consideration of the Company's efforts to
raise additional capital:
1. The right to exercise the Warrants (and consequently the rights
provided pursuant to paragraph 5(a) of the Subscription Agreements) shall be
deferred until the later of: (a) January 15, 1998; or (b) the next Annual or
Special Meeting of the Company's shareholders, at which the Company agrees that
it shall submit a proposed amendment to its Articles of Incorporation to
increase the authorized number of shares of Common Stock to no less than
40,000,000. If the Company is unable to secure such increase in capital at such
meeting, the Warrants shall become immediately exercisable (if such meeting is
held after January 15, 1998) and the holders shall again be able to exercise the
rights provided under paragraph 5(a) of the Subscription Agreements.
2. The holders agree that the antidilution provisions of the Warrants
(as set forth in Paragraph 8 of the Warrants) shall not apply to any stock
dividends to be paid on shares of the Company's Proposed Series A Cumulative
Convertible Redeemable Preferred Stock underlying the 8% Adjustable Rate
Convertible Debentures Due December 31, 1999, which the Company is proposing to
offer within the next several weeks.
Yours very truly,
/s/ John M. Liviakis
John L. Liviakis, as to 1,200,000 Warrants
/s/ Robert B. Prag
Robert B. Prag, as to 400,000 Warrants
Exhibit 10.7
SHAREHOLDER VOTING AGREEMENT
This Shareholder Voting Agreement is entered into effective as of
November 11, 1997, between U.S. Wireless Data, Inc., a Colorado corporation (the
"Company") and the persons whose names appear on the signature page to this
Agreement (the "Shareholders").
RECITALS
WHEREAS, the Company is in the process of attempting to raise
additional capital through a private offering of Convertible Debentures;
WHEREAS, the proposed terms of the Convertible Debentures provide that
such Debentures shall be automatically converted into shares of a Series A
Preferred Stock, if and when such stock is authorized for issuance by the
Company, followed by voluntary conversion at the behest of holders into shares
of the Company's no par value common stock (the "Common Stock");
WHEREAS, the Company has no preferred stock presently authorized for
issuance and has an insufficient number of shares of Common Stock available (i)
to honor the conversion features of the Convertible Debentures and (ii) to honor
the obligations it has to persons holding outstanding securities of the Company
which are convertible into shares of Common Stock;
WHEREAS, the Company intends to hold its 1997 Annual Meeting of
Shareholders (the "1997 Meeting") within the next several months, at which the
Company will, among other things, submit proposals to its shareholders for an
increase in authorized Common Stock to no less than 40,000,000 shares and
authorize the Company to issue up to a total of 15,000,000 shares of preferred
stock (the "Preferred Stock"), with such rights and preferences as may be
determined from time to time by the Board of Directors of the Company (such
proposals to increase the number of shares of Common Stock and to authorize the
Company to issue Preferred Stock being hereafter referred to as the "Capital
Increase Proposals");
WHEREAS, approval of the Capital Increase Proposals by shareholders
will allow the Company (i) to honor the obligations it is proposing to enter
into with prospective purchasers of the Convertible Debentures and (ii) to
fulfill its obligations to holders of its securities which are presently
outstanding and convertible into shares of Common Stock; and
WHEREAS, in order to induce potential investors to purchase the
Convertible Debentures and to assure that the Company has adequate authorized
capital stock to honor its obligations under other presently outstanding
convertible securities, the Company has agreed to submit the Capital Increase
Proposal to its shareholders at its 1997 Meeting, and the Shareholders have
agreed to (i) assure that their votable shares are present at the 1997 Meeting
and (ii) vote those shares in favor the Capital Increase Proposals;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and in order to assist the Company in raising additional capital and to
allow it to honor its obligations to presently outstanding securityholders of
the Company, the undersigned Shareholders agree as follows:
1. Shareholder shall take all steps necessary to assure that all
securities of the Company owned by the Shareholder either of record or
beneficially, directly or indirectly, which are votable at the 1997
<PAGE>
Meeting, or are present and voting at such meeting, or any adjournments or
postponements thereof, either in person or by proxy.
2. Shareholder shall vote such shares either in person or by proxy at
the 1997 Meeting, or any adjournments or postponements thereof, in favor of the
Capital Increase Proposals.
3. This agreement shall be governed by the law of the State of
Colorado, without regard to such State's provisions regarding choice of laws,
and shall be binding upon any and all successors, assignees, executors,
receivers, trustees, custodians or pledgees of Shareholder.
IN WITNESS WHEREOF, the undersigned Shareholder has executed this
Shareholder Voting Agreement effective as of the date first written above.
/s/ Evon A. Kelly /s/ Rod L. Stambaugh
Evon A. Kelly Rod L. Stambaugh
/s/ Robert E. Robichaud /s/ Alan B. Roberts
Robert E. Robichaud Alan B. Roberts
/s/ Chester N. Winter /s/ Caesar Berger
Chester N. Winter Caesar Berger
/s/ Clyde Casciato /s/ Thomas Cote
Clyde Casciato Thomas Cote
/s/ John M. Liviakis /s/ Robert B. Prag
John M. Liviakis Robert B. Prag
Liviakis Financial Communications, Inc.
entrenet Group, LLC
By:/s/ John M. Liviakis
By:/s/ John Billington
Vice President
-2-
Exhibit 10.8
LOCK-UP AGREEMENT
This Lock-up Agreement is entered into effective as of November 25, 1997,
between U.S. Wireless Data, Inc., a Colorado corporation (the "Company") and
John M. Liviakis, Robert B. Prag and Liviakis Financial Communications, Inc.
(collectively the "Shareholders").
RECITALS
WHEREAS, the Company is in the process of attempting to raise
additional capital through a private offering of Convertible Debentures (the
"Debentures");
WHEREAS, certain of the investors who have offered to purchase the
Debentures (the "Investors") are being granted registration rights which will
entitle them to have the shares of the Company's no par value common stock (the
"Common Stock") issuable as interest on, and upon conversion of, the Debentures
and/or the shares of Common Stock issuable as dividends on, and upon conversion
of, the shares of Series A Preferred Stock into which the Debentures may be
converted, registered for resale under the Securities Act of 1933, as amended
(the "1933 Act");
WHEREAS, the Shareholders have been granted certain registration rights
(including both demand and "piggyback" registration rights) (the "Shareholder
Registration Rights") entitling the Shareholders to have shares of Common Stock
owned or issuable to them (the "Shares") registered for public resale under the
1933 Act as follows: (a) the shares of Common Stock previously issued to Messrs.
Liviakis and Prag by the Company as of August 6, 1997; (b) the shares of Common
Stock issuable to Messrs. Liviakis and Prag under Common Stock Purchase Warrants
issued as of August 6, 1997, which are exercisable for up to 1,600,000 shares of
Common Stock at $.01 per share; and (c) the shares of Common Stock which have
been or are issuable pursuant to a consulting agreement between the Company and
Liviakis Financial Communications, Inc. dated as of July 25, 1997, which has a
term of July 31, 1997 - July 31, 1998 (the "Consulting Term");
WHEREAS, the Investors have demanded that as a condition to their
purchase of the Debentures, the Shareholders agree to refrain from selling the
Shares during the Consulting Term (the "Lock-up);
WHEREAS, the Shareholders desire to assist the Company in raising
additional capital and therefore agree to the Lock-up, on the terms set forth
herein.
<PAGE>
AGREEMENT
In consideration of the mutual promises contained herein and in order
to assist the Company in raising additional capital, each undersigned
Shareholder agrees:
1. That he or it shall not sell any of the Shares until the expiration
of the Consulting Term, irrespective of whether such Shares have been registered
pursuant to the Shareholder Registration Rights.
2. The agreements of the undersigned are irrevocable and shall be
binding upon the undersigned's heirs, legal representatives, successors and
assigns.
3. The undersigned understands that the Company and the purchasers of
the Debentures will be relying upon the representations set forth in this
Agreement in proceeding with the Offering.
4. This Agreement shall be governed and construed under the laws of the
State of Colorado, without application of the provisions regarding conflicts of
laws.
5. This Agreement may be signed in counterparts.
IN WITNESS WHEREOF, the undersigned have signed this Lock-up Agreement
effective as of the date first written above.
U.S. Wireless Data, Inc. Liviakis Financial Communications, Inc.
By: /s/ Evon A. Kelly By: /s/ John M. Liviakis
----------------------- -----------------------------
Title: President Title: President
/s/ John M. Liviakis
- --------------------
John M. Liviakis
/s/ Robert B. Prag
- ------------------
Robert B. Prag
-2-
