SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| Quarterly Report under Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1997
| | Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______ to ______.
Commission File No.: 0-22848
U.S. Wireless Data, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1178691
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(State of incorporation) (IRS Employer Identification No.)
2200 Powell Street, Suite 450
Emeryville, California 94608
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(Address of principal executive offices, including zip code)
(510) 596-2025
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(Registrant's Telephone Number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past ninety days.
Yes _X_ No ___
As of December 31, 1997 there were outstanding 9,221,420 shares of the
Registrant's Common Stock (no par value per share).
Transitional Small Business Disclosure Format
Yes ___ No _X_
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U.S. WIRELESS DATA, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Balance Sheet --
December 31, 1997, June 30, 1997...........................3
Statements of Operations --
Three Months and Six Months Ended
December 31, 1997 and 1996................................4
Statements of Cash Flows --
Six Months Ended December 31, 1997 and 1996................5
Notes to Financial Statements...................................6-9
Item 2. Management's Discussion and Analysis..........................10-13
PART II OTHER INFORMATION
Item 1. Material Developments in Connection with Legal Proceedings.......13
Item 2. Securities Changes...............................................14
Item 3. Defaults Upon Senior Securities..................................15
Item 5. Other Information ...............................................15
Item 6. Exhibits and Reports on Form 8-K.................................16
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<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
BALANCE SHEET
(Unaudited)
December 31, 1997 June 30,1997
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ASSETS
<S> <C> <C>
Current Assets:
Cash $ 1,522,944 $ 6,083
Accounts receivable, net of allowance for
doubtful accounts of $15,979 Dec.; 15,903 June 123,369 120,531
Sales-type lease receivables .................. 10,933 11,023
Inventory, net ................................ 634,938 208,867
Other current assets .......................... 59,430 102,836
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Total current assets ................. 2,351,614 449,340
Property and equipment, net ........................... 142,333 40,445
Other assets .......................................... 434,030 11,495
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Total assets .......................................... $ 2,927,977 $ 501,280
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................. $ 759,744 $ 354,213
Accrued liabilities ........................... 149,894 125,587
Notes payable ................................. 808,649 737,866
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Total current liabilities ............. 1,718,287 1,217,666
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Long Term Debt ........................................ 2,707,941 45,000
Total Liabilities ..................................... 4,426,228 1,262,666
Stockholders' Equity (Deficit):
Common stock, no par value, 12,000,000 ........ 9,221,420 5,613,952
shares authorized; 9,221,420
shares issued and outstanding
Common stock subscribed ....................... 0 0
Additional paid-in capital .................... 8,214,994 10,613,465
Accumulated deficit ........................... (18,934,665) (16,960,853)
Notes Receivable from Shareholder ............. -- (27,950)
------------ ------------
Total stockholders' equity (deficit)... (1,498,251) (761,386)
Total liabilities and stockholders' equity (deficit)... $ 2,927,977 $ 501,280
============ =============
</TABLE>
See Accompanying Notes
3
<PAGE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ................................... $ 96,385 $ 415,695 $ 353,857 $ 802,913
Cost of goods sold ........................ 52,774 221,848 226,569 487,297
----------- ----------- ----------- -----------
Gross margin (deficit) .................... 43,611 193,847 127,288 315,616
----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative ... 1,161,774 169,619 1,692,629 340,406
Research and development .............. 77,700 95,019 173,014 213,488
----------- ----------- ----------- -----------
Total Operating Expense 1,239,474 264,638 1,865,643 553,894
----------- ----------- ----------- -----------
Loss from operations ...................... (1,195,863) (70,791) (1,738,355) (238,278)
Interest income 1,677 0 1,677 0
Interest expense (243,782) 0 (267,682) 0
Other income 18,246 1,921 30,548 7,888
Net loss .................................. $(1,419,722) $ (68,870) $(1,973,812) $ (230,390)
=========== =========== =========== ===========
Basic / Diluted Earnings (loss) per share: $ (.15) $ (.01) $ (.23) $ (.05)
Weighted average common shares outstanding 9,209,152 4,738,458 8,489,500 4,732,261
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
12/31/97 12/31/96
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $(1,973,812) $ (230,390)
Depreciation and amortization .............................. 10,348 39,051
Non-cash consulting services ............................... 181,805
Non-cash interest expense - debt ........................... 225,358
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable .............................. (2,839) 119,057
Inventory ........................................ (426,071) 46,866
Other current assets ............................. (47,979) 33,088
Increase (decrease) in:
Accounts payable ................................. 395,531 90,301
Accrued liabilities .............................. 24,308 (114,241)
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Net cash used in operating activities ............ (1,613,351) (16,268)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) of Property, plant, and equipment ............... (112,236)
(Increase) in other assets ................................. (84,626) 500
----------- -----------
Net cash used in investing activities ............ (196,862) 500
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ............................ 556,250 43,396
Note receivable ............................................ 27,950 (27,950)
Net Proceeds from issuance of debt.......................... 2,742,874 (21,600)
----------- -----------
Net cash provided by financing activities ......... 3,327,074 (6,154)
INCREASE (DECREASE) IN CASH ..................................... 1,516,861 (21,922)
CASH, Beginning of period
6,083 40,350
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CASH, End of period ............................................. $ 1,522,944 $ 18,428
=========== ===========
</TABLE>
See Accompanying Notes
5
<PAGE>
U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 -- ACCOUNTING PRINCIPLES
The balance sheet as of December 31, 1997, as well as the statements of
operations for the three and six months ended December 31, 1997 and
December 31, 1996, and statement of cash flows for the six months ended
December 31, 1997 and December 31, 1996 have been prepared by the Company
without an audit. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary to present fairly the
financial position, results of operations, and cash flows at December 31,
1997 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for
fiscal year end June 30, 1997. The results of operations for interim
periods presented are not necessarily indicative of the operating results
for the full year.
Note 2 -- FINANCIAL CONDITION AND LIQUIDITY
The Company has incurred an accumulated deficit of approximately $18.9
million since inception, including a loss of $554 thousand in the first
quarter and $1,420 thousand in the second quarter of fiscal year 1998. In
order to attempt to continue as a going concern, the Company has
transitioned to a recurring revenue focus, is working on programs to
increase revenue levels and product margins, and is negotiating new
distribution agreements. In December 1997, the Company closed a private
placement offering of $3,060,000 of Convertible Subordinated Debentures.
After associated fees and repayment of bridge loans incurred during the
quarter, the Company retained approximately $2,200,000 to apply to
immediate working capital needs and the national launch of its proprietary
wireless transaction processing solution. The current sales volume is
inadequate to fund the infrastructure growth and business transition. As a
result, the Company anticipates the continued roll out of the GTE Wireless
joint marketing and operating agreement and potential distribution programs
with other cellular carriers will require additional debt or equity
financing in the immediate future.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets and liabilities that might be necessary should the Company be unable
to continue as a going concern.
Note 3 -- NET LOSS PER SHARE
Effective during the quarter ended December 31, 1997, earnings (loss) per
common share (EPS) is computed using Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings per Share". SFAS No. 128, establishes
standards for the computation, presentation, and disclosure of earnings per
share. Basic and diluted net loss per common share are computed by dividing
the net loss by the weighted average number of common shares outstanding at
the end of the period. Diluted EPS excludes exercisable stock options and
warrants from the calculation since their effect would be anti-dilutive.
All prior periods have been restated to conform with SFAS No.128. 6
<PAGE>
Note 4 -- FINANCING
As the Company entered the first quarter of fiscal 1998, it faced the need
for increased liquidity to meet its obligations and fund a significant
rollout of the CDPD TRANZ Enabler product. In August 1997, through an
introduction by the entrenet Group, LLC. ("entrenet"), the Company sold 3.5
million unregistered shares of common stock and 1.6 million warrants to
purchase common stock at an exercise price of $0.01 per share to two
officers of Liviakis Financial Communications, Inc. ("LFC") for $500,000 in
cash. The warrants are exercisable from January 15, 1998 through August 4,
2002. The securities sold to the two officers of LFC carry future
registration rights, including a one-time demand registration, with fees to
be paid by the Company (see also Note 7, below).
In accordance with its agreement with entrenet, The Company has granted
entrenet the right to receive 280,000 unregistered shares of the Company's
Common Stock as compensation for an 8% finder's fee for the direct source
financing. The stock is to be issued to entrenet following shareholder
approval for an increase in authorized Common Stock, which occurred on
February 6, 1998. The agreement provides entrenet with "piggyback
registration rights."
On December 10, 1997 the Company closed a private placement offering of
$3,060,000 principal amount of 8% Adjustable Rate Convertible Subordinated
Debentures. After associated fees and repayment of bridge loans incurred
during the quarter, the Company retained approximately $2,200,000 to apply
to immediate working capital needs and the national launch of its
proprietary wireless transaction processing solution. The convertible
features of the debenture include an "in-the-money" convertible option that
allows the holder to obtain shares of common stock at a discount off of
fair market value. The value of the in-the-money provision has been
allocated to stockholder equity. The difference between the realized value
and face value of the debt will be recognized as non-cash interest expense
between the date of issue and date of conversion into preferred stock,
which was effected as of February 9, 1998. See "Note 9 - Subsequent
Events". In December, this non-cash interest charge was approximately
$225,000. As a result of the approval by shareholders on February 6, 1998,
the Company authorized 4,000,000 shares of Series "A" Preferred stock. The
debentures automatically convert into no par value Series A Cumulative
Convertible Redeemable Preferred Stock (the "Preferred Stock"), with a
stated value of $1.00 per share. The preferred stock gives the holder the
right to convert principal into shares of Common Stock in the future at 80%
of market price, but not lower than $4 per share for the first 270 days and
no higher than $6 per share. The security carries an 8% coupon, which drops
to a 4% coupon once the underlying shares of common stock are registered
with the Securities and Exchange Commission. The Company is required to
register the shares of the common stock underlying the securities sold in
the offering, plus the shares of common stock issuable as interest on the
Debentures and dividends on the Series A Preferred Stock. A more detailed
explanation of the private placement offering is provided by Form 8-K
Reporting an Event of November 14, 1997, filed on December 17, 1997.
Note 5 -- LIVIAKIS FINANCIAL COMMUNICATIONS INC. ("LFC") - CONSULTING
In August 1997, the Company retained LFC to advise and assist the Company
in matters concerning investor relations and corporate finance covering the
period from July 31, 1997 through July 31, 1998. As compensation for these
services, the Company will issue a total of 300,000 unregistered restricted
shares of its Common Stock and $10,000 in cash as consulting fees. The
issuance of the shares of Common Stock will occur at various times during
the consulting agreement, commencing November 15, 1997. Pursuant to the
consulting agreement, the Company will also pay LFC a cash fee equal to
2.5% of the gross proceeds received as a finder's fee for any direct
financing located for the Company. The shares will also contain
registration rights as described in Note 4, above.
Note 6 -- LITIGATION
In September 1996, the Company agreed to terms to settle securities fraud
litigation, pending since 1994, which was brought in relation to the
Company's initial public offering of December 1993. The parties' agreement
(the "Settlement Agreement") was filed in the United States District Court
for the District of Colorado on January 15, 1997 in consolidated Case N0.
94-Z-2258, Appel, et al. v. Caldwell, et al. By its order approving the
settlement, the court certified a plaintiff's settlement class and provided
the mechanism for payment of claims. The Company contributed directly or by
indemnification a total of $10,000 to the total settlement fund of
$2,150,000. The remaining portion of the settlement was contributed by
certain underwriters of the Company's initial public offering and
securities counsel. No objections to the Settlement Agreement were made. No
potential class member opted out of the settlement and all are bound by the
release granted the Company. All claims against the Company in those
consolidated cases were dismissed by final federal court order on September
4, 1997. No appeal was filed. Similar state court claims were dismissed by
Colorado district court order dated October 9, 1997.
To resolve cross-claims asserted by underwriters in the litigation, U.S.
Wireless Data, Inc. agreed to transfer to RAS Securities Corporation, H.J.
Meyers & Co, Inc., Sands & Co. Ltd. and R.J. Steichen & Co. a total of
600,000 U.S. Wireless Data, Inc. common shares upon the effective date of
the Settlement Agreement. The Company has agreed to register such shares
upon demand not sooner than April 26, 1998. Further, on September 17, 1997
the Company agreed to entry of a consent judgment against it and in favor
of Don Walford, the sole shareholder of underwriter Walford Securities,
Inc., in the amount of $60,000, payable over a three-year period.
The total charge recognized during fiscal 1997 consists of the following:
$93,600 for the value of the common shares issued based upon the fair
market value of the Company's common stock on the date the commitment of
such shares was made; $10,000 for actual cash to be paid by the Company
pursuant to the settlement with stockholders; and $60,000 for the note
payable executed with Don Walford as discussed above.
In July 1997, the Company executed a two-year agreement for consulting
services to be provided by Mr. Gary Woolley. In addition to monthly cash
compensation, Mr. Woolley received a $50,000 two-year convertible note with
10% interest per annum. The principal balance of the note was convertible
into Common Stock at $.40 per share. A dispute arose between Mr. Woolley
and the Company and the consulting agreement was terminated by the Company
at the end of August 1997. Mr. Woolley and the Company executed a
settlement agreement in January 1998, and the Company has accrued the
related consulting charges of $45,833 to operating expense in the second
quarter. The restructured note will convert into 75,000 restricted shares
of Common Stock at Mr. Woolley's election on or before April 1, 1998. Mr.
Woolley advised the Company of his election to convert the note to Common
Stock in January, 1998.
The Company has been engaged in negotiations with purchasers of $135,000
(out of a total of $185,000) of convertible demand notes, which the Company
issued from April through June 1997. The notes became convertible to Common
Stock at $.35 per share (as to $85,000 of the notes) and $.50 per share (as
to $100,000 of the notes) on November 1, 1997. The essence of the claims of
the complaining noteholders is that the Company, through its agents,
"promised" that the Common Stock issuable upon conversion of the notes was
to be "freely tradeable." The documentation evidencing the notes did not
bear any language indicating the nature of the shares issuable upon
conversion. The Company denies that "freely tradeable" stock was promised
to the noteholders by any person authorized by the Company to make such
promises. The noteholders allege damages which they base upon a market
price for the Common Stock in the $8.00 range as of the November 1 time
period. The noteholders have threatened suit against the Company if they do
not receive a substantial increase in the number of shares to be issued by
the Company upon conversion of the notes, along with other concessions from
the Company. No assurance can be given that the matter can be resolved
without litigation. The cost of litigation and any potential judgment could
have a material adverse financial impact to the Company.
Note 7 - STOCK WARRANTS
As a result of the issuance of securities to LFC as described in Note 4,
above, an adjustment to the exercise terms of the Common Stock purchase
warrants issued to the underwriters in connection with the Company's
December 1993 initial public offering was required. Those warrants, which
were initially exercisable to purchase 165,000 shares at $12.33 per share,
are now exercisable to purchase 285,621 shares at $7.12 per share.
Note 8 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130, which is effective for all periods beginning after
December 15, 1997, establishes standards for reporting and displaying
comprehensive income and its components with the same prominence as other
financial statements. All prior periods must be restated to conform to the
provisions of SFAS No. 130. The Company will adopt SFAS No. 130 during the
first quarter of fiscal 1999, but does not expect the new accounting
standard to have a material impact on the Company's reported financial
results.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131, which is effective
for fiscal years beginning after December 15, 1997, establishes new
disclosure requirements for operating segments, including products,
services, geographic areas, and major customers. The Company will adopt
SFAS No. 131 for the 1999 fiscal year. The Company does not expect the new
accounting standard to have a material impact on the Company's reported
financial results.
Note 9 -- SUBSEQUENT EVENTS
On February 6, 1998, the Company held its annual shareholder meeting. All
proposals submitted to shareholders, as described in the Proxy Statement
for the Meeting, were passed. Article 4 of the Company's Articles of
Incorporation was amended to increase the number of shares of authorized
common stock from 12,000,000 to 40,000,000. Also, 15,000,000 shares of no
par value preferred stock were authorized with 4,000,000 designated as
Series A Preferred Stock, as described in the Proxy Statement. Shareholders
also approved amendments to the Company's 1992 stock option plan to
increase the number of underlying shares for which options may be granted
under the plan from 880,000 to 2,680,000 shares, as described in the Proxy
Statement.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
The Company may, in discussions of its future plans, objectives and
expected performance in periodic reports filed by the Company with the
Securities and Exchange Commission (or documents incorporated by reference
therein) and in written and oral presentations made by the Company, include
projections or other forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 or Section 12E of the Securities
Act of 1934, as amended. Such projections and forward-looking statements
are based on assumptions which the Company believes are reasonable, but are
by their nature inherently uncertain. In all cases, results could differ
materially from those projected. Some of the important factors that could
cause actual results to differ from any such projections or other
forward-looking statements are detailed below.
History of Losses and Potential Fluctuations in Operating Results: Through
the end of second quarter of fiscal year ending June 30, 1998, the Company
had experienced significant operating losses. In addition, because the
Company generally ships its products on the basis of credit card processing
applications or purchase orders, increments to recurring revenue and other
component sales in any quarter are highly dependent on orders shipped in
that quarter and, accordingly, may fluctuate materially from quarter to
quarter. The Company's operating expense levels are based on the Company's
internal forecasts for future demand and not on firm customer orders.
Failure by the Company to achieve these internal forecasts could result in
expense levels that are inconsistent with actual revenues. The Company's
results may also be affected by fluctuating demand for the Company's
products and by increases in the costs of components acquired from the
Company's vendors.
Distribution Program: The roll-out of the GTE distribution program is
expected to have a material impact on the Company's future revenue stream.
While the Company anticipates it will execute distribution agreements with
other significant partners, the loss of, or substantial diminution of
purchases from the Company through any of these distributors could have a
material adverse effect on the Company.
The Company's Dependence on a Single Type of Product and Technological
Change: All of the Company's revenues are derived from sales of its credit
card transaction or CDPD enabling products. Demand for these products could
be affected by numerous factors outside the Company's control, including,
among others, market acceptance by prospective customers, or the
introduction of new or superior competing technologies. The Company's
success will depend in part on its ability to respond quickly to
technological changes through the development and improvement of its
products.
Competition by Existing Competitors and Potential New Entrants Into the
Market: The Company has identified several potential competitors attempting
to develop CDPD based terminals and solutions. In addition, companies with
substantially greater financial, technical, marketing, manufacturing and
human resources, as well as name recognition, than the Company may also
enter the market.
Requirement for Additional Capital: At present, the development of the
Company's infrastructure and expansion of the sales and marketing
organization requires additional financing. Proceeds from the recently
completed private placement offering have provided the Company with the
ability to launch the GTE joint marketing and distribution program,
however, execution of the Company's business plan is dependent on a more
significant debt or equity financing event. The Company continues to work
both directly and through its consultants to secure additional debt or
equity financing which is required to fund operations while a significant
recurring revenue stream is built. While management is confident it can
accomplish this objective, there is no guarantee that this additional
funding will occur in the required time frame. The failure of the Company
to obtain additional financing could have a material adverse impact on the
Company, including its ability to continue as a going concern.
CDPD Resale Agreements Containing Minimum Purchase Obligations: The Company
has to date entered into three CDPD service resale agreements, two of which
contain minimum obligations which can be characterized as "take or pay"
provisions. The agreements with GTC Mobilact and AT&T Wireless Data, Inc.
contain such provisions. The Company is obligated to pay for the minimum
amount of service stated in the agreements even if it fails to place enough
service with merchants to meet the minimums. The failure of the Company to
meet these service minimums could have an adverse financial impact upon the
Company.
Status of Federal Corporate Tax Filings: The Company has not completed
federal income tax filings for fiscal years 1996 and 1997. While it is
unlikely that the Company will owe any taxes due to the sustained losses
during the periods, the Company may be subject to penalties for the
delinquency. The Company intends to take the steps required to complete the
tax filings as soon as practicable.
RESULTS OF OPERATIONS
---------------------
U.S. Wireless Data, Inc., a Colorado corporation, (the "Company" or
"USWD"), was organized on July 30, 1991 for the purpose of designing,
manufacturing and marketing a line of wireless and portable credit card and
check authorization terminals. Over the past two and a half years, USWD has
focused its product development effort on incorporating Cellular Digital
Packet Data (CDPD) technology into its product line. Because of the high
speed nature of CDPD technology, and the ability to bypass the public
switched telephone network, the Company's new line of CDPD-based terminals
have significant performance and communication cost advantages when
compared with the traditional dial-up terminals currently being sold in the
U.S. market today. In mid fiscal year 1997, the Company made a fundamental
decision to change the manner in which it generates revenue. If
successfully implemented, this will transform the Company from being a "box
maker" in which it earned one time wholesale margins from the sale of its
products to earning recurring revenue by providing wireless credit card and
debit card processing services to retail merchants.
A key element of USWD's strategic direction is to establish close alliances
with large communications carriers through joint distribution programs. In
August 1997, USWD and GTE Mobilnet announced a joint marketing and
operating agreement to distribute USWD's proprietary TRANZ Enabler credit
card processing system using GTE's CDPD network. The agreement contains
certain operational and financial performance criteria which must be met by
the Company. During the second fiscal quarter, USWD made significant
investments to execute a nationwide deployment, which will extend TRANZ
Enabler sales to merchants through GTE's national sales force. The Company
has added significant sales and support personnel and infrastructure to
provide local support for the GTE sales representatives. The initial
placements of the TRANZ Enabler units have not developed as rapidly as
anticipated, however, recent actions by GTE are expected to favorably
impact the program (see Net Sales). By leveraging the sales organizations
of the major CDPD providers, the Company has the potential to quickly reach
a large number of merchants. The Company has CDPD air time agreements in
place with AT&T and Bell Atlantic and has selectively added sales personnel
in these markets to begin deployment of TRANZ Enabler units.
In October 1997, the Company signed an exclusive agreement with GoldCan
Recycling, Inc. for wireless monitoring of its state-of-the-art automated
aluminum can redemption centers. This is the first application of USWD's
TRANZ Enabler technology outside the credit card/point-of-sale industry.
USWD will receive monthly equipment and wireless service fees on every
TRANZ Enabler placed by GoldCan. GoldCan anticipates placing in excess of
3,000 units over the next three years.
Between October and December 1997, the Company received bridge loans from
Liviakis Financial Communications, Inc. for $475,000 pending completion of
the private placement offering. Following the funding in mid-December, the
notes were immediately repaid by the Company along with interest of nine
percent per annum.
On December 10, 1997 the Company closed a private placement offering of
$3,060,000 principal amount of 8% Adjustable Rate Convertible Subordinated
Debentures. After associated fees and repayment of bridge loans incurred
during the quarter, the Company retained approximately $2,200,000 to apply
to immediate working capital needs and the national launch of its
proprietary wireless transaction processing solution. See Note 4 -
Financing in Notes to Financial Statements.
During the second quarter, the Company completed the relocation of its
customer support, administrative and accounting functions to the
Emeryville, California headquarters. The lease on the Wheatridge, Colorado
office has terminated. Engineering functions will remain at the Company's
Palmer Lake Colorado facility.
The Company has not completed a comprehensive review of impact of the Year
2000 issue on the Company's business. This issue concerns the potential
problems and liabilities faced by all users and persons dependent on
computers that might result from software or system failure or malfunctions
if the systems fail to properly recognize the date change between 1999 and
2000. The engineering staff has made a preliminary assessment of USWD
products and is not aware of any material complications. Over the next two
quarters, the Company will confirm the impact, if any, on products it
distributes and complete an assessment of external factors including key
vendors and licensed software for internal business applications.
Net Sales
Net sales of $96,385 for the second quarter of fiscal 1998 decreased 77%
from net sales of $415,695 generated during the second fiscal quarter of
1997. For the six month period, net sales decreased 56% from $802,913 to
$353,857. Unit sales decreased due to the shift from a per-unit sales
approach to a recurring revenue model. During the quarter, efforts were
focused on establishing a new sales management team and aggressively hiring
and training sales personnel to support the nationwide GTE joint marketing
and distribution agreement. Training of the corresponding GTE sales
representatives by USWD sales personnel was completed on a very aggressive
schedule early in the quarter. Product placements of the TRANZ Enabler to
merchants through the new distribution program have not developed as
rapidly as anticipated, consequently revenue has been minimal at the same
time that high expenses have been incurred. The Company expects that the
transition from a "voice" to "data" sales orientation for the GTE sales
personnel will be aided by several new operational initiatives implemented
in February 1998 by GTE Mobilnet, and that this will have a positive impact
on product placement and revenue to the Company.
Sales revenue was also impacted by a shortage of POS-50 units. The Company
deferred a new inventory build pending completion of the private placement
financing. The Company has an order backlog for these units and has
initiated a new production run for 250 units. The POS-50 units and the sale
of POS peripherals accompanying TRANZ Enabler deployments accounted for
most of the sales recorded in the second quarter ended December 31, 1997.
Gross Margin
Gross margins in the second fiscal quarter of 1998 were $43,611 compared to
$193,847 for the same period in fiscal 1997. As a percent of revenue, gross
margins in the second quarter decreased by approximately 1.4% due to the
higher mix of point of sale terminal and printer component sales which
often accompany TRANZ Enabler deployments. For the six month period, gross
margin decreased from $315,616 in the prior year to $127,288 in the current
year, as a result of decreased POS-50 sales.
Operating Expenses
Selling, general and administrative expense increased from $169,619 in the
second fiscal quarter of 1997 to $1,161,774 in the second fiscal quarter of
1998. For the six month period, selling, general and administrative expense
increased from $340,406 in the prior year to $1,692,269 in the current
year. This increase in both the three and six month periods reflects the
aggressive addition of sales and support personnel and infrastructure to
provide local support for the GTE nationwide deployment. Headcount
increased from approximately 18 at the end of the first quarter to
approximately 50 employees as of December 31, 1997. Expenditures include
increased compensation expense for new sales and sales management
personnel, selective additions to the management team and increased travel
and communication expense related to the new marketing program. Non-cash
consulting fees related to business development of approximately $100,000
are reflected in the quarterly result and include the termination of the
entrenet and Woolley consulting agreements. The Company continues to hire
sales and support personnel to support the new marketing programs. At least
in the near term, operating expense will continue to increase ahead of
revenue.
Research and development expenses decreased from $95,019 in the second
fiscal quarter of 1997 to $77,700 in the first fiscal quarter of 1998. This
decrease was due to one vacancy in the department, which has been
subsequently filled.
Interest Expense
Interest expense includes a $225,000 non-cash charge to interest expense in
the second quarter related to the private placement. The convertible
features of the debenture include an "in-the-money" convertible option that
allows the holder to obtain shares of common stock at a discount off of
fair market value. The value of the in-the-money provision has been
allocated to stockholder equity. The difference between the realized value
and face value of the debt will be recognized as non-cash interest expense
between the date of issue and date of conversion into preferred stock.
Financial Condition, Capital Resources and Liquidity
The Company continues to have significant concerns regarding its financial
condition and liquidity. While the Company is optimistic with its medium
and long term opportunities, it is constrained by its immediate financial
condition and requirement for increased liquidity. The Company has
accumulated a deficit of approximately $18.9 million since inception. The
Company's CDPD based products, the GTE joint marketing and distribution
agreement, pending distribution agreements and transition to a recurring
revenue focus present an opportunity for significant revenue growth, an
eventual return to profitability, and the generation of a positive cash
flow from operations. At present, however, development of the Company's
infrastructure and expansion of the sales and marketing organization
requires additional financing. Proceeds from the recently completed private
placement offering have provided the Company with the ability to launch the
GTE joint marketing and distribution program, however, execution of the
Company's business plan is dependent on a more significant debt or equity
financing event. The Company continues to work both directly and through
its consultants to secure additional debt or equity financing which is
required to fund operations while a significant recurring revenue stream is
built. While management is confident it can accomplish this objective,
there is no guarantee that this additional funding will be accomplished or
that it will occur in the required time frame. In addition, the Company has
agreed that it will not sell any new equity securities without the consent
of the purchasers of the debentures for the 150-day period following the
December 10, 1997 closing of that offering. The inability of the Company to
secure additional financing could adversely impact the Company's financial
position, including its ability to continue as a going concern.
The Company has been in discussion with GTE Leasing regarding a program to
fund the manufacture of TRANZ Enabler units which are deployed through the
joint USWD and GTE Mobilnet marketing agreement. The agreement will provide
GTE with a security interest in the units while the repayment of the
financing will be made from the recurring revenue generated by unit. The
Company expects this arrangement to be completed during this quarter;
however, no assurance can be given that this will occur. Financing the
TRANZ Enabler units is a required element of the Company's business model
and the Company will seek similar financing arrangements for units
distributed through other marketing channels. The inability to fund
inventory needs from outside sources could have a material adverse impact
on the Company.
Part II
ITEM 1 -- LEGAL PROCEEDINGS
In September 1996, the Company agreed to terms to settle securities fraud
litigation, pending since 1994, which was brought in relation to the
Company's initial public offering of December 1993. The parties' agreement
(the "Settlement Agreement") was filed in the United States District Court
for the District of Colorado on January 15, 1997 in consolidated Case N0.
94-Z-2258, Appel, et al. v. Caldwell, et al. By its order approving the
settlement, the court certified plaintiffs' settlement class and provided
the mechanism for payment of claims. The Company contributed $10,000 to the
total settlement fund of $2,150,000. The remaining portion of the
settlement was contributed by certain underwriters of the Company's initial
public offering and securities counsel. No objections to the Settlement
Agreement were made. No potential class member opted-out of the settlement
and all are bound by the release granted the Company. All claims against
the Company in those consolidated cases were dismissed by final federal
court order on September 4, 1997. No appeal was filed. Similar state court
claims were dismissed by Colorado district court order dated October 9,
1997.
To resolve cross-claims asserted by underwriters in the litigation, U.S.
Wireless Data, Inc. agreed to transfer to RAS Securities Corporation, H.J.
Meyers & Co, Inc., Sands & Co. Ltd. and R.J. Steichen & Co. a total of
600,000 U.S. Wireless Data, Inc. common shares upon the effective date of
the Settlement Agreement. The Company has agreed to register such shares
upon demand of 25% of the holders of the shares after April 26, 1998.
Further, on September 17, 1997 the Company agreed to entry of a consent
judgment against it and in favor of Don Walford, the sole shareholder of
underwriter Walford Securities, Inc., in the amount of $60,000, payable
over a three-year period.
In July 1997, the Company executed a two-year agreement for consulting
services to be provided by Mr. Gary Woolley effective as of April 1, 1997.
In addition to monthly cash compensation, Mr. Woolley received a $50,000
two-year convertible note with 10% interest per annum. The note was
convertible into Common Stock at $.40 per share. A dispute arose between
Mr. Woolley and the Company and the consulting agreement was terminated by
the Company at the end of August 1997. Mr. Woolley and the Company executed
a settlement agreement in January 1998, and the Company has accrued the
remaining related consulting charges in the second quarter. The
restructured note provides for conversion of all principal and interest
into 75,000 restricted shares of Common Stock upon the election of Mr.
Woolley, which was made as of January 26, 1998.
The Company has been engaged in negotiations with purchasers of $135,000
(out of a total of $185,000) of convertible demand notes, which the Company
issued from April through June 1997. The notes became convertible to Common
Stock at $.35 per share (as to $85,000 of the notes) and $.50 per share (as
to $100,000 of the notes) on November 1, 1997. The essence of the claims of
the complaining noteholders is that the Company, through its agents,
"promised" that the Common Stock issuable upon conversion of the notes was
to be "freely tradeable." The documentation evidencing the notes did not
bear any language indicating the nature of the shares issuable upon
conversion. The Company denies that "freely tradeable" stock was promised
to the noteholders by any person authorized by the Company to make such a
promise. The noteholders allege an unspecified amount of damages based upon
a market price for the Common Stock in the $8.00 range as of the November 1
time period. The noteholders have threatened suit against the Company if
they do not receive a substantial increase in the number of shares to be
issued by the Company upon conversion of the notes and other concessions
from the Company. No assurance can be given that the matter can be resolved
without litigation. The cost of litigation and any potential judgment could
have a material adverse financial impact on the Company.
ITEM 2 - CHANGES IN SECURTIES
On December 10, 1997, the Company issued a total of $3,060,000 of 8%
Convertible Subordinated Debentures. The terms of the Debentures provided
that they would convert into one share of Series A Cumulative Convertible
Redeemable Preferred Stock for each dollar of Debentures at such time as
the Company's shareholders approved an amendment to the Company's Articles
of Incorporation authorizing preferred stock. This occurred at the
Company's Annual Meeting of Shareholders, which was held on February 6,
1998. See Note 9 to the Footnotes to the Financial Statements - "Subsequent
Events". The terms of the Series A Preferred Stock, which was legally
established on February 9, 1998, contain certain rights and preferences
that are superior to those of the Company's Common Stock. The Debentures
and the Series A Preferred Stock to be issued on conversion of the
Debentures were, or will be, issued as unregistered securities in reliance
on the registration exemptions contained in Section 4(2) of the Securities
Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder. A detailed description of the offering of the Debentures,
including the terms thereof and of the Series A Preferred Stock to be
issued upon conversion of the debentures is contained in the Company's Form
8-K Reporting an Event of November 14, 1997, filed with the SEC on December
17, 1997, and in the Company's Definitive Proxy Statement for its Annual
Meeting of Shareholders held February 6, 1998.
Unregistered Common Shares were sold or issued during the quarter ended
December 31, 1997, as follows:
o October 30, 1997 John Liviakis 2,625,000 Shares of Common Stock
October 30, 1997 Bob Prag 875,000 Shares of Common Stock
The Company issued 3.5 million unregistered shares of common stock to
the two above-named officers of Liviakis Financial Communications,
Inc. ("LFC"), pursuant to the details of a purchase agreement
discussed in Note 4 - Liviakis Financial Communications Financing (see
Note 4 above). The Company relied upon the registration exemption
contained in Section 4(2) of the Securities Act of 1933 for these
transactions. None of the transactions involved a public offering.
Representations were received from the purchasers of the securities to
the effect that the purchasers were taken for investment purposes only
and not with a view to distribution; "restricted securities" legends
were imprinted on all stock certificates; and stop-transfer
instructions were lodged with the Company's transfer agent as to all
shares of common stock issued in the transactions.
See Also Note 4 - Financing in Notes to Financial Statements
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
The Company is indebted to Omron Systems, Inc. under a Secured Installment
Note dated March 27, 1995, for the principal amount of $387,866 and
interest thereon. The terms of such note required the Company to make
payments of principal and interest each month from April 1995 through
December 1995, at which time the note became due in full. The Company made
one principal payment, and monthly interest payments through October 1996,
in accordance with the terms of the note, but has made no other payments
under this note and for that reason is in default. The Company continues to
discuss options with Omron regarding the possible restructuring or mutually
agreeable settlement of this note.
ITEM 5 -- OTHER INFORMATION
In February, The Company filed an application with NASDAQ for inclusion of
its Common Stock to be re-listed and traded on the NASDAQ Small Cap stock
market. While re-listing would give the common stock greater visibility and
prominence in the financial community, there is no assurance that the
application will be granted at this time.
The Company has initiated efforts to develop a hand held credit card
processing unit which will utilize the Company's CDPD wireless technology.
It is anticipated that initial units could be available for deployment by
the end of the third fiscal quarter.
See also Note 9 - Subsequent Events in Notes to Financial Statements.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-B
3.1 Articles of Incorporation, as amended
27 - Financial Data Schedule
For a complete list of the Exhibits, the reader should refer to the
Company's Annual Report on Form 10-KSB.
b) Reports on Form 8-K
On December 17, 1997, the Company filed a report on Form 8-K
reporting an event of November 14, 1997. The report contained
disclosures under Item 5 - Other Events, relating to the closing
of the Company's Debenture offering on December 10, 1997, and
claims by certain holders of convertible notes.
16
<PAGE>
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 thereunto duly authorized.
U.S. WIRELESS DATA, INC.
Registrant
Date: February 20, 1998 By: \s\ Evon Kelly
--------------------------- ------------------------
Chief Executive Officer
February 20, 1998 By: \s\ Robert E. Robichaud
--------------------------- ------------------------
Chief Financial Officer
17
FILED JUL 30 1991 07-30-91 09:35
STATE OF COLORADO 911058405 $50.00
DEPARTMENT OF STATE
ARTICLES OF INCORPORATION
We the undersigned natural person(s) of the age of eighteen years or
more, acting as incorporator(s) of a corporation under the Colorado Corporation
Code adopt the following Articles of Incorporation for such corporation:
FIRST: The name of the corporation is U.S. WIRELESS DATA, INC.
SECOND: The period of duration if other than perpetual: PERPETUAL.
THIRD: The corporation is organized for Any Legal and Lawful Purpose
Pursuant to the Colorado Corporation Code. A more specific purpose may be
stated:
FOURTH: The aggregate number of shares which the corporation shall have
the authority to issue is 6,000,000 and the par value of each share shall be NO
PAR VALUE.
FIFTH: Cumulative voting shares of stock is NOT authorized.
SIXTH: Provisions limiting or denying to shareholders the preemptive
right to acquire additional or treasury shares of the corporation, if any, are:
NO PREEMPTIVE RIGHTS.
SEVENTH: The address of the initial registered office of the
corporation is 4030 N. SINTON RD., STE. B, COLORADO SPRINGS, COLORADO 80907
(Address must include Building number, Street (or rural route number), Town or
City, County and ZIP CODE) and the name of its initial registered agent at such
address is ROD STAMBAUGH.
EIGHTH: Address of the place of business: SAME AS REGISTERED OFFICE.
NINTH: The number of directors constituting the initial board of
directors of the corporation is THREE, and the names and addresses of the
persons who are to serve as directors until the first annual meeting of
shareholders or until their successors are elected and shall qualify are:
The number of directors of a corporation shall be not less than three;
except that there need be only as many directors as there are, or
initially will be, shareholders in the event that the outstanding
shares are or initially will be, held of record by fewer than three
shareholders.
NAME ADDRESS (INCLUDE ZIP CODE)
Rod Stambaugh 2072 Bristlecone Dr., Colo. Spgs., CO 80919
Leonard Trout 1104 Darby St., Colo. Spgs., CO 80907
Brent Phillips 2450 Hamlet Ln. A, Colo. Spgs., CO 80918
TENTH: The name and address of each incorporator is:
NAME ADDRESS (INCLUDE ZIP CODE)
Rod Stambaugh 2072 Bristlecone Dr., Colo. Spgs., CO 80919
Leonard Trout 1104 Darby St., Colo. Spgs., CO 80907
Signed /s/ Rod Stambaugh
Signed /s/ Leonard Trout
(Incorporators)
ARTICLES OF INCORPORATION MUST BE ACCOMPANIED BY AN OCR FORM WHICH IS PROVIDED
BY THE SECRETARY OF STATE.
<PAGE>
921097070 $25.00
SOS 10-07-92 08:30
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
U.S. WIRELESS DATA, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation.
FIRST: The name of the corporation is U.S. WIRELESS DATA, INC.
SECOND: The following amendments to the Articles of Incorporation were
adopted by the shareholders of the Corporation on September 18, 1992, in the
manner prescribed by the Colorado Corporation Code.
1. Article THIRD is amended so that Article THIRD reads as follows:
THIRD: The purposes for which this corporation is organized
are to engage in and do any lawful act concerning any and all lawful business
for which corporations may be organized under the laws of Colorado, now or
hereafter in effect.
2. New Articles ELEVENTH through EIGHTEENTH are hereby added as
follows:
ELEVENTH: The Board of Directors may cause any shares issued
by the corporation to be issued subject to such lawful restrictions,
qualifications, limitations or special rights as they deem fit, which
restrictions, qualifications, limitation or special rights shall be created by
provisions in the Bylaws of the corporation or in the duly adopted resolutions
of the Board of Directors; provided that notice of such special restrictions,
qualifications, limitations or special rights must appear on the Certificate
evidencing ownership of such shares.
TWELFTH: Meetings of shareholders may be held at such time and
place as the Bylaws shall provide. A majority of the shares entitled to vote
represented in person or by proxy shall constitute a quorum at any meeting of
the shareholders.
THIRTEENTH: The number of directors to be elected at the
annual meeting of the shareholders or at a special meeting called for the
election of directors shall not be less than three, nor more than nine, the
exact number to be fixed by the Bylaws.
FOURTEENTH: A director of this corporation shall not be
personally liable to the corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director except that this provision shall not
limit the liability of a director to the corporation or to its shareholders for
monetary damages for: (i) any breach of the director's duty of loyalty to the
corporation or to its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) acts
specified in Section 7-5-114 of the Colorado Corporation Code as the same may be
amended from time to time; or (iv) any transaction from which the director
derived an improper personal benefit. If the Colorado Corporation Code as the
same may be amended to authorize corporation
<PAGE>
actions further limiting or eliminating the personal liability of directors,
then the liability of a director of the corporation shall be limited or
eliminated to the fullest extent permitted by the Colorado Corporation Code, as
so amended.
FIFTEENTH: The officers, directors and other members of
management of this corporation shall be subject to the doctrine of corporate
opportunities only insofar as it applies to business opportunities in which this
corporation has expressed an interest as determined from time to time by the
corporation's Board of Directors as evidenced by resolutions appearing in the
corporation's Minutes. When such areas of interest are delineated, all such
business opportunities within such areas of interest which come to the attention
of the officers, directors and other members of management of this corporation
shall be disclosed promptly to this corporation and made available to it. The
Board of Directors may reject any business opportunity presented to it and
thereafter any officer, director or other member of management may avail himself
of such opportunity. Until such time as this corporation through its Board of
Directors, has designated an area of interest, the officers, directors and other
members of management of this corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the rights of any
officer, director or other member of management of this corporation to continue
a business existing prior to the time that such area of interest is designated
by this corporation. This provision shall not be construed to release any
employee of the corporation (other than an officer, director or member of
management) from any duties which he may have to the corporation.
SIXTEENTH: Any of the directors or officers of this
corporation shall not, in the absence of fraud, be disqualified by his office
from dealing or contracting with this corporation whether as vendor, purchaser
or otherwise, nor shall any firm, association, or corporation of which he shall
be a member, or in which he may be pecuniarily interested in any manner be
disqualified. No director or officer, nor any firm, association or corporation
with which he is connected as aforesaid shall be liable to account to this
corporation or its shareholders for any profit realized by him from or through
any such transaction or contract; it being the express purpose and intent of
this Article to permit this corporation to buy from, sell to, or otherwise deal
with partnerships, firms or corporation of which the directors and officers of
this corporation, or any one or more of them, may be members, directors, or
officers, or in which they or any of them have pecuniary interests; and the
contracts of this corporation, in the absence of fraud, shall not be void or
voidable or affected in any manner by reason of any such membership. The
interested director or directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or a committee thereof
authorizing, approving or ratifying any such contract or transaction. Further,
the vote of any such interested director at a meeting of the Board of Directors
or committee thereof authorizing, approving or ratifying any such contract or
transaction. Further, the vote of any such interested director at a meeting of
the Board of Directors or committee thereof authorizing, approving or ratifying
any such contract or transaction may be counted if his relationship or interest
with respect to any such contract or transaction (i) is disclosed and such
transaction or contract is authorized, approved or ratified by a majority of the
directors without counting the vote or consent of such interested director, or
(ii) is disclosed to the shareholders of the Company and authorized, approved or
ratified by the shareholders by vote or written consent, or (iii) such contract
or transaction is fair and reasonable to the corporation.
SEVENTEENTH: When with respect to any action to be taken by
shareholders of this corporation, the Colorado Corporation Code requires the
vote or
-4-
<PAGE>
concurrence of the holders of two-thirds of the outstanding shares entitled to
vote thereon, or of any class or series, such action may be taken by the vote or
concurrence of a majority of such shares or class or series thereof.
EIGHTEENTH: Subject to repeal by action of the shareholders,
the Board of Directors of this corporation is authorized to adopt, confirm,
ratify, alter, amend, rescind and repeal Bylaws or any portion thereof from time
to time.
THIRD: The number of shares voted for the above amendments was
sufficient for approval.
FOURTH: The amendments do not provide for an exchange,
reclassification or cancellation of issued shares.
FIFTH: The amendments do not effect a change in the amount of sated
[sic] capital of the corporation.
Dated: October 6, 1992.
U.S. WIRELESS DATA, INC.,
a Colorado corporation
By: /s/ Rod Stambaugh
---------------------
Rod Stambaugh, President
By: /s/ Maurice Caldwell, Jr.
-----------------------------
Maurice Caldwell, Jr., Secretary
-5-
<PAGE>
STATE OF COLORADO ( )
ss.
CITY AND COUNTY OF DENVER ( )
I, Karin A. Tupper, a Notary Public, do hereby certify that on this 6th
day of October, personally appeared before me Rod Stambaugh, and Maurice
Caldwell, who, being by me first duly sworn, declared that they are the
President and Secretary, respectively, of U.S. Wireless Data, Inc. and that they
read the foregoing document and that the statements contained therein are true.
My commission expires: June 22, 1993.
SEAL
/s/ Karin A. Tupper
-------------------
Notary Public
-6-
<PAGE>
941122627 $25.00
SOS 11-01-94 13:23
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
U.S. WIRELESS DATA, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is U.S. Wireless Data, Inc.
SECOND: The following amendment to the Articles of Incorporation was
adopted by the Board of Directors of the Corporation effective August 12, 1994,
in the manner prescribed by the Colorado Business Corporation Act, and approved
by the shareholders on October 28, 1994. The number of votes which were cast for
the amendment by each voting group of shareholders entitled to vote separately
thereon was sufficient for approval.
Article FOURTH is amended so that it reads as follows:
"FOURTH: The aggregate number of shares which the corporation
shall have the authority to issue is 12,000,000 shares of no par value common
stock."
Dated: October 28, 1994.
U.S. WIRELESS DATA, INC.,
a Colorado corporation
By: /s/ Alan B. Roberts
-----------------------
Alan B. Roberts, President
<PAGE>
19981025822 C
$25.00
Secretary of State
02-09-98 16:13:58
U.S. WIRELESS DATA, INC.
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 increasing the number of shares of authorized
no par value common stock to 40,000,000 and authorizing 15,000,000 shares of no
par value preferred stock is as set forth on Exhibit 1 attached hereto which is
incorporated herein by reference.
THIRD: That the Amendment was adopted on February 6, 1998.
FOURTH: That the Amendment was duly adopted by the
shareholders of the Corporation.
IN WITNESS WHEREOF, U.S. Wireless Data, Inc. has caused
these Articles of Amendment to be duly executed this 6th day of February, 1998.
U.S. Wireless Data, Inc.
By: /s/ Evon A. Kelly
---------------------
Evon A. Kelly,
Chief Executive Officer
ATTEST:
/s/ Robert E. Robichaud
- -----------------------
Robert E. Robichaud,
Assistant Secretary
<PAGE>
Exhibit 1
Articles of Amendment to Articles of Incorporation
U.S. Wireless Data, Inc.
Article FOURTH of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
A. The aggregate number of shares which the Corporation shall have
authority to issue is fifty-five million (55,000,000) shares, consisting of
forty million (40,000,000) shares of common stock without par value per
share (the "Common Stock"), and fifteen million (15,000,000) shares of
preferred stock without par value per share (the "Preferred Stock").
B. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article FOURTH, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Colorado to
establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
1. The number of shares constituting that series and the
distinctive designation of that series;
2. The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or
dates, whether dividends shall be payable in cash or in kind, and
the relative rights of priority, if any, of payment of dividends
on shares of that series;
3. Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of
such voting rights;
4. Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conver- sion,
including provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine;
<PAGE>
5. Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
6. Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
7. The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up,
or merger, consolidation, distribution or sale of assets of the
Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
8. Any other relative rights, preferences and limitations of
that series. Shares of Preferred Stock may be authorized and
issued, in aggregate amounts not exceeding the total number of
shares of Preferred Stock authorized by the Articles of
Incorporation, from time to time as the Board of Directors of the
Corporation shall determine and for such consideration as shall
be fixed by the Board of Directors.
[End of Articles of Amendment]
-2-
<PAGE>
19981025822 C
$25.00
Secretary of State
02-09-98 16:13:58
U.S. WIRELESS DATA, INC.
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 1 attached hereto and is incorporated herein by reference.
THIRD: That the Amendment was adopted on February 6, 1998.
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 6th day of February, 1998.
U.S. Wireless Data, Inc.
By: /s/ Evon A. Kelly
---------------------
Evon A. Kelly,
Chief Executive Officer
ATTEST:
/s/ Robert E. Robichaud
- -----------------------
Robert E. Robichaud,
Assistant Secretary
<PAGE>
EXHIBIT 1
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.
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(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
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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.
(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.
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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"):
(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.
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(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 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
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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 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
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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 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
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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 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):
Late Payment for Each $10,000
of Debenture Principal Amount
No. Business Days Late Being Converted to Common Stock
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
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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 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.
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(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.
(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.
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(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 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
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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 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
-12-
<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:
(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
-13-
<PAGE>
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 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.
-14-
<PAGE>
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 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.
-15-
<PAGE>
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 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.
-16-
<PAGE>
(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 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
-17-
<PAGE>
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 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.
-18-
<PAGE>
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
(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."
-19-
<PAGE>
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 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.
-20-
<PAGE>
(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.
(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.
-21-
<PAGE>
(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.
(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.
-22-
<PAGE>
(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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<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
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