SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) May 14, 1998
U.S. Wireless Data, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-22848 84-1178691
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
2200 Powell Street, Suite 450, Emeryville, California 94608
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 596-2025
-------------
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(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
On May 14, 1998, U.S. Wireless Data, Inc. (the "Company") filed a
Registration Statement on Form SB-2 with the United States Securities and
Exchange Commission (SEC File No. 333-52625) to register a total of 7,324,106
shares of Common Stock (the "Shares"). The Shares are being registered and will
be offered for sale by certain holders of the Company's securities (the "Selling
Security Holders"). None of the Shares are being sold by the Company and the
Company will not receive any proceeds from sales of the Shares.
The Shares being registered on behalf of the Selling Security Holders
are described in detail in the Registration Statement on Form SB-2, a copy of
which is filed as Exhibit 99.1 to this Current Report on Form 8-K. The
disclosure contained in the Registration Statement is incorporated by reference
in this Report.
Item 7. Financial Statement and Exhibits.
The following Exhibits are filed as part of this report:
Exhibit
Number Description of Exhibit
- ------ ----------------------
99.1 Registration Statement on Form SB-2 (SEC File No. 333-52625),
including Exhibits thereto.
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<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 hereunto duly authorized.
U.S. Wireless Data, Inc.
(Registrant)
May 19, 1998 By /s/ Evon A. Kelly
--------------- --------------------
(Date) (Signature)
Evon A. Kelly,
Chief Executive Office
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As filed with the Securities and Exchange Commission on May 14, 1998
Registration No. 333-52625
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------------------
U.S. Wireless Data, Inc.
(Name of small business issuer in its charter)
-----------------------------
Colorado 334119 84-1178691
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2200 Powell Street, Suite 450
Emeryville, California 94608
(510) 596-2025
--------------
(Address and telephone number of principal executive offices)
Evon A. Kelly, Chief Executive Officer
U.S. Wireless Data, Inc.
2200 Powell Street, Suite 450
Emeryville, California 94608
(510) 596-2025
(Name, address and
telephone number of
agent for service)
Copies to:
John G. Lewis, Esq.
Jeffrey M. Brenman, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, 26th Floor
Denver, Colorado 80202
(303) 623-2700
-------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities to be Registered Registered (1)(2) Price Per Share (3) Offering Price (2) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par 7,324,106
value per share shares $ 4.375 $32,042,964 $9,710
=================================================================================================================================
<FN>
(1) A total of 7,324,106 shares of Common Stock are being registered for sale
solely on behalf of Selling Security Holders, as follows: (1) 956,250
shares estimated to be issuable upon conversion of 3,060,000 shares of the
Company's Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock") which has a stated value of $1.00 per share (the actual
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock is not determinable as it is derived from a formula based
on a discount from the Market Price of the Common Stock (as defined) at the
time of conversion; the conversion price will never be greater than $6.00
per share of Common Stock (nor, for the first 270 days after December 10,
1997, less than $4.00 per share of Common Stock, unless the penalty
discount of 2% for each 30 day period (or any fractional part thereof)
becomes applicable by reason of the Company's failure to obtain
effectiveness of a registration statement covering the Common Stock
issuable upon conversion, by May 11, 1998); the number of shares being
registered for issuance upon conversion of the Series A Preferred Stock is
based on an assumed Market Price of $4.00 per share of Common Stock, which
was arbitrarily chosen solely for determining the number of shares to be
included in this Registration Statement); (2) 13,069 shares of Common Stock
previously issued as interest on the Company's 8% Adjustable Rate
Convertible Subordinated Debentures Due December 31, 1999 (all of which
were converted into 3,060,000 shares of Series A Preferred Stock as of
February 9, 1998) and as dividends on the Series A Preferred Stock through
March 31, 1998; (3) 60,991 shares of Common Stock estimated to be issuable
as dividends on the Series A Preferred Stock from April 1, 1998 through
December 31, 1999 (the actual number of shares of Common Stock issuable as
dividends on the Series A Preferred Stock is not determinable as it is
based on the Market Price of the Common Stock (as defined) at the time of a
dividend payment date; however, solely for purposes of determining the
number of shares of Common Stock to be included in this Registration
Statement, an assumed Market Price of $4.00 per share has been used for
such calculation); (4) 165,000 shares underlying Common Stock purchase
warrants issued to the underwriters of the Company's initial public
offering (the "Underwriter's Warrants"); (5) 1,718,796 shares issued or
issuable upon exercise of various presently outstanding Common Stock
purchase warrants (the "Common Stock Purchase Warrants"); (6) 300,000
shares of Common Stock issued or issuable by the Company to a consultant
and an affiliate of the consultant pursuant to a consulting agreement; (7)
610,000 shares of Common Stock issuable to a consultant of the Company or
its assignees (330,000 of such shares are issuable upon conversion of a
$150,000 convertible promissory note owed to the consultant and 280,000
shares have been issued as a finder's fee to the consultant and its
affiliated assignees); and (8) 3,500,000 shares of Common Stock owned by
two significant shareholders of the Company.
(2) Pursuant to Rule 416 under the Securities Act of 1933, as amended, there
are being registered such additional number of shares of Common Stock or
such shares as may be issuable in lieu of such Common Stock as may become
issuable pursuant to anti-dilution provisions of the Series A Preferred
Stock, the Common Stock Purchase Warrants, the Convertible Promissory Note,
the consulting agreement and the contract rights described in footnote (1)
above.
(3) The shares will be sold by the Selling Security Holders at prevailing
market prices at the time of sale. The registration fee has been estimated
pursuant to Rule 457(c) of the Securities Act of 1933, as amended, solely
for the purpose of calculating such fee. No implication should be taken
from the use of such price to estimate the registration fee being paid
hereunder that the shares of Common Stock offered hereby can or will be
sold at such prices.
</FN>
</TABLE>
----------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
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<PAGE>
<TABLE>
<CAPTION>
Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus
------------------------------ ---------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside Cover Page; Cross Reference Sheet;
Front Cover of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus of Prospectus
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Selling Security Holders
6. Dilution Not Applicable
7. Selling Security-Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of Prospectus; Selling
Security Holders
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Certain Beneficial Owners Security Ownership of Principal Shareholders
and Management and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Commission Position on Indemnification for
Securities Act Liabilities Securities Act Liabilities and Related Matters
15. Organization within Last Five Years Not Applicable
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis Management's Discussion and Analysis of Financial
or Plan of Operations Condition and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder Matters Market for the Company's Common Stock and
Related Matters; Description of Securities
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
</TABLE>
-iii-
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 14, 1998, 1998
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
U.S. WIRELESS DATA, INC.
7,324,106 Shares of Common Stock
A total of 7,324,106 shares of the Common Stock (the "Shares"), no par
value per share (the "Common Stock") of U.S. Wireless Data, Inc. (the "Company"
or "USWD") are being offered by certain securityholders of the Company (the
"Selling Security Holders"), if at all, on a delayed basis. A detailed listing
and description of the Shares being offered hereby is set forth on the inside
cover page of this Prospectus.
The Shares offered by this Prospectus may be resold from time to time
by the Selling Security Holders in one or more transactions that may take place
on the over-the-counter market, including ordinary brokers' transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. agreed upon by the individual Selling Security Holder at the time of
sale. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Security Holders. No proceeds from sales
of the Shares will inure to the benefit of the Company. All costs relating to
the registration of the Shares, estimated to be approximately $140,000 will be
borne by the Company. See "Selling Security Holders" and "Description of
Securities."
The Selling Security Holders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Security Holders against certain liabilities, including liabilities
under the Act. See "Selling Security Holders" and "Commission Position on
Indemnification for Securities Act Liabilities and Related Matters."
The Company's Common Stock is presently traded on the OTC Electronic
Bulletin Board under the symbol "USWDA." There can be no assurance that a
substantial trading market for the Common Stock will be sustained in the future.
At December 31, 1997, the net tangible book value (deficit) of the Company's
Common Stock was approximately ($.08) per share. See "Market for the Company's
Common Stock and Related Matters," "Description of Securities" and "Risk
Factors."
The Shares offered hereby have been qualified for sale in the following States:
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
[Inside front cover.]
The Shares offered by this Prospectus consist of the following:
956,250 Shares estimated to be issuable upon conversion of a total of 3,060,000
shares ($3,060,000 face value) of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") (the actual number of Shares
issuable upon conversion of the Series A Preferred Stock is not determinable
until such time as conversion is actually elected by the holder as the number of
Shares is determined based on the stated value of the shares of Series A
Preferred Stock being converted and the Market Price (as defined) of the Common
Stock at such time; the number of Shares being registered hereunder is estimated
based on a Market Price of $4.00 per Share; no implication should be drawn that
the fair value of the Shares is in any way related to such estimated Market
Price);
60,991 Shares estimated as issuable as dividends on the Series A Preferred Stock
from April 1, 1998 through December 31, 1999 (the actual number of such Shares
is not determinable as it is based on the Market Price (as defined) of the
Common Stock as of each dividend payment date; the number of Shares being
registered hereunder is estimated based on a Market Price of $4.00 per Share; no
implication should be drawn that the fair value of the Shares is in any way
related to such estimated Market Price);
13,069 Shares previously issued as interest on the Company's 8% Adjustable Rate
Convertible Subordinated Debentures Due December 31, 1999 (the "8% Convertible
Debentures"), all of which were converted to 3,060,000 shares of Series A
Preferred Stock as of February 9, 1998 and as dividends on the Series A
Preferred Stock through March 31, 1998;
165,000 Shares underlying Common Stock purchase warrants issued to the
underwriters of the Company's initial public offering (the "Underwriter's
Warrants");
50,000 Shares underlying a Common Stock purchase warrant held by a former
director of the Company (the "Walter's Warrant");
50,000 Shares underlying a Common Stock purchase warrant (the "Finder's
Warrant") issued as part of a finder's fee to a registered broker-dealer in
conjunction with the private offering of the Company's 8% Convertible Debentures
in December, 1997;
18,796 Shares issued or issuable upon the exercise of Common Stock purchase
warrants held by former shareholders of a company which was acquired by USWD in
1994 (the "Direct Data Warrants");
330,000 Shares issued or issuable to a consultant of the Company, entrenet Group
LLC, upon conversion of principal and interest owing on a $150,000 convertible
promissory note due June 3, 1998, at a value of $.50 per share;
280,000 Shares owned by entrenet Group, LLC, which was issued as a finder's fee
in conjunction with a private offering completed by the Company in August, 1997;
3,500,000 Shares presently owned by two significant shareholder affiliates of
the Company (which cannot be sold prior to August 1, 1998);
1,600,000 Shares underlying Common Stock purchase warrants held by two
significant shareholder affiliates of the Company (which cannot be sold prior to
August 1, 1998); and
300,000 Shares issued or issuable to a financial and shareholder relations firm
and an executive officer of that firm pursuant to a consulting agreement between
the Company and that firm (which cannot be sold prior to August 1, 1998).
-2-
<PAGE>
AVAILABLE INFORMATION
---------------------
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Common Stock offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, part of
which has been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, including the exhibits filed as a part thereof and otherwise
incorporated therein. Statements made in this Prospectus as to the contents of
any document referred to are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement, and each such statement is qualified in all respects by
such reference.
The Company is a reporting company subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files periodic reports and other
information with the Commission. The Registration Statement, including exhibits,
as well as such other reports, proxy statements and information filed by the
Company may be inspected, without charge, and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Reports, proxy and information
statements and other information filed electronically by the Company with the
Commission are available at the Commission's World Wide Web site at
http://www.sec.gov. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
-3-
<PAGE>
PROSPECTUS SUMMARY
------------------
The following summary is qualified in its entirety by and should be
read in conjunction with the more detailed information and financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to the "Company" or "USWD"
mean U.S. Wireless Data, Inc. U.S Wireless Data(R) is a registered trademark of
the Company. All other trade names and trademarks appearing in this Prospectus
are the property of their respective holders. Prospective investors in the
Common Stock should carefully consider the information set forth under the
heading "Risk Factors" prior to making an investment in the Common Stock offered
hereby.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Forward-looking statements are identifiable by the prefatory language "may,"
"will," "expects," "anticipates," "estimates," "hopes," "continues," "if," or
synonyms or variations of such terms or the negative of such terms. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially from those predicted in such
statements. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth under the caption "Risk Factors," which could
cause actual results to differ materially from those indicated in such
forward-looking statements.
The Company
-----------
The Company's principal offices are located at 2200 Powell Street,
Suite 450, Emeryville, California 94608, and its telephone number is (510)
596-2025.
The Company 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. The Company's first product, known as
the POS- 50(R), is the world's first integrated wireless credit card and check
authorization terminal using cellular communication technology. With over 4,000
POS-50(R) terminals in the marketplace, the Company is recognized as the leader
in providing wireless terminal transaction equipment for the mobile marketplace.
The POS-50(R) product accounted for most of the sales recorded in fiscal year
1997.
Over the past three years, USWD has focused its product
development effort on incorporating Cellular Digital Packet Data (CDPD)
technology into its product line. CDPD is a high-speed digital packet data,
internet protocol (IP) based technology that operates in parallel with current
cellular voice networks. It is designed for high speed encrypted data
transmission over the air-link and will not interfere with or degrade cellular
voice traffic. 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 can have significant performance and communication cost
advantages when compared with the traditional dial-up terminals currently being
sold in the U.S. market today. The Company now offers two new CDPD products that
reduce the current authorization time for a credit or debit card transaction
from approximately 15 seconds to 3 to 5 seconds.
The most significant USWD product is the TRANZ* Enabler which allows
current VeriFone TRANZ(R) 330 or TRANZ(R) 380 users to immediately convert their
terminals and printers from a land-line telephone dial-up mode to a high-speed
wireless mode of operation. By effecting this technological upgrade, the cost of
dedicated telephone lines is eliminated as are the delays created by busy
telephony networks during peak periods of authorization activity. Furthermore,
the efficiencies created by adopting the CDPD technology and USWD's alliance
with a major transaction processor have enabled U.S. Wireless Data to develop a
pricing schedule which lowers transaction and/or discount rates from those that
most retailers are currently paying to handle credit and debit card
transactions. The TRANZ Enabler is directed at the existing U.S. installed base
of more than 3.5 million TRANZ(R)330 and TRANZ(R)380 terminals.
*TRANZ is a registered trademark of Verifone, Inc.
-4-
<PAGE>
The second CDPD product created by the Company is the POS-500, a
self-contained card terminal and printer that provides the same mobility
features of the POS-50(R) product, but incorporates the processing benefits of
the TRANZ Enabler. The unit is geared for the user who either does not have a
dial-up terminal/printer in place or requires the advantages of the CDPD
technology in a mobile application.
In late 1996 - early 1997, the Company made a fundamental decision to
change the manner in which it generates revenue. If successfully implemented,
this decision will transform the Company from being a "box maker" and seller
from 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. In furtherance of this process the
Company entered into a Member Service Provider ("MSP") agreement with NOVA
Information Systems ("NOVA"), the nation's 7th largest credit card transaction
processor, in January 1997. As a registered MSP of NOVA, the Company can enroll
merchants to process their credit and debit card transactions with NOVA. The
Company also entered into a "Merchant Marketing and Services Agreement" with
National Bank of Commerce ("NBC") as of March 9, 1998, under which the Company
also became an ISO/MSP of NBC and can thereby offer NBC's transaction processing
services to merchants, subject to final approval of each merchant by NBC. Once a
merchant is accepted, the Company sets up point of sale access, including
maintenance of electronic terminal hardware and other equipment, and must also
supply the merchant with training, supplies, program information and other
services related to the program. These MSP agreements allow U.S. Wireless Data
to earn revenue on each card swipe and every dollar processed by merchants
enrolled by the Company. See "Business - Transaction Processing Agreements."
Another key element of USWD's strategic direction is to establish close
alliances with large communications carriers such as GTE, Bell Atlantic, AT&T
Wireless and others. The Company has to date entered into agreements for CDPD
airtime purchase by the Company with GTE Mobile Communications Service
Corporation, on its behalf and on behalf of GTE Mobilnet Incorporated, Contel
Cellular Inc. and their respective affiliates (collectively "GTE Mobilnet"),
Cellco Partnership, by its general partner Bell Atlantic/NYNEX Mobile, Inc.,
which does business as Bell Atlantic Mobile ("Bell Atlantic Mobile") and AT&T
Wireless Data, Inc., doing business as AT&T Wireless Services ("AT&T Wireless").
In addition to these CDPD service provider agreements, the Company has also
entered into joint marketing agreements with both GTE Mobilnet (as of August 1,
1997) and Bell Atlantic Mobile (as of March 23, 1998) to market the Company's
TRANZ Enabler and processing services through GTE Mobilnet and Bell Atlantic
Mobile's commercial and major account sales forces in all of those companies'
CDPD markets. The Company has established a sales and support organization to
provide local support for more than 300 GTE Mobilnet sales representatives and
is in the process of building a similar sales organization for approximately 300
Bell Atlantic Mobile sales representatives. The Company has specific,
significant commitments under these CDPD airtime and joint marketing agreements,
including minimum CDPD airtime purchase obligations to GTE Mobilnet and AT&T
Wireless, and staffing and inventory delivery requirements to fulfill its
obligations under the joint marketing agreements with GTE Mobilnet and Bell
Atlantic Mobile. See "Business Marketing and Distribution Arrangements for the
Company's Products and Related Services."
By leveraging the sales organizations of major CDPD providers, the
Company has the potential to reach a large number of merchants very quickly. The
Company hopes to execute similar joint marketing agreements with the other CDPD
service providers for which it currently has cellular service resale agreements.
-5-
<PAGE>
The Offering
------------
Securities Offered.............. 7,324,106 shares of Common Stock (the "Shares")
Selling Security Holders........ A total of 7,324,106 Shares are being offered
by Selling Security Holders as follows:
* 956,250 Shares estimated to be issuable upon conversion of a
total of 3,060,000 shares ($3,060,000 face value) of the
Company's Series A Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock") (the actual number of
Shares issuable upon conversion of the Series A Preferred
Stock is not determinable until such time as conversion is
actually elected by the holder as the number of Shares is
determined based on the stated value of the shares of Series
A Preferred Stock being converted and the Market Price (as
defined) of the Common Stock at such time; the number of
Shares being registered hereunder was calculated based on a
Market Price of $4.00 per Share; no implication should be
drawn that the fair value of the Shares is in any way
related to such estimated Market Price);
* 60,991 Shares estimated as issuable as dividends on the
Series A Preferred Stock from April 1, 1998 through December
31, 1999 (the actual number of such Shares is not
determinable as it is also based on the Market Price (as
defined) of the Common Stock as of each dividend payment
date; the number of Shares being registered hereunder is
estimated based on a Market Price of $4.00 per Share; no
implication should be drawn that the fair value of such
Shares is in any way related to such estimated Market
Price);
* 13,069 Shares previously issued as interest on the Company's
8% Convertible Debentures, all of which Debentures were
converted to 3,060,000 shares of Series A Preferred Stock as
of February 9, 1998, and as dividends on the Series A
Preferred Stock through March 31, 1998;
* 165,000 Shares underlying Common Stock purchase warrants
(the "Underwriters' Warrants") issued to the underwriters of
the Company's initial public offering in December 1993,
presently exercisable at $12.325 per Share;
* 50,000 Shares underlying a Common Stock purchase warrant
(the "Director's Warrant") held by a former director of the
Company, Mr. James Walters, exercisable at $4.00 per Share;
* 50,000 Shares underlying a Common Stock Purchase Warrant
(the "Finder's Warrant") held by a finder for the Company's
8% Convertible Debentures, exercisable at $6.525 per Share;
* 18,796 Shares issued or issuable upon exercise of Common
Stock purchase warrants held by former shareholders of a
company which was acquired by USWD in 1994 (the "Direct Data
Warrants"), exercisable at $2.625 per Share;
* 330,000 Shares issued or issuable to a consultant of the
Company, entrenet Group LLC, upon conversion of principal
and interest owing on a $150,000 convertible promissory note
due June 3, 1998, at a value of $.50 per share;
-6-
<PAGE>
* 280,000 Shares owned by entrenet Group LLC or its assignees
which were issued as a finder's fee owing to it in
connection with a private financing for the Company in
August 1997;
* 3,500,000 Shares owned by two significant shareholder
affiliates, Messrs. John M. Liviakis and Robert B. Prag,
which were acquired in August 1997 as part of a $500,000
private offering by the Company (which cannot be resold
hereunder until August 1, 1998);
* 1,600,000 Shares underlying Common Stock purchase warrants
purchased by Messrs. Liviakis and Prag which are exercisable
at $.01 per share (the "Liviakis Warrants"), which were
issued together with the 3,500,000 shares purchased by such
persons in August 1997 (which cannot be resold hereunder
until August 1, 1998); and
* 300,000 shares issued or issuable pursuant to a consulting
agreement between the Company and Liviakis Financial
Communications, Inc. ("LFC") effective as of July 25, 1997
(the "LFC Consulting Agreement"); 225,000 of such Shares are
issuable to LFC and 75,000 Shares are issuable to Robert B.
Prag, an executive officer of LFC (which cannot be resold
hereunder until August 1, 1998).
See "Description of Securities," "Security Ownership of
Principal Shareholders and Management," "Certain
Transactions" and "Selling Security Holders."
Resale Restrictions of Certain
Selling Security Holders
LFC and Messrs. Liviakis and Prag cannot sell any of the
Shares presently owned by, or issuable to them upon the
exercise of warrants or pursuant to the LFC Consulting
Agreement prior to August 1, 1998, even though such shares
are being registered for sale under the Registration
Statement of which this Prospectus is a part. See "Security
Ownership of Principal Shareholders and Management,"
"Certain Transactions" and "Selling Security Holders."
Use of Proceeds... All proceeds from sales of the Shares will inure to the
benefit of the Selling Security Holders and not to the
Company. See "Use of Proceeds" and "Selling Security
Holders."
Trading........... The Company's Common Stock is traded in the over-the-counter
market and is quoted on the OTC Electronic Bulletin Board
under the symbol "USWDA." See "Market for the Company's
Common Stock and Related Matters."
Risk Factors...... An investment in the Company's Common Stock involves a high
degree of risk. See "Risk Factors."
-7-
<PAGE>
Summary Financial Information
-----------------------------
The following summary financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Financial Statements and the Notes thereto,
included elsewhere in this Prospectus. The Statement of Operations data for the
two years ended June 30, 1997, and the balance sheet data at June 30, 1997, are
derived from, and should be read in conjunction with, the Company's Financial
Statements and the Notes thereto audited by Price Waterhouse LLP, independent
accountants, included elsewhere in this Prospectus. The statement of operations
data for the three and six month periods ended December 31, 1996 and 1997, and
the balance sheet data at December 31, 1997, have been derived from unaudited
interim financial statements and include, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary in order
to make the financial statements not misleading. The operating results for the
three and six months ended December 31, 1997 are not necessarily indicative of
the results to be expected for the full year or any future period.
<TABLE>
<CAPTION>
Six Months Three Months
Year Ended Ended Ended
June 30 December 31 (4) December 31 (4)
------- --------------- ---------------
Statement of Operations Data: ........ 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues (1) ......................... $ 1,315,542 $ 1,582,553 $ 353,857 $ 802,913 $ 96,385 $ 415,695
Costs and expenses (1) ............... 2,028,656 4,710,074 2,681,215 1,041,191 1,629,665 486,486
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (1) ............. (713,114) (3,127,521) (2,327,358) (238,278) (1,533,280) (70,791)
Other income, interest (expense) (1) . (151,270) (37,442) (235,457) 7,888 (223,859) 1,921
Loss from discontinued operations,
net of income tax benefit (5) ........ -- (309,206) -- -- -- --
Extraordinary gain on restructuring of
payables and debt (5) -- 3,431,823 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss ............................. (864,384) (42,346) (2,562,815) (230,390) (1,757,139) (68,870)
=========== =========== =========== =========== =========== ===========
Basic/diluted loss from continuing
operations per share (3) ............. $ (.17) $ (.72) $ (.30) $ (.05) $ (.19) $ (.01)
Basic/diluted loss per share (3) ..... $ (.17) $ (.01) $ (.30) $ (.05) $ (.19) $ (.01)
Weighted average number of
Common shares outstanding ............ 4,986,767 4,418,618 8,489,500 4,732,261 9,209,152 4,738,458
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: (4) June 30, 1997 December 31, 1997 (2)
------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 6,083 $ 1,522,944
Working capital (deficit) (768,326) 1,394,042
Total assets 501,280 3,688,674
Long-term liabilities 45,000 2,707,941
Total stockholders' deficit $(761,386) $(737,554)
===================================================================================================================================
<FN>
(1) All amounts are from continuing operations.
(2) The balance sheet as of December 31, 1997 reflects the completion of a
private placement offering on December 10, 1997, in which the Company sold
$3,060,000 principal amount of 8% Convertible 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 8% Convertible
Debentures include an "in-the-money" convertible option that allows the
holder to obtain shares of Common Stock at a discount from fair market
value. The value of the in-the-money provision has been allocated to
stockholders' 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.
(3) Basic/diluted loss from continuing operations per share is computed using
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). All periods prior to December 31, 1997, have been restated to
conform with SFAS 128. Company stock options and warrants have been
excluded from the computation of diluted loss from continuing operations
per share and net loss per common share as their effect is antidilutive for
the periods presented. Such stock options and warrants could potentially
dilute earnings or losses per share in the future.
(4) Refer to Management's Discussion and Analysis of Financial Condition and
Results of Operations, Financial Statements and Notes to Financial
Statements for a more complete explanation of accounting policies,
significant accounting entries and variance analysis. See Note 6 to the
Financial Statements for the periods ended December 31, 1997 for an
explanation of the restated valuation of the Liviakis Financial
Communications, Inc. consulting agreement and the impact of that
transaction on consulting expense over the first six months of fiscal year
1998.
-8-
<PAGE>
(5) The 1996 loss from discontinued operations resulted from the dissolution of
Direct Data, Inc. in October 1995. The 1996 extraordinary gain is related
to the restructuring of $3.4 Million of debt and payables for Direct Data
and an inventory supplier. See Note 10 to the Financial Statements for the
Fiscal Year ended June 30, 1997 included in this Prospectus.
</FN>
</TABLE>
-9-
<PAGE>
RISK FACTORS
------------
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully before purchasing shares
of Common Stock.
Risks Involving the Company and Its Business
- --------------------------------------------
History of Losses; Going Concern Assumption
Through the end of the fiscal quarter ended December 31, 1997, the
Company has continued to experience significant operating losses, and has
incurred additional losses subsequent to the end of that fiscal quarter. The
Company's independent accountants have included a paragraph in their opinion
covering the Company's financial statements for the fiscal years ended June 30,
1996 and 1997 that states the uncertainty of the Company's ability to continue
as a going concern. In an attempt to continue as a going concern, the Company
has embarked upon a plan to transition to a recurring revenue stream, is working
on programs to increase revenue levels and product margins, and is seeking to
implement new marketing and distribution agreements. In furtherance of this
change in focus, over the last six months, the Company has strengthened its
management team, signed several significant distribution agreements which are
expected to build a recurring revenue base, expanded its sales force and
expanded its contract manufacturing relationships. However, current revenue
remains inadequate to fund the infrastructure growth, business transition and
current expenses. As a result, the Company may need to seek additional debt or
equity financing; however, it is constrained to do so by its agreement with
holders of its Series A Preferred Stock until at least 150 days from December
10, 1997, and until the registration statement of which this Prospectus is a
part is declared effective by the SEC. See "Certain Transactions." No assurance
can be given that the Company will obtain sufficient revenues from operations or
gain access to the capital it needs in the short run to continue as a going
concern. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Slower Than Expected Development of Revenue from Relationship with GTE Mobilnet;
Greater Expenses than Anticipated
In order to fulfill its joint service and marketing obligations under
its agreement with GTE Mobilnet and Bell Atlantic Mobile and to support sales in
selective AT&T and other markets, the Company has hired and trained a sales and
support staff that consisted of approximately 50 people as of April 30, 1998.
However, product placements with merchants through the GTE Mobilnet program have
not developed as rapidly as anticipated, while costs to the Company to fulfill
its obligations under this agreement have been quite high. Consequently, the
Company has expended considerably more of the proceeds from its recently
completed $3,060,000 private offering of 8% Convertible Debentures than expected
over a shorter period than expected. Although the Company has been able to meet
its short term cash needs through the private sale of certain Common Stock
purchase options (the "Call Options"), this is only a short-term solution. In
addition to the Call Options, the Company has recently entered into a revolving
credit financing agreement with GTE leasing Corporation to finance inventory
placed through the GTE program. Despite these sources of capital, the Company
will need additional financing over the short term, and growth in cash flow and
eventually, profitability to meet its longer term needs. There can be no
assurance that the Company will be successful in obtaining the short term
financing it requires or in meeting its longer term goals even if it obtains
immediate financing. If it fails to do so, there is likely to be a serious
impact upon the Company, its operating results and financial condition,
including its ability to continue as a going concern. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business - Marketing and Distribution Arrangements for the Company's Products
and Related Services."
-10-
<PAGE>
Need for Additional Financing
Although the Company completed a private offering of 8% Convertible
Debentures in December 1997 by which it raised net proceeds of approximately
$2,700,000, after commissions and expenses, the Company will require additional
financing before it is able to achieve revenues sufficient to support its cash
needs. The Company has no commitments to obtain any additional financing at this
time and there can be no assurance that additional financing can be obtained on
favorable terms, if at all. The Company agreed with the purchasers of its 8%
Convertible Debentures that it would not raise additional private capital prior
to 150 days from December 10, 1997, without first obtaining permission from all
of those investors. After that time, and until the shares of Common Stock
underlying the Series A Preferred Stock have been registered for public sale,
the holders of the Series A Preferred Stock have a first right of refusal on any
private capital-raising transactions that the Company embarks upon. In addition,
the Company has recently issued Common Stock and stock purchase warrants at
prices substantially less than the present market price of the Common Stock
which are being registered for resale hereunder. See "Certain Transactions." The
ability to sell those shares into the market under this registration statement
plus the ability of the holders of a substantial number of shares of Common
Stock which are, or will shortly become, eligible for sale under Rule 144 of the
Securities Act of 1933, to sell those shares into the market at any time could
make it difficult for the Company to raise money at a time when it needs to do
so. The absence of financing if and when it is needed by the Company could have
a material adverse effect on the Company's business, operating results and
financial condition, including its ability to continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors - Risks Relating to the Company's Securities -
Market Overhang; Registration Rights; Possible Effect on Market for the
Company's Common Stock."
Need for Third-Party Inventory Financing
The Company has recently entered into an agreement with GTE Leasing
Corporation to pay for the manufacture of TRANZ Enabler units to be deployed
under the GTE Mobilnet marketing agreement. The agreement grants GTE Leasing a
security interest in the units as well as certain rights to cash flow from the
processing revenue payable to the Company under its agreement with NOVA. It is
expected that repayment of the financing will be made from the recurring revenue
generated by units placed under the GTE Mobilnet marketing agreement. Several
technical and legal requirements remain to be finalized before the Company will
be able to draw upon this financing source. Although this financing provides the
Company with needed support for units placed through the GTE Mobilnet marketing
agreement, third party financing of all TRANZ Enabler units placed by the
Company through any source is a required element of the Company's business
model. The Company must therefore seek similar financing arrangements for units
distributed through other marketing channels, including the Bell Atlantic Mobile
marketing agreement. The inability to fund inventory needs from outside sources
could have a material adverse impact on the Company, its liquidity and results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business - Manufacturing and Deployment
Arrangements."
Ability to Execute Business Plan to Attain Profitable Operations
The Company has embarked upon a business plan which shifts the
Company's strategy from generating revenue from direct sales of its products
(i.e., the retail sale of a "box") on which it attempted to earn a margin, to
generating recurring credit card processing revenue from each CDPD device it or
its agents place with a merchant. In order to convince merchants to open
accounts with the Company, its CDPD providers and its transaction processor, the
Company provides the TRANZ Enabler unit as part of the credit card processing
solution at no up-front cost to the merchant; rather, the cost of the unit is to
be recovered through the monthly revenues generated by the merchant's processing
activities. The Company is obligated to repair and/or replace the unit if it
fails under normal conditions. The merchant is obligated to return the unit to
the Company upon ceasing to subscribe to the Company's processing services. This
business plan means that the Company has
-11-
<PAGE>
assumed the financial risk for the cost of the unit placed with the merchant,
even under those situations where a merchant dishonors its obligation to return
the unit at the required time. No assurance can be given that the Company will
be successful in placing a sufficient number of its products with merchants that
will generate enough revenue to meet the cash needs of the Company. The failure
to do so and/or a significant number of defaults by merchants in returning units
upon termination of their processing relationship with the Company is likely to
have a material adverse effect upon the Company, its operating results and
financial condition, including its ability to continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Manufacturing and Deployment Arrangements."
Distribution Programs
In the fiscal year ended June 30, 1997, Cardservice International, Inc.
("CSI") accounted for over 50% of the Company's revenue, which resulted from
direct sales of POS-50(R) product to CSI. Although the Company has shifted its
focus away from strictly selling its product and is concentrating on trying to
develop a recurring revenue stream from product placements, the GTE Mobilnet
distribution program, as noted above, has not generated product placements at
the rate the Company had hoped for. At the same time, POS 50(R) product sales
have declined. While the Company hopes that the GTE Mobilnet and the Bell
Atlantic Mobile relationships will develop as expected, and the Company hopes to
enter into distribution agreements with other significant partners, a failure to
generate product placements through GTE Mobilnet, Bell Atlantic Mobile, or other
partners is likely to have a material adverse effect on the Company, its
operations and financial condition, including its ability to continue as a going
concern. See "Business - Marketing and Distribution Arrangements for the
Company's Products and Related Services" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Potential Fluctuations in Operating Results
Because the Company generally ships its products on the basis of credit
card processing applications or purchase orders, incremental recurring revenue
and other component sales in any quarter are highly dependent on orders filled
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 revenue. 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. See "Business `-
Customers' and `- Manufacturing and Deployment Arrangements.'"
New Products and Rapid Technological Change
Assuming the Company is able to sufficiently penetrate the perceived
market for wireless credit card processing hardware and processing initially,
the Company's future success is likely to depend upon its ability to keep pace
with technological development and respond to evolving merchant demands. Failure
by the Company to anticipate or respond adequately to technological developments
or significant delays in product development could damage the Company's
potential position in the marketplace and could result in less revenue and/or an
inability to generate profits. There can be no assurance the Company will be
successful in hiring and training adequate product development personnel, if
such persons are needed to meet its needs or that it will have the resources to
do so. There can be no assurance the Company will be successful in marketing its
current CDPD products, in developing and/or marketing any new products, or
product enhancements, or will not experience significant delays in such
endeavors in the future. Any failure to successfully develop and market its
products and product enhancements could have a material adverse effect on the
Company's financial condition, business and operations. See "Business."
-12-
<PAGE>
Dependence on a Single Product Type
All of the Company's revenue is derived from sales of its credit/debit
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, the introduction of new or
superior competing technologies or products and/or services that are available
on more favorable pricing terms than those being offered by the Company, and the
general condition of the economy. The Company's success will depend in part on
its ability to penetrate the market with its existing products and to respond
quickly to changes in merchant demand. No assurance can be given that it will be
able to do so. See "Business."
Dependence on Outside Parties for Advertising, Marketing and Distribution
Although the Company does market its products and services through its
own personnel, it has also entered into marketing and distribution agreements
with third parties, the most significant of which are the joint marketing
agreements with GTE Mobilnet and Bell Atlantic Mobile to market the Company's
CDPD Tranz Enabler product and processing services using GTE Mobilnet and Bell
Atlantic Mobile sales personnel. The Company also has other less significant
marketing agreements with third party marketing entities and it hopes to enter
into similar contractual arrangements with others to assist it in marketing its
products. This may result in a lack of control by the Company over some or all
of the material marketing and distribution aspects of its products, although the
Company does retain the ultimate right to reject any potential customer
presented to it by its third party marketing partners. There can be no assurance
that the Company will be able to adequately oversee the marketing efforts of
unrelated parties. Any significant problems with these third party marketing and
distribution channels could result in reduced market acceptance and lack of
product placements for the Company.
In addition, there can be no assurance the Company will be successful
in entering into marketing and related arrangements on terms acceptable to the
Company, or that any marketing efforts undertaken on behalf of the Company by
third parties will be as successful as needed to generate adequate revenue to
support the Company. The inability of the Company to place its products through
the efforts of its own marketing personnel or third parties would likely have a
material adverse impact on the ability of the Company to generate revenue and
attain profitable operations.
The Company has a limited marketing budget and resources. The Company's
present plans involve primarily the attempt to leverage its resources through
the entry of marketing and distribution agreements with third parties, rather
than a large-scale attempt to expand its in-house capabilities. The Company's
future growth and profitability is therefore expected to depend, in large part,
on the success of its third-party licensees, sub- licensees and distributors, if
any, and others who may participate in marketing efforts on behalf of the
Company. Success in marketing the Company's products will be substantially
dependent on educating the targeted markets as to the distinctive
characteristics and perceived benefits of the Company's products. No assurance
can be given that these efforts will be successful. See "Business - Marketing
and Distribution Arrangements for the Company's Products and Related Services."
CDPD Resale Agreements Containing Minimum Purchase Obligations
The Company has to date entered into three air-time CDPD service resale
agreements, two of which contain minimum purchase obligations which can be
characterized as "take or pay" provisions. The agreements with GTE Mobilnet and
AT&T Wireless Data, Inc. contain provisions which require the Company to
purchase minimum amounts of airtime from each provider. In the case of the
agreement with GTE Mobilnet, such minimum purchase obligations escalates over
the term of the GTE Agreement from $20,000 during the first quarter commencing
February 1, 1998 to $2.75 Million by the eighth quarter. The provisions under
the agreement with AT&T are based on minimum numbers of activated IP addresses
and the Company is obligated
-13-
<PAGE>
to have 1,000 active addresses by one year from April 1, 1997, 3,000 active
numbers within 18 months of April 1, 1997 and 4,500 active numbers within three
years of April 1, 1997. 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 a serious adverse effect upon the Company and its
business. See "Business - Marketing and Distribution Arrangements for the
Company's Products and Related Services."
Obligations of the Company Under Joint Marketing Agreements
The Company has entered into two joint marketing agreements with GTE
Mobilnet and Bell Atlantic Mobile to date. These agreements impose certain
obligations on the Company to place inventory and provide training and support
services and personnel to both the merchants who purchase the Company's services
and the GTE Mobilnet and Bell Atlantic Mobile sales representatives who solicit
the merchants. In addition to inventory placement and support service
requirements, these agreements require one-time activation fees to be paid to
GTE Mobilnet and Bell Atlantic Mobile. The obligations of the Company under
these agreements could be burdensome and difficult for the Company to meet,
especially if it does not obtain the outside financing it requires to supply its
current cash requirements. See "Business - Marketing and Distribution
Arrangements for the Company's Products and Related Services."
Competition and Pricing Pressures
The markets for certain of the Company's products and services are
highly competitive, including pressure to maintain competitive pricing
structures for credit card processing services. In addition, the Company has
identified several potential competitors attempting to develop CDPD based
terminals and solutions. Companies with substantially greater financial,
technical, marketing, manufacturing, human resources, as well as name
recognition, than the Company may also enter the market. The Company believes
that its ability to compete depends on product design, quality and price,
distribution and quality of service. There can be no assurance that the Company
will be able to compete successfully with respect to these factors.
See "Business - Competition."
Dependence Upon Suppliers; Availability of Raw Materials
The Company currently depends upon third parties as the sole source of
supply for the components comprising its products. The Company does not have
long-term agreements with any of its suppliers and has not been a major customer
to any of its suppliers or manufacturers and therefore may not be able to obtain
inventory at a cost or on the schedule which it requires. If manufacture of any
of the Company's products is interrupted for any extended period, or if the
Company is not able to purchase and deliver sufficient quantities of its
products on a timely basis, there could be a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- - Manufacturing and Deployment Arrangements."
Liability Insurance
The Company has liability insurance policies that provide coverage for
liability claims arising out of the products it sells and the services it
provides. The Company has not been the subject of any material liability claims;
however, there can be no assurance that the Company's liability insurance
policies will cover any such claims, or that such policies can be maintained at
an acceptable cost. Any liability of the Company which is not covered by such
policies, or is in excess of the limits of liability of such policies, could
have a material adverse effect on the financial condition and results of
operations of the Company.
-14-
<PAGE>
Dependence on Key Personnel
The Company's future operating results depend in significant part upon
the continued contributions of its key senior management personnel, many of whom
would be difficult to replace. The Company's future operating results also
depend in significant part upon its ability to attract and retain qualified
personnel. Personnel that possess the requisite skills and experience to perform
certain technical functions for the Company have been in limited supply in the
past, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of key employees, the failure
of key employees to perform satisfactorily in their current position or the
Company's inability to attract and retain skilled employees as needed, could
materially and adversely affect the Company's business, operating results and
financial condition. The Company does not have employment agreements with its
management personnel. See "Management."
"Year 2000" Issues
The Company has not completed a comprehensive review of impact of the
"Year 2000" issue on the Company's business. This issue concerns 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 the Company's 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. The Company has therefore not yet determined
what impact, if any, the Year 2000 problem may have on its operational needs,
financial results or financial condition/liquidity.
Settlement of Claims by Certain Holders of Convertible Demand Notes
In early April 1998, the Company settled certain claims by purchasers of
$135,000 (out of a total of $185,000) of convertible demand notes which the
Company issued from April through June, 1997. By their terms, the notes became
convertible to Common Stock at $.35 per share (as to $75,000 of the notes) and
$.50 per share (as to $110,000 of the notes) on November 1, 1997. The essence of
the claims of the complaining noteholders was 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 holder of the remaining $50,000 note (which is convertible at $.50 per
share) has not asserted any claims against the Company in connection with his
purchase of the note. Without admitting liability, the Company settled the
complaining noteholders' claims by agreeing to issue 1.4 times the number of
shares originally issuable as principal and interest on the notes (plus an
additional 11,000 shares to one of the noteholders who purchased an aggregate of
$50,000 of the notes) and providing the noteholders with certain guarantees as
to the amount for which the shares can be resold (with the difference to be made
up by the Company) and a five-day "put" which allows the noteholders to require
the Company to repurchase any shares remaining unsold at the end of the period
ending one year after the shares become saleable under SEC Rule 144 for a
certain price, subject to certain conditions. The holder of the other $50,000 of
notes will be given the enhanced conversion rate but will not be offered the
guarantee or put. A total of 525,800 shares have been issued to these
noteholders upon conversion of their notes. Of that number, 360,800 of the
shares were given a $3.00 per share guarantee and put and 165,000 of the shares
were given a $4.29 per share guarantee and put. The Company also settled a claim
concerning an additional $16,825 promissory note that was issued to one of the
holders of the $135,000 of notes described above, by issuing 18,507 shares of
Common Stock; these shares were not given any guarantee or put. Finally, the
Company will issue 154,000 shares upon conversion of the remaining $50,000 note,
but will not give that noteholder the guarantee or put. The shares issuable
under this settlement become saleable under SEC Rule 144 at various times
(depending on the issuance date of each note) commencing April 11, 1998 through
July 2, 1998. As a
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<PAGE>
result of this settlement, the issuance of "premium" shares will be recorded as
a litigation settlement expense and result in a charge to operations of
approximately $900,000 in the Company's fiscal 1998 third quarter results. See
"Risk Factors - Risks Relating to the Company's Securities - Market Overhang;
Registration Rights; Possible Effect on Market for the Company's Common Stock,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Subsequent Events - Settlement of Claims of Certain Noteholders"
and "Business - Legal Proceedings - Settlement of Claims of Certain
Noteholders." The obligation of the Company to honor the guarantees and put
options given to the complaining noteholders could have a material impact upon
the Company, its financial condition and results of operation. See "Management's
Discussion of Financial Condition and Results of Operations - Subsequent Events"
and "Business - Legal Proceedings - Settlement of Claims of Certain
Noteholders."
Continuing Default to Former Trade Creditor
The Company has a note payable to a former trade creditor which is in
default in the approximate amount of $388,000. The note is collateralized by
certain of the Company's inventory, and although the Company continues to
discuss options with the creditor regarding the possible restructuring or
mutually agreeable settlement of this note, no agreement has been reached. A
decision by this creditor to seek to recover the amount due on this note, or to
foreclose on the collateral, could have an adverse impact on the Company and its
business.
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.
Untimely Filing of 1996 Proxy Statement
The Company apparently inadvertently failed to file its 1996 Proxy
Statement with the Securities and Exchange Commission within 120 days of the end
of fiscal year 1996. Copies of the Proxy Statement were distributed to all
shareholders of the Company in conjunction with the Company's 1996 Annual
Shareholder Meeting held November 15, 1996, which involved only the election of
directors. The Company filed the 1996 Proxy Statement with the Commission as of
October 10, 1997. The Company is not certain what liability, if any, it might
have as a result of this untimely filing.
Risks Relating to the Company's Securities
- ------------------------------------------
Market Overhang; Registration Rights; Possible Effect on Market for the
Company's Common Stock
There are a total of 7,324,106 Shares owned or subject to warrants or
other rights to acquire Common Stock which the Company is registering for sale
under the Registration Statement of which this Prospectus is a part. Most of
those shares are issuable at prices which are less (and in some cases
substantially less) than the present market price for the Company's Common
Stock. There are also approximately 1,630,575 shares of Common Stock outstanding
that either are presently, or shortly will be, saleable under SEC Rule 144 as of
May 1, 1998, plus an additional 415,431 shares issuable pursuant to the exercise
of options granted under the Company's 1992 Stock Option Plan which were vested
as of February 28, 1998 or which will vest within 60 days of such date, which
are or will be saleable under an effective Form S-8 Registration Statement
covering a total of up to 880,000 option shares. The Company also intends to
file two additional S-8 Registration Statements as soon as practicable to cover
a total of 2,400,000 additional shares of Common Stock that are either presently
issuable under outstanding stock options or which may be issued pursuant to
options that have
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<PAGE>
been or are authorized to be issued under the Company's 1992 Stock Option Plan.
The exercise prices of a significant number of these options are substantially
less than the present market price for the Company's Common Stock. Finally,
there are 210,435 additional shares of Common Stock which have not been included
in this Registration Statement which are issuable upon the exercise of presently
outstanding warrants that can be exercised in the future. No assurance can be
given that the market for the Company's Common Stock will be robust enough to
absorb all of the shares being offered by Selling Security Holders under this
Registration Statement or which may be offered by shareholders under Rule 144 or
the Company's S-8 Registration Statements. If an oversupply of shares of Common
Stock develops as a result of the number of shares that shareholders may wish to
sell into the market, it is likely that the market price for the Common Stock
will be depressed from its present levels. See "Capitalization," "Business -
Legal Proceedings," "Management Executive Compensation," "Security Ownership of
Principal Shareholders and Management," "Certain Transactions," "Description of
Securities" and "Selling Security Holders."
Possible Limitations on Sales of Common Stock; Possible Application of Penny
Stock Rules
Regulations under the Securities Exchange Act of 1934 (the "1934 Act")
regulate the trading of "penny stocks" (the "Penny Stock Rules"), which are
generally defined as any security not listed on a national securities exchange
or NASDAQ, priced at less than $5.00 per share, and offered by an issuer with
limited net tangible assets and revenue. Currently, the Company does not believe
the Common Stock is subject to the Penny Stock Rules, based on current market
prices. However, the Company's stock has traded over the last several years in a
price range which would classify it as a "penny stock." It is possible that the
Common Stock could again become subject to the Penny Stock Rules or that the SEC
might expand the definition of penny stock to include the Common Stock, even
though it continues to trade at prices above $5.00 per share. Under these rules,
broker-dealers must take certain steps prior to selling a "penny stock"
including (i) obtaining financial and investment information from the investor,
(ii) obtaining a written suitability questionnaire and purchase agreement signed
by the investor, (iii) providing the investor with a written identification of
the shares being offered and the quantity; (iv) providing the customer with a
written disclosure document containing SEC required disclosure as to risks
involving investments in penny stocks; (v) providing written disclosure as to
compensation of the broker and associated persons; and (vi) providing customer's
whose accounts contain penny stocks with certain required disclosure on the
account statements. If the Penny Stock Rules are not followed by the
broker-dealer in conjunction with sales of a penny stock, the investor has no
obligation to purchase the shares. Accordingly, the Penny Stock Rules may make
it more difficult for broker-dealers to sell the Company's Common Stock in the
secondary market and consequently may make it more difficult for a holder of a
penny stock to dispose of the shares as and when the holder might desire to do
so. In addition, the application of the Penny Stock Rules to the Common Stock
could also impair the Company's ability to raise additional capital through the
sale of Common Stock.
No Dividends
The Company has never paid cash or other dividends on its Common Stock.
It is the Company's intention to retain earnings, if any, to finance the
operation and expansion of its business, and therefore, it does not expect to
pay any cash dividends in the foreseeable future. In addition, the terms and
conditions of the presently outstanding Series A Preferred Stock will limit the
Company's ability to pay dividends on the Common Stock. See "Description of
Securities - Series A Preferred Stock - Dividends." No person seeking a dividend
paying security should invest in the Common Stock. See "Dividend Policy."
Dilutive and Other Possible Adverse Effects of Outstanding Options, Warrants and
Other Rights to Acquire Common Stock
The Company has a substantial number of outstanding rights to acquire
Common Stock in the form of the Series A Preferred Stock, various warrants, a
convertible promissory note, and contract rights, including a
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<PAGE>
substantial number of such rights for which the Common Stock underlying those
rights is being registered for resale in the registration statement of which
this Prospectus is a part. A substantial number of these rights, plus additional
rights in the form of options that have been or may be granted to the Company's
officers, directors, employees or consultants under the Company's 1992 Stock
Option Plan or otherwise, are exercisable at prices which are less than the
present market price for the Common Stock. Under the terms of such rights, the
holders thereof are given an opportunity to profit from a rise in the market
price of the Common Stock with a resulting dilution in the interests of other
shareholders. The terms on which the Company may obtain additional financing may
be adversely affected by the existence of such rights. For example, the holders
of these rights could exercise them at a time when the Company was attempting to
obtain additional capital through a new offering of securities on terms more
favorable than those provided by the rights. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Management -
Executive Compensation," "Certain Transactions," "Description of Securities,"
and "Selling Security Holders."
Offering to Benefit Certain Existing Shareholders and Other Persons Holding the
Company's Securities
This Offering will provide substantial benefits to existing
shareholders of the Company and other persons holding the Company's securities.
No proceeds from sales of the Shares being registered in this offering will
inure to the benefit of the Company. Rather this Offering is being effected by
the Company in satisfaction of its registration obligations to various
purchasers of its securities over the last several years. A substantial number
of the Shares being registered for sale hereunder were purchased or can be
purchased at prices substantially less than the present market price for the
Common Stock. See "Certain Transactions," "Description of Securities," and
"Selling Security Holders."
Potential Volatility of Market Price for Common Stock
The current market price for the Company's Common Stock does not appear
to bear any relationship to any established valuation criteria such as assets,
book value, or current earnings. The Company attributes the current market price
of the Company's Common Stock to anticipated benefits to the Company of its CDPD
products and distribution strategy. The historical market price for the
Company's Common Stock has not been at levels anywhere near the present market
price. Market prices for securities of small-cap emerging companies have
historically been quite volatile. General economic, industry and market
conditions, as well as future announcements concerning the Company or its
competitors, including technological innovations or new products, developments
concerning proprietary rights, litigation involving the Company, or other
factors may have a significant impact on the market price of the Common Stock.
See "Market for the Company's Common Stock and Related Matters."
Discount To Conversion Price of Series A Preferred Stock for Failure to Obtain
Effectiveness of Registration Statement within Prescribed Period
In connection with the sale of the 8% Convertible Debentures which have
now been converted to 3,060,000 shares of Series A Preferred Stock, the Company
agreed to file a registration statement covering the shares issuable upon
conversion of the 8% Convertible Debentures and/or Series A Preferred Stock by
March 10, 1998 (90 days from December 10, 1998) and that if a registration
statement covering such shares was not effective with the SEC by May 11, 1998, a
penalty in the form of a discount to the conversion price for the Series A
Preferred Stock would become effective. The pre-penalty price for conversion of
the Series A Preferred Stock into shares of Common Stock is calculated based on
a $1.00 stated value of the Series A Preferred Stock and 80% of Market Price for
the Common Stock (as defined), but is never more than $6.00 per share nor, until
September 8, 1998, less than $4.00 per share. The penalty discount reduces the
conversion price (including the minimum conversion price) by 2% of the
pre-penalty conversion price for each 30 day period (or any part thereof) after
May 11, 1998, that the registration statement is not effective. The Company was
not able to file a registration statement by March 10, 1998, and it is now
certain that the penalty for failure
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<PAGE>
to obtain effectiveness of the registration statement by May 11, 1998 will
become effective. Assuming the discounted conversion price is not greater than
$6.00 per share of Common Stock (in which case the maximum $6.00 conversion
price would nonetheless apply), the application of the discount will reduce the
cost of acquiring Common Stock to the holders of the Series A Preferred Stock.
See "Description of Securities - Series A Preferred Stock."
Possible Loss of NOLs
The issuance or sale of additional Common Stock by the Company will
have the effect of reducing the ability of the Company to utilize its net
operating loss carryforwards ("NOLs") prior to expiration, which are
substantial. Any reduction or loss of the NOLs could have a material adverse
effect upon the Company's business, operating results and financial condition.
However, the overriding need for additional financing could cause the Company to
carry out a transaction which could result in the loss of its NOLs.
Compliance with Securities Laws
The Company has recently sold a substantial amount of its securities in
unregistered transactions that the Company believes qualify for registration
exemptions under state and federal securities laws. In the event any violation
of these laws occurred as to past sales of securities, the purchasers of such
securities may have the right to rescind the purchase and receive their money
back, with interest. Any attempt by a securityholder to assert a rescission
right could have a material adverse effect upon the financial condition and
results of operations of the Company, even if such person were not successful in
prosecuting such a claim. See "Business - Legal Proceedings" and "Certain
Transactions."
Anti-Takeover Considerations Including Authorization of Preferred Stock
Certain provisions of the Company's Articles of Incorporation may be
deemed to have anti-takeover effects and may discourage or make more difficult a
takeover attempt that a shareholder might consider in his, her or its best
interest. The Articles of Incorporation authorize a total of 15,000,000 shares
of no par value preferred stock (the Preferred Stock"), 4,000,000 of which are
designated as Series A Preferred Stock. The Board of Directors may issue shares
of previously undesignated preferred stock without shareholder approval upon
such terms as the Board of Directors may determine. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying or preventing a change in control of the Company without further action
by the shareholders. The Company has no present plans to issue any additional
shares of Preferred Stock beyond those already issued as Series A Preferred
Stock. See "Description of Securities `- Preferred Stock' and `- Certain Effects
of Authorized But Unissued Stock.'"
Under Section 7-106-205 of the Colorado Business Corporation Act, the
Board of Directors of a Colorado corporation may issue rights, options, warrants
or other convertible securities (hereafter "rights") entitling the holders of
the rights to purchase, receive or acquire shares or fractions of shares of the
corporation or assets or debts or other obligations of the corporation, upon
such terms as are determined by the Board of Directors. The Board is free to
structure the issuance or exercise of the rights in a manner which may exclude
"significant shareholders," as defined, from being entitled to receive such
rights or to exercise such rights or in a way which may effectively prevent a
takeover of the corporation by persons deemed hostile to management. Nothing
presently contained in the Articles of Incorporation of the Company prohibits
the Board from using these types of rights in this manner. See "Description of
Securities - Certain Anti-Takeover Provisions of Colorado Law."
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<PAGE>
In addition, because any takeover of the Company could result in the
inability of the Company to utilize its NOLs prior to expiration, potential
acquirors may be deterred from acquiring the Company. See "Risk Factors - Risks
Relating to the Offering and the Company's Securities - Possible Loss of NOLs."
Maintenance of Effective Registration Statement
The Company has agreed with the holders of its Series A Preferred Stock
to maintain an effective registration statement under which they may sell the
Common Stock issuable upon conversion of, or as dividends on, the Series A
Preferred Stock, for at least 16 months from June 30, 1998. The Company is not
presently able to utilize registration on Form S-3, and in all likelihood will
not be able to do so for the foreseeable future. Consequently, the registrations
that the Company is obligated to keep effective for the holders of its Series A
Preferred Stock, or which it must undertake for other securityholders holding
demand registration rights, are likely to be quite expensive to the Company and
there can be no assurance that the Company will be able to maintain
effectiveness of such registration statements for such extended periods of time.
See "Description of Securities" and "Selling Security Holders."
Possible Future Application of California General Corporation Law to the Company
and Its Shareholders
Under Section 2115 of the California General Corporation Law, foreign
corporations that exceed an average of fifty percent for "the property factor,
the payroll factor and sales factor" for its latest full income year (as
computed under the same methods as are used in computing franchise tax payable
in California) and which have more than one-half of the corporation's
outstanding voting securities (as determined pursuant to Section 2115) held of
record by persons having addresses in California, become subject to certain
specified chapters and sections of the California General Corporation Law upon
the first day of the first income year of the corporation commencing on or after
the 135th day of the latest income year during which the above-described tests
have been met or during which a final order has been entered by a court of
competent jurisdiction declaring that those tests have been met. The Company
presently exceeds the shareholder address test and may exceed the other test as
of the 135th day of its fiscal year ending June 30, 1999, which would subject
the Company to certain provisions of California law as of July 1, 1999.
Application of certain aspects of the California General Corporation Law would
to the Company and its shareholders may give greater or lesser protection to
shareholders in certain instances than is available to shareholders under
Colorado law (the State in which the Company is incorporated). Compliance with
applicable provisions of California law may be more or less onerous to the
Company than compliance with analogous provisions of Colorado law. See
"Description of Securities - Possible Future Application of California Law to
the Company and Its Shareholders."
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<PAGE>
USE OF PROCEEDS
---------------
The proceeds from this offering of Shares will inure solely to the benefit
of the Selling Security Holders. The Company will not receive any proceeds from
sales of the Shares being offered under this Prospectus. See "Risk Factors -
Risks relating to the Company's Securities - Offering to Benefit Certain
Existing Shareholders and Other Persons Holding the Company's Securities."
DIVIDEND POLICY
---------------
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any dividends on the Common Stock in the
foreseeable future. Any cash that might be available for payment of dividends
will be used to expand the Company's business.
In addition, the terms and conditions of the presently outstanding Series A
Preferred Stock will limit the Company's ability to pay dividends on the Common
Stock. See "Description of Securities - Series A Preferred Stock - Dividends."
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<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED MATTERS
---------------------------------------------------------
The Company's Common Stock is traded in the over-the-counter market and
quoted on the OTC Electronic Bulletin Board under the symbol "USWDA." The
following table sets forth, for the fiscal quarters indicated, the range of high
and low prices for the Common Stock. The Company's stock has historically been
thinly traded, although there has been substantial volume in the stock since
approximately August 1, 1997. Average trading volume over the three months ended
March 31, 1998 has been approximately 78,000 shares per day. These quotations
have been obtained from the OTC Electronic Bulletin Board and reflect
inter-dealer prices (in dollars), without any retail mark-up, mark-down or
commissions, and may not necessarily represent actual transactions.
Fiscal 1998 High Low
----------- ---- ---
Third Quarter $7.625 $5.000
Second Quarter 8.750 4.500
First Quarter 6.875 0.281
Fiscal 1997 High Low
----------- ---- ---
Fourth Quarter 0.625 0.218
Third Quarter 0.281 0.125
Second Quarter 0.375 0.156
First Quarter 0.406 0.125
Fiscal 1996 High Low
----------- ---- ---
Fourth Quarter 0.844 0.281
Third Quarter 1.063 0.109
Second Quarter 0.469 0.094
First Quarter 0.469 0.125
As of April 30, 1998, there were 179 holders of record of the Common Stock.
There were also an undetermined number of holders who hold their stock in
nominee or "street" name, although at December 15, 1997, in conjunction with the
record date for its 1997 Annual Shareholder Meeting held February 6, 1998 the
Company determined that there were approximately 2,557 beneficial holders of its
Common Stock. As of April 30, 1998, a total of 4,294,837 shares were held by
depository companies in street name. On May 11, 1998, the last sale price of the
Common Stock was $4.375, as reported on the OTC Electronic Bulletin Board.
There is no public trading market for the Company's Series A Preferred
Stock or any other securities of the Company.
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<PAGE>
CAPITALIZATION
--------------
The following table sets forth the Company's capitalization at: (i)
December 31, 1997, and (ii) December 31, 1997, as adjusted to reflect conversion
of $3,060,000 of 8% Convertible Debentures sold on December 10, 1997 into
3,060,000 shares of Series A Preferred Stock, which occurred as of February 9,
1998.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1997
----------------- -----------------
as adjusted (2)
---------------
<S> <C> <C>
Notes Payable .................................................................. 808,649 808,649
Long-term liabilities .......................................................... 2,707,941 45,000
Shareholders' equity:
Preferred Stock, no par value; 15,000,000 shares authorized; 4,000,000
shares designated as Series A Cumulative Convertible Redeemable
Preferred Stock; 3,060,000 shares issued and outstanding on
February 9, 1998, as adjusted (2) ..................................... -- 3,060,000
Common Stock, no par value; 12,000,000 shares
authorized; 9,221,420 shares issued and outstanding at
December 31, 1997 (1) ................................................. 9,221,420 9,221,420
Additional paid in capital ............................................ 9,564,694 9,564,694
Accumulated deficit ................................................... (19,523,668) (19,920,727)
Total shareholders' equity (deficit) .................................. (737,544) 1,925,387
------------ ------------
Total capitalization ........................................................... $ 2,779,036 $ 2,779,036
============ ============
<FN>
- ---------------
(1) Excludes a total of 4,629,477 shares of Common Stock as of December 31,
1997, comprised of the following: (a) 748,681 shares issuable upon exercise
of outstanding stock options issued under the 1992 SOP at a weighted
average exercise price of $2.83 per share; (b) 600,000 shares underlying a
non-qualified stock option that was granted to the Company's CEO as of
August 4, 1997, which is exercisable at $1.00 per share; (c) 250,000 shares
issuable at $4.00 per share upon exercise of outstanding warrants owned by
two former officers of the Company; (d) 18,796 shares issued or issuable at
$2.624 per share upon exercise of outstanding warrants; (e) 165,000 shares
issuable upon exercise of the Underwriters' Warrants at a price of $12.325
per share; (f) approximately 459,000 shares issuable as principal
(approximately 434,000 shares) and interest (approximately 25,000 shares)
on $185,000 of convertible notes sold by the Company from April - June of
1997, which become convertible at a weighted average price of $.44 per
share commencing November 1, 1997; (g) approximately 18,000 shares issuable
upon conversion of principal and interest on a $16,825 promissory note
issued as of July 2, 1997; (h) 1,600,000 shares issuable to two significant
shareholder affiliates of the Company upon the exercise of warrants at $.01
per share, which were issued as of August 6, 1997; (i) 180,000 shares
issuable as of December 31, 1997, pursuant to a consulting agreement with
Liviakis Financial Communications, Inc. ("LFC") entered into as of July 25,
1997; and (j) 590,000 shares issuable to entrenet Group, LLC (310,000
shares issuable upon conversion of principal and accrued interest on a
$150,000 promissory note at $.50 per share and 280,000 shares issuable as a
finder's fee at such time as the Company obtained approval for an increase
in authorized Common Stock to no fewer than 40,000,000 shares (which was
obtained as of February 6, 1998)). See "Management - Stock Option Plan,"
"Security Ownership of Principal Shareholders and Management," "Certain
Transactions" and "Description of Securities - Warrants."
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<PAGE>
(2) Adjusted for the conversion of $3,060,000 of 8% Convertible Debentures into
3,060,000 shares of Series A Preferred Stock following shareholder approval
at the February 6, 1998 Annual Shareholder Meeting. The value of the Series
A Preferred Stock and accumulated deficit reflect the accretion of the debt
to face value over the time between December 31, 1997 and the conversion
from debt to Series A Preferred Stock on February 9, 1998.
</FN>
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
THE STATEMENTS IN THIS DISCUSSION CONTAIN BOTH HISTORICAL AND FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS ARE BASED UPON CURRENT
EXPECTATIONS AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED. FACTORS THAT MAY AFFECT SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, AMONG OTHERS, THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS."
Results of Operations
- ---------------------
General Overview
U.S. Wireless Data, Inc. ("USWD" or the "Company") was incorporated on
July 30, 1991, and is in the business of designing, manufacturing and marketing
a line of wireless and portable credit card and check authorization terminals.
The Company completed an initial public offering in December of 1993, and in
1994, completed development of its initial product, negotiated agreements with
suppliers of components, developed a marketing strategy, and initiated sales of
the POS-50(R) portable credit card and check verification terminal. During
fiscal 1996, the Company continued to promote its product through Independent
Sales Organization (ISO) channels and began development on its new CDPD product
line. The Company continued its efforts on the POS-50(R) and in the second half
of 1996, introduced two new CDPD-based products. The Company's largest customer
during fiscal 1996 and 1997 was Cardservice International, Inc., which purchased
POS-50(R) terminals.
As the Company entered fiscal year 1997, it continued to struggle with
profitability and liquidity. In October 1996, the Company closed its Boulder
office and consolidated operations in Colorado Springs, Colorado. A small
customer service and POS-50(R) deployment office was opened in Wheat Ridge,
Colorado. As part of the restructuring plan, Michael J. Brisnehan, its
president, principal executive officer and chief financial officer resigned and
Rod L. Stambaugh, chairman and former vice president of marketing and business
development was appointed president and chief executive officer. During fiscal
year 1997, head count was maintained at approximately 10 employees and ended
June 1997 at eight. During the first half of fiscal 1998, the Company
significantly increased personnel in response to the new distribution programs
described below. The Company had 50 employees by the end of December 1997 and 62
employees as of the end of April 1998.
A strategic decision was made to transition the Company from a "box
maker" to providing a credit/debit card processing solution to the marketplace.
In January 1997, the Company executed a Member Service Provider agreement with
NOVA Information Systems that establishes U.S. Wireless Data as a transaction
processing service provider to retail merchants. The NOVA arrangement also
allows the Company to generate a recurring revenue stream from each installation
instead of the previous per unit sales approach. Another key piece of the
strategic direction was to significantly broaden distribution of the TRANZ
Enabler CDPD based product by developing distribution agreements with large
communications carriers for direct distribution of products and services to the
merchant. In preparation for this effort, the Company signed CDPD airtime
agreements with AT&T Wireless Services, Bell Atlantic NYNEX Mobile and initiated
discussions with GTE Mobilnet regarding airtime purchases, joint marketing and
operating agreements. The Company was ultimately successful in entering into an
airtime agreement with GTE Mobilnet which contains joint marketing and operating
provisions. USWD has specific, significant commitments under these agreements
including both minimum purchase obligations and staffing requirements.
In the fourth quarter of fiscal 1997, it was clear that the Company had
a very significant market opportunity but had extremely limited financial and
human resources to apply to an aggressive CDPD product roll-out. In June 1997,
the Company engaged entrenet Group, LLC. ("entrenet"), a management consulting
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<PAGE>
group, to assist with the development of a detailed marketing and business plan
and introduction of financing sources. The Agreement had a term of one year and
USWD agreed to pay entrenet $150,000 in the form of a convertible promissory
note, bearing interest at 10% per annum. Entrenet was also entitled to a
finder's fee for locating direct financing sources for the Company. In July
1997, through an introduction by entrenet, the Company retained Liviakis
Financial Communications Inc. ("LFC") to advise and assist the company in
matters concerning investor relations, corporate finance and strategic
management planning. The Company also completed a private placement of
restricted securities, raising $500,000 in cash from two LFC affiliates, Messrs.
John M. Liviakis and Robert B. Prag, for 3,500,000 shares of Common Stock and
warrants to purchase an additional 1,600,000 shares, exercisable at $.01 per
share. This transaction entitled entrenet to a finder's fee under its consulting
agreement. For its fee, the Company ultimately agreed to issue entrenet 280,000
shares of Common Stock at such time as the shareholders approved an increase in
capital stock to at least 40,000,000 shares, which occurred as of February 6,
1998. The 280,000 shares were issued to entrenet and five members of entrenet as
of April 3, 1998. As of March 12, 1998, the Company entered into an Engagement
Agreement with entrenet to provide the Company with certain financial and
management advisory services. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Subsequent Events Agreement with
entrenet Group, LLC."
Following the Liviakis investment, the Company undertook a focused
effort to strengthen and broaden its management team. In early August 1997, the
Company retained Evon A. Kelly as its chief executive officer. Also in August,
the Company hired a vice president of sales, vice president of major accounts,
and in September added a chief financial officer. The Company then actively
recruited and hired marketing and sales personnel to support deployment on a
nationwide basis under the joint marketing program with major wireless carriers.
The retention of these people is expected to bring the necessary expertise to
implement the Company's business plan; however, at least in the near term, it
has increased expense levels above revenue.
As noted above, in August 1997, USWD and GTE Mobilnet entered into 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 significant operational and financial performance criteria
(including minimum airtime purchases) that must be met by the Company. During
the second quarter of fiscal 1998, USWD made significant investments to support
a nationwide deployment of TRANZ Enablers to merchants through GTE's national
sales force. Under this deployment program, the GTE sales representative
introduces USWD's credit card processing solution and TRANZ Enabler to the end
user merchant. Upon execution of a credit card processing agreement, a TRANZ
Enabler unit(s) is/(are) provided to the merchant by USWD. The Company retains a
portion of the monthly credit card fees based on the dollar volume and number of
transactions processed through the TRANZ Enabler. The Company's business model
is based on the manufacturing cost of the TRANZ Enabler being financed by a
third party. Although the Company has entered into an agreement with GTE Leasing
Corporation as of April 2, 1998 to finance product to be placed under the joint
marketing agreement with GTE Mobilnet, it has not entered into any other
agreements nor does it have any other arrangements to obtain additional
financing to fund inventory for placement with merchants. In addition, several
technical and legal requirements remain to be completed before the Company can
commence to draw funding under the GTE Leasing agreement. Consequently, to date
it has had to rely primarily on its working capital to procure product to be
placed with merchants and will continue to do so in certain cases. The monthly
financing cost and CDPD airtime expense are recorded as cost of sales against
the monthly recurring revenue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Subsequent Events - Agreement
with GTE Leasing Corporation."
As required under the agreement with GTE Mobilnet, 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, and expenses
to support this program have far exceeded revenue generated by the Company from
the deployment of Tranz Enablers under it to date. It is hoped that recent
actions by GTE will favorably impact the program. In March 1998 the
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<PAGE>
Company signed a similar sales and marketing agreement with Bell Atlantic Mobile
and anticipates adding additional personnel to support that agreement. By
leveraging the sales organizations of the major CDPD providers, the Company has
the potential to quickly reach a large number of merchants. As noted above, the
Company has CDPD air time agreements in place with AT&T Wireless and Bell
Atlantic Mobile and has selectively added sales personnel in these markets to
begin deployment of TRANZ Enabler units, although it does not presently have any
joint marketing agreements in place with these wireless providers. In the short
term, it can be expected that the costs to the Company of implementing joint
marketing and distribution agreements may exceed short term revenue generated by
the programs.
In October 1997, the Company signed an agreement with GoldCan
Recycling, Inc. to provide 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. Although the Company has successfully tested application of
its technology for use in this application, to date, no placements of TRANZ
Enablers have been placed with Goldcan.
To meet its working capital needs, between October and December 1997,
the Company obtained bridge loans from Liviakis Financial Communications, Inc.
for $475,000 pending completion of a private placement offering which it was
conducting at the time. Following the closing of the offering 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% Convertible Debentures, which were converted
to 3,060,000 shares of Series A Preferred Stock as of February 9, 1998. 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.
During the second quarter of fiscal 1998, the Company completed the
relocation of its customer support, administrative and accounting functions to
the Emeryville, California headquarters. The lease on the Wheat Ridge, Colorado
office has terminated. Engineering functions will remain at the Company's Palmer
Lake, Colorado facility.
Fiscal 1997 Compared to Fiscal 1996
Net sales of $1,315,542 for fiscal 1997 decreased from net sales of
$1,582,553 generated during fiscal 1996. Unit sales during both years were
approximately the same. The decrease in sales dollars is attributable to: a)
reductions in retail prices from one year to the next, and b) the product mix of
POS 50(R) versus POS 500 units.
Gross margins increased from a negative $1,303,879 in fiscal 1996 to a
positive $506,095 for fiscal 1997. This increase is attributable to a $1,525,000
write-down of inventories during fiscal 1996, resulting from declines in market
value of such inventories relative to cost, compared to the 1997 gross margin
which shows a significant increase due mainly to lower costs for the POS-50(R)
from a major supplier.
Selling, general and administrative expenses decreased from $1,365,235
in fiscal 1996 to $812,687 in fiscal 1997. This decrease was due primarily to:
a) headcount reductions in sales, marketing and administration from 1996
staffing levels reduced salary expense by approximately $182,000; b) legal
expense reductions in 1997 from the approximately $226,000 incurred in fiscal
1996 (related to class action lawsuits filed against the Company); and c)
significant reductions in bad debt expense, depreciation, royalty expense,
relocation expense, and rent expense.
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Research and development expense decreased from $458,407 in fiscal 1996
to $406,522 in fiscal 1997 due to lower occupancy expense and reduced staffing
in the second half of 1997. The 1996 loss from discontinued operations resulted
from the dissolution of Direct Data, Inc. in October 1995. the 1996
extraordinary gain is related to the restructuring of $3.4 Million of debt and
payables for Direct Data and an inventory supplier.
Three and Six Month Periods Ended December 31, 1997 and 1996
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 Mobilnet 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 participating in the program 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. However, until the Company is able to build a sufficient
base of placed units to generate adequate revenue to support operations, the
Company will require additional capital from outside sources. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition, Capital Resources and Liquidity," below.
Sales revenue during the 1997 period was also impacted by a shortage of
POS-50(R) units. The Company deferred a new inventory build pending completion
of the private placement financing. The Company had an order backlog of
approximately 200 POS-50(R) units as of December 31, 1997, which it was unable
to deliver due to a lack of financing for the inventory. Following completion of
the private placement funding, the Company initiated a new production run for
250 units. The POS-50(R) 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. Although the Company continues to offer and
sell the POS-50(R) units, with or without transaction processing, the Company
expects that sales of POS-50(R) units will likely diminish as a percentage of
overall revenue as the Company shifts to emphasizing its CDPD technology.
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.
Selling, general and administrative expense increased from $169,619 in
the second fiscal quarter of 1997 to $1,499,191 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 $2,281,632 in the current year. A
significant portion of the increase in both the three and six month periods
resulted from 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 $423,000 and $771,000 are
reflected in the second quarter and six month results, respectively, and include
the termination of the entrenet and Woolley consulting agreements entered into
during fiscal year 1997, and
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amortization of the Liviakis Financial Communications consulting services (see
Note 5 to the Financial Statements for the period ended December 31, 1997). 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 second fiscal quarter of 1998. This
decrease was due to one vacancy in the department, which has been subsequently
filled. For the six month period, research and development expense decreased
from $213,488 in the prior year to $173,014 in the current year. This was also
due to the headcount decrease and reduced occupancy expense.
Interest expense includes a $225,000 non-cash charge to interest
expense in the second quarter related to the private placement of 8% Convertible
Debentures. The convertible features of the Debentures include an "in-the-money"
convertible option that allows the holder to obtain shares of Common Stock at a
discount from market value. The value of the in-the-money provision has been
allocated to stockholders' 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 occurred as
of February 9, 1998.
Financial Condition, Capital Resources and Liquidity
- ----------------------------------------------------
The Company continues to have significant problems due to its financial
condition and lack of liquidity. While management is optimistic with its medium
and long term opportunities, the Company is constrained by its immediate
financial condition and requirement for increased liquidity. The Company has
accumulated a deficit of approximately $19.5 Million since inception to December
31, 1997. The Company's CDPD based products, the GTE joint marketing and
distribution agreement, pending distribution agreements (if realized) and the
transition to a recurring revenue focus present an opportunity for significant
revenue growth, eventual profitability, and the generation of positive cash flow
from operations. At present, however, development of the Company's
infrastructure and expansion of the sales and marketing organization requires
immediate, additional financing. Proceeds from the recently completed private
placement offering have been used primarily to complete the launch of the joint
marketing program with GTE Mobilnet, to build the related corporate
infrastructure and to make selective inventory purchases.
Based on current staffing levels, the Company's expenditures are
running at a monthly rate of approximately $450,000. In order to meet its
obligations under its agreement with Bell Atlantic Mobile, the Company will
require additional sales personnel and, as further described below, the ability
to fund inventory that may be needed for product to be placed under that
agreement. This will further increase the Company's expenditures over present
levels. As a result, execution of the Company's business plan is dependent on a
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 8% Convertible Debentures (now Series A
Preferred Stock) for the 150-day period following the December 10, 1997 closing
of that offering. The inability of the Company to secure additional financing in
the near term could adversely impact the Company's financial position, including
its ability to continue as a going concern.
In an attempt to finance a portion of its inventory requirements, the
Company engaged in discussions with GTE Leasing Corporation for some time
regarding a program to fund the manufacture of TRANZ Enabler units which are
deployed and to be deployed through the joint USWD and GTE Mobilnet marketing
agreement. As described below in this discussion under "Subsequent Events," the
Company entered into this inventory
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financing agreement with GTE Leasing Corporation as of April 2, 1998 and is
presently completing certain technical and legal requirements to finalize the
agreement and begin to draw funding thereunder. Third-party financing of TRANZ
Enabler units is a required element of the Company's business model and it is
likely that the Company will have to 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations Subsequent Events - Agreement with GTE Leasing
Corporation," below.
In order to satisfy a portion of its immediate short term capital
requirements the Company has entered into an agreement with a shareholder to
allow the Company to assign to third parties, options it has held since 1995, on
367,684 shares of the Company's Common Stock owned by that shareholder, which
the Company has the right to purchase at $.25 per share. The Company anticipates
that it will sell and assign these options to accredited investors in blocks of
no less than 50,000 shares between the present time and October 5, 1998, the
date on which its option expires. The amount of cash that may be provided to the
Company through this source is not readily determinable, as it will vary
depending on the market price of the Company's Common Stock at the time the
Company sells each option. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Subsequent Events - `Agreement
with Richard P. Draper and Tillicombe International LDC' and `Purchases of Call
Options by RBB Bank Aktiengesellschaft,'" below.
Inventory increased from $208,867 as June 30, 1997 to $634,938 at
December 31, 1997. Approximately $225,000 of this increase was for TRANZ Enabler
inventory, with the remaining portion being for components needed to initiate
new builds of POS-50(R) and POS-500 units. This inventory was purchased directly
by the Company. The Company's business plan calls for all TRANZ Enablers to be
financed through third party financing sources. While the Company continues to
seek inventory financing from external sources the Company has not yet obtained
such financing.
Subsequent Events
- -----------------
Actions Taken at Annual Meeting of Shareholders on February 6, 1998
On February 6, 1998, the Company held its annual shareholder meeting.
All proposals submitted to shareholders, as described in the Proxy Statement for
that meeting, were passed. Five directors were elected. See "Management."
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, of which
4,000,000 were designated as Series A Preferred Stock. See "Description of
Securities - Series A Preferred Stock." 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. See "Management - Executive Compensation - Stock Option Plan."
Agreement with Richard P. Draper and Tillicombe International LDC
Richard P. Draper was the principal shareholder of a company called
Direct Data, Inc., a distributor of POS-related products ("Direct Data"), which
the Company acquired in 1994. In conjunction with the acquisition of Direct
Data, Mr. Draper was issued a total of 397,684 shares of the Company's Common
Stock. The acquisition did not create the synergies that were hoped for and in
October 1995, the Direct Data assets were surrendered to Mr. Draper, as Direct
Data's secured creditor, in lieu of the creditor's foreclosure on a past due
$1.31 Million obligation. Direct Data was left with no assets, ceased
operations, and was dissolved on October 19, 1995. In conjunction with that
transaction, Mr. Draper entered into an agreement with the Company effective
until October 5, 1998, pursuant to which he granted the Company the right to
vote his 397,684 shares in its discretion and to purchase those shares for $.25
per share (the "Call Option").
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<PAGE>
As of March 12, 1998, the Company entered into an agreement with Mr.
Draper and his assignee of the shares, Tillicombe International, LDC
("Tillicombe") by which Mr. Draper and Tillicombe agreed to allow the Company to
assign its rights in the Call Option to a third party in return for payment to
Tillicombe of $25,000 and the release of the Company's voting and rights in the
Call Option as to 30,000 of those shares. the Company thereby acquired the right
to assign the Call Option as to the remaining 367,684 shares. Under the
agreement, the Call Option terminates as to any portion that has not been
exercised by October 5, 1998. See "Purchases of Call Options by RBB Bank
Aktiengesellschaft," immediately below.
Purchases of Call Options by RBB Bank Aktiengesellschaft
Through April 30, 1998, the Company has assigned its Call Option on
200,000 shares owned by Richard Draper's assignee, Tillicombe (as described in
the foregoing paragraph) to RBB Bank Aktiengesellschaft, the agent which owns
1,600,000 shares of the Company's Series A Preferred Stock. RBB Bank purchased
the Call Option in four increments of 50,000 share options each, and has paid
the Company 85% of the average last sale price of the underlying shares over the
five days prior to the date of acquiring the Call Option, less the Call Option
exercise price of $.25 per share. In each transaction, RBB Bank must pay the
acquisition price for the Call Option, as well as the exercise price to
Tillicombe prior to taking delivery of the shares. See "Selling Security
Holders."
Agreement with entrenet Group, LLC
As of March 12, 1998, the Company entered into an agreement with
entrenet Group, LLC ("entrenet") to provide business and financial consulting
services to the Company and to assist the Company in locating additional
financing. The term of the agreement is for six months from March 12, 1998 and
renews for additional six month terms unless at least 60 days notice is given to
terminate the agreement prior to the end of a term. For its advisory services
under the agreement, entrenet will receive a fee of $60,000, payable in the form
of a promissory note bearing 10% interest, due on or before the earlier of March
11, 1999, or the receipt by the Company of aggregate gross proceeds from
financings of $2,000,000. In addition, entrenet received a Common Stock Purchase
Warrant to purchase 10,435 shares at $5.75 per share, exercisable until March
11, 2003. Upon the consummation of any financing transaction entered into by the
Company during the term of the agreement (with the exception of financings from
certain identified, excluded sources) or for two years after termination with
respect to any financing obtained from a source introduced to the Company by
entrenet, or if entrenet assists the Company in locating an executive-level
candidate who is hired by the Company, entrenet is entitled to compensation
under the agreement. See "Certain Transactions - Transactions with entrenet
Group, LLC."
Agreement with GTE Leasing Corporation
On April 2, 1998 the Company entered into a Loan and Security Agreement
with GTE Leasing Corporation to fund the manufacture of TRANZ Enabler units by
Wellex which are or will be deployed through the GTE Mobilnet joint marketing
agreement. The agreement with GTE Leasing is in the form of a revolving credit
facility in the maximum amount of $1,200,000. GTE Leasing will pay the Company a
fixed amount for each TRANZ Enabler unit manufactured by Wellex for placement
under the GTE Mobilnet joint marketing agreement. At approximately $400 per
unit, the Company has the ability to finance up to 3,000 TRANZ Enabler units at
any one time under this agreement. The Company expects that repayment of the
amounts financed under the credit facility will be made from the recurring
revenue generated by the units placed under the GTE Mobilnet joint marketing
agreement. However, the Company is primarily obligated to repay all amounts
owing under the credit facility, irrespective of whether processing revenues are
sufficient to pay such amounts. To secure payment under the agreement the
Company has granted GTE Leasing a security interest in the units and the
processing revenues from those units. The Company also entered into a Notice,
Consent and Agreement between itself, NOVA Information Systems, Inc. ("NOVA")
and GTE Leasing which acknowledges
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<PAGE>
the obligation of NOVA to pay GTE Leasing directly from amounts owed to the
Company by NOVA for amounts owing by the Company to GTE Leasing under the credit
facility. The agreement with GTE Leasing is terminable on certain defined events
of default, including the failure to pay any installment within ten days of its
due date and for other events of default which remain unremedied for ten days
after notice is given to the Company by GTE Leasing. The Company is presently
finalizing several technical and legal requirements that must be completed
before it can begin to draw funds under this agreement.
Settlement of Claims of Certain Noteholders
In early April 1998, the Company settled certain claims by purchasers of
$135,000 (out of a total of $185,000) of convertible demand notes which the
Company issued from April through June, 1997. Without admitting liability, the
Company settled the complaining noteholders' claims by agreeing to issue 1.4
times the number of shares originally issuable as principal and interest on the
notes (plus an additional 11,000 shares to one of the noteholders who purchased
an aggregate of $50,000 of the notes) and providing the noteholders with certain
guarantees as to the amount for which the shares can be resold (with the
difference to be made up by the Company) and a five-day "put" which allows the
noteholders to require the Company to repurchase any shares remaining unsold at
the end of the period ending one year after the shares become saleable under SEC
Rule 144 for a certain price, subject to certain conditions. A total of 525,800
shares have been issued to these noteholders upon conversion of their notes. Of
that number, 360,800 of the shares were given a $3.00 per share guarantee and
put and 165,000 of the shares were given a $4.29 per share guarantee and put.
The Company also settled a claim concerning an additional $16,825 promissory
note that was issued to one of the holders of the $135,000 of notes described
above, by issuing 18,507 shares of Common Stock; these shares were not given any
guarantee or put. Finally, the holder of the other $50,000 note will be given
the enhanced conversion rate but will not be offered the guarantee or put and
the Company anticipates that it will issue 154,000 shares of Common Stock upon
conversion of that $50,000 note. As a result of this settlement, the issuance of
"premium" shares will be recorded as a litigation settlement expense and result
in a charge to operations of approximately $900,000 in the Company's fiscal 1998
third quarter results. See "Risk Factors - `Risks Involving the Company and Its
Business - Settlement of Claims of Certain Holders of Convertible Demand Notes,'
`Risks Relating to the Company's Securities - Market Overhang; Registration
Rights; Possible Effect on Market for the Company's Common Stock"and "Business -
Legal Proceedings - Settlement of Claims of Certain Noteholders."
Year 2000 Issues
- ----------------
The Company has not completed a comprehensive review of impact of the "Year
2000" issue on the Company's business. This issue concerns 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 the Company's 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. The Company has therefore not yet determined what impact,
if any, the Year 2000 problem may have on its operational needs, financial
results or financial condition/liquidity.
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BUSINESS
--------
Company Overview
- ----------------
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.
The Company's first product, known as the POS-50(R), was the world's first
integrated wireless credit card and check authorization terminal using cellular
communication technology. The POS-50(R) is certified to operate on the major
credit card transaction processing networks and is presently being marketed in
the U.S. by a variety of Independent Sales Organizations ("ISOs"), cellular
service providers, and directly by the Company. The POS-50(R) allows a merchant
to electronically capture a credit card, debit card or check transaction at the
point of sale virtually anywhere cellular voice service exists and complete the
authorization process in approximately 16-18 seconds. Because of its portable
and wireless nature, the POS-50(R) is well suited for the small to medium sized
mobile retailer or service company. Examples of current POS-50(R) customers
include craft show vendors, sporting event concessionaires, towing services,
cart and kiosk vendors and essentially any business on the go that wants to
safely accept credit cards, debit cards or checks for their products and
services. With over 4,000 POS-50(R) terminals in the marketplace, the Company is
recognized as the leader in providing wireless terminal transaction equipment
for the mobile marketplace. The POS-50(R) product accounted for most of the
sales recorded in fiscal year 1997.
Over the past three years, USWD has focused its product development efforts
on incorporating Cellular Digital Packet Data (CDPD) technology into its product
lines. CDPD is a high speed digital packet data, internet protocol (IP) based
technology that operates in parallel with current cellular voice networks. It is
designed for high speed encrypted data transmission over the air-link and will
not interfere with or degrade cellular voice traffic. 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 can have
significant performance and communication cost advantages when compared with the
traditional dial-up terminals currently being sold in the U.S. market today. The
Company now offers two new CDPD products (POS-500 & TRANZ Enabler) that reduce
the current authorization time for a credit or debit card transaction from
approximately 15 seconds to 3 to 5 seconds.
The most significant new USWD product is the TRANZ* Enabler, which allows
current Verifone TRANZ(R) 330 or TRANZ(R) 380 users to immediately convert their
terminals and printers from a land-line telephone dial-up mode to a high-speed
wireless mode of operation. By effecting this technological upgrade, the cost of
dedicated telephone lines is eliminated as are the delays created by busy
telephony networks during peak periods of authorization activity. Furthermore,
the efficiencies created by adopting the CDPD technology and USWD's alliance
with a major transaction processor has enabled the Company to develop a pricing
schedule which lowers transaction and/or discount(s) rates from what most
retailers are currently paying to handle credit and debit card transactions. The
TRANZ Enabler was introduced in pilot mode in March of 1996 and is directed at
the existing U.S. installed base of more than 3.5 million TRANZ(R) 330 and
TRANZ(R) 380 terminals.
*TRANZ is a registered trademark of Verifone, Inc.
The second CDPD product created by the Company is the POS-500, a
self-contained card terminal and printer that provides the same mobility
features of the POS-50(R) product and also incorporates the processing benefits
of the TRANZ Enabler. The unit is geared for the user who either does not have a
dial-up terminal/printer in place or requires the advantages of the CDPD
technology in a mobile application. This product was introduced in pilot mode in
January of 1996.
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In mid fiscal year 1997, the Company made a fundamental decision to change
the manner in which it generates revenue. If successfully implemented, this
decision will transform the Company from 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. In January, 1997 the Company executed a Member Service
Provider ("MSP") agreement with NOVA Information Systems ("NOVA"), the nation's
7th largest credit card transaction processor. The Company also entered into a
"Merchant Marketing and Services Agreement" with National Bank of Commerce
("NBC") as of March 9, 1998, under which the Company also became an ISO/MSP of
NBC and can thereby offer NBC's transaction processing services to merchants,
subject to final approval of each merchant by NBC. Once a merchant is accepted
by the processing company the Company sets up point of sale access, including
maintenance of electronic terminal hardware and other equipment, and must also
supply the merchant with training, supplies, program information and other
services related to the program. These MSP agreements allow U.S. Wireless Data
to earn revenue on each card swipe and every dollar processed by merchants
enrolled by the Company. See "Business - Transaction Processing Agreements,"
below.
The Company's strategy also involves the entry of CDPD cellular service
resale agreements with major CDPD service providers. To date, USWD has signed
agreements with GTE Mobile Communications Service Corporation and certain
related entities ("GTE Mobilnet"), AT&T Wireless Services (AT&T Wireless") and
Bell Atlantic Mobile. The net result of the NOVA and NBC MSP agreements, the
Company's new CDPD products, and becoming a national reseller of CDPD service
positions the Company to offer high performance transaction processing services
at competitive discount rates. These relationships are significant in USWD's
strategy of providing high performance, low cost transaction processing services
to the merchant base.
Another key element of USWD's strategic direction is to establish close
alliances with large communications carriers such as GTE, Bell Atlantic, AT&T
Wireless and others. The Company has to date entered into agreements for CDPD
airtime purchase by the Company with GTE Mobile Communications Service
Corporation, on its behalf and on behalf of GTE Mobilnet Incorporated, Contel
Cellular Inc. and their respective affiliates (collectively "GTE Mobilnet"),
Cellco Partnership, by its general partner Bell Atlantic/NYNEX Mobile, Inc.,
which does business as Bell Atlantic Mobile ("Bell Atlantic Mobile") and AT&T
Wireless Data, Inc., doing business as AT&T Wireless Services ("AT&T Wireless").
In addition to these CDPD service provider agreements, the Company has also
entered into joint marketing agreements with both GTE Mobilnet (as of August 1,
1997) and Bell Atlantic Mobile (as of March 23, 1998) to market the Company's
TRANZ Enabler and processing services through GTE Mobilnet and Bell Atlantic
Mobile's commercial and major account sales forces in all of those company's
CDPD markets. The Company has established a sales and support organization to
provide local support for more than 300 GTE Mobilnet and is in the process of
building a similar sales organization for approximately 300 Bell Atlantic Mobile
sales representatives. The Company has specific, significant commitments under
these CDPD airtime and joint marketing agreements, including minimum CDPD
airtime purchase obligations to GTE Mobilnet and AT&T Wireless, and staffing and
inventory delivery requirements to fulfill its obligations under the joint
marketing agreements with GTE Mobilnet and Bell Atlantic Mobile. See "Business -
Marketing and Distribution Arrangements for the Company's Products and Related
Services" below.
History of the Company
- ----------------------
As noted above, the Company was incorporated in July 1991. It went public
in December 1993, raising a total of approximately $12,200,000 of net proceeds
through the sale of 1,650,000 shares of Common Stock. The Company's focus until
1997 has been as a "box" maker and seller. It attempted to sell a sufficient
number of its cellular data processing products to earn a profit. Unfortunately,
it was never able to do so on that basis and in 1997 management made the
fundamental shift described above to transition the Company into a position
where it can earn recurring revenue from the data processing products it places
with merchants.
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Recent Significant Securities Issuances
- ---------------------------------------
Private Offerings of Securities in Spring and Summer, 1997
Sale of Demand Notes. From April through June 1997 the Company issued a
total of $185,000 of Demand Notes payable in full on or before April 11, 1998
(the "Notes"). The principal and accrued interest on the Notes became
convertible into shares of the Company's Common Stock as of November 1, 1997 at
prices of $.35 per share (as to $75,000 of the Notes) and $.50 per share (as to
$110,000 of the Notes). Commencing on November 3, 1997, the Company began
receiving conversion demands from certain of the Noteholders and as of November
14, 1997, holders of $135,000 of the Notes had demanded conversion of their
Notes into Common Stock, at the same time insisting that the Company issue
"free-trading" shares to them. The Company settled the claims of these
Noteholders in April 1998 by agreeing to issue 1.4 times the total number of
shares originally issuable pursuant to the terms of the Notes and providing the
Noteholders with certain guarantees and a "put option" which allows the
Noteholders to require the Company to repurchase the shares under certain
limited circumstances. The shares into which the Notes are convertible become
saleable under SEC Rule 144 commencing in the Spring of 1998, one year from the
dates on which the Notes were issued. The Company has or will issue a total of
698,307 shares of Common Stock in conversion of the Notes. See "Business - Legal
Proceedings - Settlement of Noteholder Claims."
Issuance of Securities as Consulting Fees. In late fiscal 1997, the
Company was at a critical phase in terms of its very survival. In order to
attempt to reorganize its business and obtain financing, the Company first
entered into a consulting agreement with a business consulting company called
entrenet Group, LLC, of Santa Rosa, California, pursuant to which entrenet
assisted the Company in reorganizing its objectives and preparing a new business
plan. The Company paid entrenet for its services by issuance of a $150,000
convertible promissory note due June 3, 1998. Entrenet then introduced the
Company to Liviakis Financial Communications, Inc. ("LFC") and two of its
affiliates, Messrs. John M. Liviakis and Robert B. Prag. The Company retained
LFC to serve as its investment relations counsel under a consulting agreement
effective as of July 25, 1997. A nominal consulting fee is payable to LFC under
the consulting agreement and a total of 300,000 shares of Common Stock is
issuable pursuant to the consulting agreement with LFC, 225,000 shares to LFC
and 75,000 shares to Mr. Prag.
Issuance of Securities To Messrs. Liviakis and Prag. In addition,
Messrs. Liviakis and Prag agreed to personally invest $500,000 in the Company in
return for 3,500,000 shares of Common Stock and warrants to purchase an
additional 1,600,000 shares of Common Stock at $.01 per share. Under its
consulting agreement with entrenet, the Company had agreed to pay entrenet a
finder's fee for all financing located by entrenet. To honor that obligation,
the Company agreed to issue a total of 280,000 shares of Common Stock to
entrenet at such time as the shareholders of the Company approved an increase in
the number of authorized shares of Common Stock to no less than 40,000,000. That
approval occurred on February 6, 1998, and the Company issued the 280,000 shares
to entrenet and five assignee members of entrenet as of April 3, 1998.
The Company also agreed to register the shares owned by and issuable to
entrenet, LFC and Messrs. Liviakis and Prag and such shares are included in the
registration statement of which this Prospectus is a part, although LFC and
Messrs. Liviakis and Prag have agreed not to sell any of their shares until at
least August 1, 1998, even though those shares are being registered at this
time. See "Certain Transactions," "Security Ownership of Principal Shareholders
and Management" and "Selling Security Holders."
Private Offering of 8% Adjustable Rate Convertible Subordinated
Debentures Due December 31, 1999. To satisfy its short term needs for capital,
the Company closed a private offering of $3,060,000 principal amount of 8%
Adjustable Rate Convertible Subordinated Debentures Due December 31, 1999 (the
"8% Convertible Debentures") on December 10, 1997. The net proceeds to the
Company from the offering were
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approximately $2,700,300, after paying finder's commissions of $290,700 and
additional expenses of the offering, which approximated $69,000. The Company is
using the proceeds from the offering primarily as working capital to fund the
national launch of its proprietary wireless transactions processing solutions
and to repay existing obligations. The 8% Convertible Debentures converted to
3,060,000 shares of Series A Preferred Stock as of February 9, 1998. The Series
A Preferred Stock is further convertible at the option of the holder into shares
of Common Stock effective upon the earlier of (i) a declaration of effectiveness
by the Securities and Exchange Commission (the "SEC") of a registration
statement covering the shares of Common Stock into which the Series A Preferred
Stock are convertible (the "Common Stock Registration Statement") or (ii) 150
days from December 10, 1997. Based on a face value of $1.00 per share of Series
A Preferred Stock, the rate at which the Series A Preferred Stock is convertible
into Common Stock (the "Conversion Price") is equal to the lesser of (i) $6.00
per share of Common Stock or (ii) 80% of the average of the closing bid price of
the Common Stock over the five trading days prior to conversion. The Conversion
Price is no less than $4.00 per share of Common Stock for 270 days from December
10, 1997 (the "Minimum Conversion Price"). After that 270 day period, the
Minimum Conversion Price is no longer applicable. The Common Stock into which
the Series A Preferred Stock is convertible (together with shares of Common
Stock that were issued as interest on the 8% Convertible Debentures and which is
issuable as dividends on the Series A Preferred Stock) is included in the shares
offered for sale pursuant to the Registration Statement of which this Prospectus
is a part. See "Description of Securities - Series A Preferred Stock" and
"Selling Security Holders."
Direct Data Acquisition and Dissolution
During fiscal 1995, the Company acquired all of the outstanding shares
of Direct Data, Inc., a distributor of POS-related products. The acquisition did
not create the synergies that were hoped for and in fiscal 1996, the Direct Data
assets were surrendered to Direct Data's secured creditor in lieu of the
creditor's foreclosure on a past due $1.31 Million obligation. Direct Data was
left with no assets, ceased operations, and was dissolved on October 19, 1995.
As a result of the surrender of Direct Data's assets in settlement of the $1.3
million obligation and the dissolution of Direct Data in fiscal 1996, the
Company recognized a gain on restructuring of payables and debt of $2,332,411.
Industry Overview
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Credit and Debit Card Industry
Americans reached for their plastic credit and debit cards over 32
billion times to purchase over $800 billion in goods and services in 1995,
however, nearly 80% of all retail payments were non-electronic. Credit card and
debit card purchases are growing at a rate of 16% annually with volumes expected
to reach $1 Trillion in 1997. Recent studies have indicated that consumers spend
30% more per transaction when using credit cards than when using cash or checks.
The proliferation in the uses and types of credit, charge, stored-value and
debit cards, rapid technological advances in transaction processing and
financial incentives offered by credit card associations and issuers have
contributed greatly to wider merchant acceptance and increased consumer use of
transaction cards.
Unfortunately, fraud is also on the rise and as a result, merchant
acquirors, transaction processors and card issuers are trying to minimize their
losses by offering incentives and requiring merchants to utilize electronic
draft capture ("EDC") terminals to conduct on-line credit and debit card
transactions. An EDC terminal magnetically reads the encoded account information
from the magnetic strip on the back of a credit or debit card and sends it to a
transaction processor for electronic on-line authorization. The transaction
processor authorizes the card with the issuer, electronically captures the
transaction, generates an approval code and returns the data to the terminal,
which prints a customer receipt. Presently, the majority of EDC terminals
communicate with the transaction processor via a telephone or leased line. This
dial-up type transaction process takes approximately 10 - 30 seconds to
complete. At the end of the business day, the EDC terminal dials the
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transaction processor to initiate the settlement, collection and electronic
deposit of funds to the merchant's local bank account. Losses from fraudulent
cardholder use where no authorization was obtained at the retail point of sale
are electronically "charged back" to the merchant.
Payment acceptance guidelines have been introduced by Visa that require
a merchant to comply with specific procedures in order to receive the lowest
transaction processing fees or discount rates. These requirements include: (1)
the presence of the bank card at the point of sale, (2) transmission of all data
encoded on the card's magnetic strip, and (3) settlement within two days of the
authorization. If any one of these requirements is not met, the merchant is
penalized with a higher discount rate and a surcharge is applied to each
transaction not complying with the new requirements.
Transaction Processing Industry
The transaction processing industry is characterized by a small number
of large transaction processors that primarily focus on servicing large
merchants and by many smaller transaction processors that provide a limited
range of services to small-to-medium sized merchants. Large merchants (i.e.
those with multiple locations and high volumes of card transactions) typically
demand and receive the full range of transaction processing services as well as
customized information services at low per-transaction costs. By contrast,
small- to-medium sized merchants historically have not been offered the same
level of services as large merchants and have incurred relatively higher
per-transaction costs. The growth in card transactions and the transition from
paper-based to electronic transaction processing have caused small-to-medium
sized merchants increasingly to demand sophisticated transaction processing and
services similar to those provided to large merchants.
Transaction processing services are marketed and sold to the
small-to-medium sized merchant market segment primarily by community and
regional banks and Independent Sales Organizations (ISOs) that outsource all or
a portion of the transaction processing services they offer. The costs to
convert from paper-based to electronic processing, merchant requirements for
improved customer service, and demands for additional customer applications have
made it difficult for community and regional banks and ISO's to remain
competitive. As a result, transaction processing continues to undergo rapid
consolidation in recent years. The industry remains fragmented with respect to
the number of entities providing merchant services and the economic factors are
expected to drive additional consolidation of transaction processors.
Check Payment Industry
Checks are still the American consumers second favorite way to pay for
purchases, behind cash. Americans wrote 60 billion checks last year. Of
approximately $3 trillion worth of retail purchases nationwide, almost $700
billion were paid by check, of which approximately $13 billion were returned
unpaid for insufficient funds or other reasons.
Nationwide, the number of bad checks is increasing. The cost of
insufficient funds checks often leads merchants either to refuse to accept
checks or to utilize check verification and guarantee services. Check
verification or guarantee services require the merchant to magnetically read the
MICR line of a check or hand key certain information into an EDC terminal which
communicates with a database maintained and operated by the verification
service. If the check is approved, an approval code is generated and sent back
to the terminal to complete the check verification or guarantee.
The Company's Products
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The Company manufactures a line of wireless point-of-sale ("POS") terminals
and wireless enabling products that allow a merchant to safely accept credit and
debit cards virtually anywhere cellular and/or CDPD service is available. The
Company's products comply with the recent payment acceptance guidelines and
allow a merchant to qualify for the lowest discount rates when processing credit
and debit card transactions.
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The Company's wireless terminal and enabling products also can be
applied to expand check verification services to mobile and fixed retail
merchants where phone lines are either not available or too slow and expensive,
and the risks of accepting checks are high.
In addition, the Company has successfully adapted its terminals to
provide data processing capabilities to a Texas based company which processes
club membership verifications for customers of establishments serving alcoholic
beverages and for a recycling container company which is using the terminals to
monitor its unmanned aluminum recycling containers. See "Business - Marketing
Arrangements for the Company's Products and Related Services."
Initial Product Line - The POS-50(R)
The Company's first product, known as the POS-50(R), is the first
fully-integrated, wireless portable credit/debit card authorization and check
verification terminal. It is packaged in a compact, lightweight design which
includes an ergonomic handle for maximum portability. The battery operated
POS-50(R) uses a proprietary printed circuit board module to integrate a 3-watt
cellular transceiver, credit card terminal, rechargeable battery and a printer.
The POS-50(R) has been in the U.S. market since January 1994, and addresses the
mobile retail sales and service marketplace. A merchant can utilize the
POS-50(R) to safely accept and process a credit or debit card transaction
anywhere cellular voice service is available. With the cellular handset, the
terminal can also be used as a cellular telephone. The POS-50(R) may be operated
in a vehicle, at a weekend craft show or similar temporary locations, can be
carried from site-to-site or can be used at a fixed location. When a phone line
is available, intelligent circuitry recognizes the connection to a phone line
and automatically transmits data by telephone line without using the cellular
transceiver, thereby reducing cellular charges.
New Products
POS-500 - During the third quarter of fiscal 1996, the Company
introduced two new products utilizing CDPD technology. The Company's first CDPD
product, known as the POS-500, is a fully integrated EDC terminal, receipt
printer and CDPD wireless modem that allows a merchant to complete a credit or
debit card transaction in less than 5 seconds. The POS-500 is designed to target
the traditional small-to-medium sized retailer. Because response times are 3-5
times faster than dial-up terminals, and per-transaction communication costs are
competitive with current dial-up costs, the POS-500 can compete favorably and
eventually replace dial-up credit card terminal technology in areas where CDPD
service is available. The POS-500 has been deployed with a number of small to
medium sized retailers as well as some high profile customers such as Villanova
University, The Houston Astrodome and some of the AT&T Wireless retail stores.
TRANZ Enabler - The TRANZ Enabler, which is described in detail above,
was also released in test mode during the third fiscal quarter of 1996, and was
designed to enable the existing installed base of Verifone TRANZ(R) 330 or 380
dial-up terminals to operate over the CDPD network resulting in high speed, low
cost transaction processing for the retail marketplace. The TRANZ Enabler
connects to the printer port of the TRANZ(R) 330 or 380 terminal and utilizes
power from the credit card terminal power supply. The TRANZ Enabler features a
printer port for connection to a receipt printer and can complete a credit or
debit card transaction in less than 5 seconds. In addition to credit and debit
card transactions, the TRANZ Enabler has recently been successfully tested in an
Electronic Benefit Transfer (EBT) application, a College student card
application and a vending machine application.
The Company's new CDPD products and transaction processing services
benefit merchants in the following ways:
Faster Transactions. A CDPD-enabled credit card authorization is 3 to 4
times faster than a transaction completed via a telephone line. A CDPD-enabled
credit card transaction bypasses the local telephone and
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interexchange carrier networks resulting in faster transactions and fewer delays
due to busy telephony networks and inefficiencies. The TRANZ Enabler and POS-500
can complete a credit card transaction in less than 5 seconds. Faster
transactions afford the merchant the ability to process more business in a given
period of time while improving customer convenience and satisfaction.
Lower Transaction Fees. Because of the ability to bypass the
traditional telephony networks and the costs associated with them, the Company
can often offer its customers lower transaction fees and discount rates.
Favorable buy rates under the NOVA MSP agreement also contribute to the
Company's ability to offer competitive rates. Lower transaction fees and
discount rates are a key component in the merchant's decision making process
when evaluating a transaction processing relationship that can have a positive
effect on a merchant's bottom line.
Increased Sales. Consumers often make purchases when they have no cash
on hand if the merchant accepts credit cards or checks. Research indicates that
when customers have the option to use a credit card, they spend 30% more per
transaction. Merchants that accept alternative methods of payment such as
credit/debit cards or checks believe such alternative methods provide a
competitive advantage over merchants who do not.
Controls Bad Debt. All of the Company's products allow a merchant to
obtain an on-line authorization and electronically capture each credit card
transaction. Once the customer's credit card transaction has been electronically
authorized, an approval code is assigned and funds are electronically "captured"
(i.e., reserved to pay for the authorized transaction). Since each transaction
begins by swiping the credit card through the terminal's magnetic card reader,
there is a significant reduction in the risk of fraud loss due to lost, stolen,
overextended, or physically-altered credit cards. Debit or ATM transactions
require that the customer keys in a personal identification number ("PIN") to
complete a transaction. Debit or ATM transactions cannot be reversed or charged
back to a merchant thereby further reducing bad debt. Losses from insufficient
checks are collected or guaranteed by check service companies under a separate
fee agreement with the merchant.
Improves Cash Flow. Once funds have been authorized and electronically
captured and the settlement procedure initiated, they are transferred
electronically to the merchant's local bank account. When compared to paper
submission of credit card transactions, the Company's products expedite the
funding process by electronically depositing the day's credit card transactions
into the merchant's local bank account usually within 24 to 48 hours.
Overview of Cellular Technology
Circuit Switched Cellular, CDPD, and EDC Terminal Technology
The Company's products integrate circuit-switched cellular, CDPD, and
credit card terminal technology to access credit card, debit card and check
verification services. The POS-50(R) terminal can be used anywhere advanced
mobile phone service (AMPS) cellular service is available. Upon card swipe, and
once the sales amount is entered via the terminal keypad, the cellular
transceiver acquires a cellular channel and transmits the data over the air
waves to a cell site, which is connected to a mobile telephone switching office
(MTSO) and then connected to the public switched telephone network (PSTN). The
call is then routed over one of several inter-exchange carriers (IEC's) to the
transaction processor. Once an authorization is obtained, a corresponding
approval code is returned to the terminal, which prints a duplicate customer
receipt and electronically captures the entire transaction data. A check
authorization utilizes essentially the same technology and communication path,
but authorizes the check data with a negative file maintained by a check
verification or guarantee company.
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The CDPD products, including the TRANZ Enabler and POS-500, utilize
dedicated CDPD channels to transmit high speed, encrypted credit card
authorization from the merchant location to the nearest CDPD cell site which
routes the data to the local mobile data intermediate system (MDIS) which then
routes the transaction to NOVA via a leased line or frame relay connection. Once
the transaction is authorized, the response is returned to the terminal in less
than 300 milliseconds. The CDPD protocol is based on internet protocol (IP) and
each terminal and authorization host has its own unique IP address. The CDPD
infrastructure includes a network of routers that direct the data to the
appropriate IP addresses. A CDPD enabled terminal is essentially on-line with
the transaction processor whenever it is powered up.
Cellular Communication Networks
Presently there are cellular communication networks providing coverage
in over 700 metropolitan statistical area ("MSA") and rural service area ("RSA")
markets in the U.S. It is estimated that the present cellular service footprint
covers 95% of the U.S. population. The POS-50(R) can be used in any area where
cellular voice-grade coverage is present.
With approximately 20,000 cellular phones being sold each day, cellular
voice technology is rapidly becoming a commodity service. To support this type
of explosive growth, the cellular carriers are spending a substantial part of
their revenues to expand capacity by upgrading their infrastructure with new
digital technology. The Company believes the cellular carriers are now focusing
on incremental revenue streams, including wireless data transmission. Wireless
data can be transmitted over the same cellular infrastructure as voice. It has
been estimated that, by the year 2000, as much as 30% of cellular revenues will
be derived from data transmission.
Wireless Data Networks
There are several land-based wireless data networks currently providing
regional and national data services in the U.S. market. Listed below are several
networks the Company perceives as current and potential future carriers of POS
data traffic. USWD continuously monitors and evaluates this technology to
determine feasibility, and applicability for POS data transmission.
Cellular Digital Packet Data (CDPD). The Company believes that CDPD is
the superior wireless data technology for transaction processing. Presently over
260 metropolitan statistical areas have CDPD service provided by AT&T Wireless
Services, Bell Atlantic Mobile, GTE Wireless, Ameritech Cellular and 360
Communications, and an aggressive deployment schedule is expected to continue
throughout the U.S., Canada and Latin America. Despite the widespread presence
of CDPD networks, there are presently two major markets that do not have
operating CDPD networks - Los Angeles, California and Atlanta, Georgia.
CDPD appears to be fast becoming the standard protocol for transmitting
data over a cellular network and presently covers approximately 70% of the
retail marketplace. Because of the encrypted packet data and IP (internet
protocol) nature of CDPD technology, CDPD-enabled POS terminals can out-perform
traditional dial-up terminal technology operating over public switched telephone
networks. A CDPD network provides high speed (19.2 bps) wireless access between
a CDPD-enabled POS terminal and a transaction processor, effectively bypassing
local phone line service and the monthly costs associated with it. The result of
utilizing CDPD technology is sub-5 second authorization response times at lower
than dial-up rates. In addition to fast, secure and low transaction costs, the
merchant can also eliminate the monthly recurring cost of a dedicated phone
line, which averages between $30-40 per month. However, the Company recommends
that at least one dial-up line be maintained as a back up in the event that a
CDPD network interruption occurs.
Digital Cellular. Present cellular networks consist of digital and analog
technology. There are two digital voice technologies competing for market
acceptance and dominance: Code Division Multiplexing Access
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(CDMA) and Time Division Multiplexing Access (TDMA). Both digital voice
technologies have the ability to transmit data over their respective networks,
but a data standard is presently not established. The Company perceives these
networks as suitable for nationwide POS applications if the pricing structure is
competitive with other packet data networks.
Personal Communication Services (PCS). With the allocation of
additional RF spectrum and the FCC's successful auctioning of these air wave
licenses, a variety of competing Personal Communication Services ("PCS")
networks are beginning to offer local and regional wireless voice and data
services. As these networks are developed and deployed, PCS could become a
viable POS wireless access technology. The future viability of PCS as a wireless
POS access technology will be contingent on a "standardized" protocol and a
competitive data pricing structure. Presently, the major PCS service providers
are deploying GSM, CDMA and TDMA infrastructure and products. The Company will
continue to evaluate the benefits and customer opportunities regarding PCS based
products and services.
RAM Mobile Data. RAM Mobile Data is a wireless packet data network
currently available in over 7,500 U.S. cities and towns, covering 90% of the
urban business population. The network is very similar to, but separate from the
cellular voice network. RAM is designed as a data-only infrastructure. RAM is
also connected to a limited number of transaction processors and currently has
credit card data transversing its network. The Company believes, however, that
RAM Mobile Data is not the most effective technology for widespread deployment
due to its data pricing structure, building penetration inefficiencies and other
factors.
Nextel. Nextel currently has a digital Specialized Mobile Radio (SMR)
network, based on TDMA technology, providing voice and messaging services in the
top 50 major metropolitan service areas, covering approximately 65% of the U.S.
population. Presently, Nextel's network is not suitable for POS data traffic,
but it is anticipated that over the next two years it will be upgraded to a
packet-based data-ready network. When the network is upgraded to packet-based
status, it could become a viable POS data network if the pricing structure is
competitive. The Company will continue to evaluate Nextel as a potential data
highway for its wireless products and services.
Metrocom. Metrocom is currently operating a packet-based data network
in major cities including San Francisco, Seattle, and Washington D.C. Metrocom's
Ricochet network is a low power packet data network designed for wireless mobile
computing applications including E-mail and internet access. The Company
perceives the Ricochet network as a potentially viable POS data network when the
coverage area expands to a nationwide footprint.
Markets
Current market research indicates that there are over 4 million
stand-alone credit card terminals installed in the U.S. market. In 1996,
1,088,000 POS terminals were shipped in the U.S. market, a 36% increase over
1995. One contributing factor to this healthy increase is the growth of debit
card processing and larger memory requirements due to the amount of data a
credit card terminal must capture on each transaction. A debit card transaction
requires a personal identification number (PIN) to be entered into the POS
terminal, and a large percentage of the existing terminal base is not debit
ready. In addition to the increased demand for debit-ready terminals, other
market segments are emerging for POS terminal devices including Electronic
Benefit Transfer (EBT) transactions.
In the U.S., mobile service and retail sales companies have experienced
large growth as Americans have developed a demand for convenience and a need to
save time. To a larger extent than in past years, the retail point of sale is
often wherever the customer is located, and the merchant must be prepared to
complete the sale at that location. Thus, a wide range of business services such
as towing services, locksmiths, concessionaires, special event vendors, in-home
appliance repair services, mobile auto repair, delivery, and
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similar businesses depend almost exclusively on completing the sales
transactions at the customer's location. A recent research report estimates that
the total North American wireless POS market size is in excess of 4 million
units and will increase over 5% annually.
International Applications
The same research report referenced above estimates that the total
international wireless POS market size is in excess of 4 million units and will
increase over 5% annually. The Company believes that international markets,
particularly Latin America, where land-based telephone lines are not in place or
are unreliable, represent realistic market potential for the Company's POS-500
and TRANZ Enabler products. The Company is presently evaluating its
international strategy and will enter these markets if it can establish a
recurring revenue model that is consistent with its business plan.
Several Latin American countries have operational CDPD networks and POS
transaction processing is being viewed as one of the initial and most immediate
applications to be pursued. The Company expects that it may be able to leverage
its current cellular alliances to assist it in entering international markets.
Transaction Processing Agreements
- ---------------------------------
NOVA Information Systems. In January, 1997 the Company entered into a
Member Service Provider ("MSP") agreement with NOVA Information Systems
("NOVA"), of Atlanta, Georgia, the nation's 7th largest credit card transaction
processor, together with Regions Bank, a principal member of VISA U.S.A., Inc.
and MasterCard International Incorporated. As a registered MSP of NOVA, the
Company is entitled to enroll merchants to process their credit and debit card
transactions with NOVA. The Company sells processing to merchants it enrolls at
a retail rate and purchases that processing from NOVA at wholesale, thereby
generating revenue on each card swipe and every dollar processed from merchants
enrolled by the Company. The Company is required to train the merchants it
enrolls in using credit card processing hardware and services and must also
provide merchant support to assure that the merchants are continually apprised
of their customer service requirements and to remedy any problems encountered by
the merchants in conjunction with credit card processing. The term of the
agreement is for three years from January 1, 1997, and renews automatically for
additional, successive one-year terms if not terminated at least 90 days prior
to the expiration of the current term.
National Bank of Commerce. The Company entered into a "Merchant
Marketing and Services Agreement" with National Bank of Commerce ("NBC") as of
March 9, 1998, under which the Company also became an ISO/MSP of NBC and can
thereby offer NBC's transaction processing services to merchants. The Company
will solicit potential merchants for submission of applications to NBC, which
then has the right to accept the merchant for participation in NBC's program.
Once a merchant is accepted, the Company sets up point of sale access, including
maintenance of electronic terminal hardware and other equipment, and must also
supply the merchant with training, supplies, program information and other
services related to the program. The Company will receive a residual on all
transactions processed through NBC for which it is the procurer. The Company
also has been granted the right to own a 50% equity interest in the merchant
accounts it procures for NBC. This means that the Company will receive 50% of
the amount paid by a third party upon a sale of the merchant account. However,
the Company must also stand behind nonpayment of amounts owed to NBC by the
merchant which remain unpaid for 60 days, including fraud, chargebacks,
adjustments, fees and any other charges. Upon termination of the agreement (for
any reason other than deregistration of the Company with Visa U.S.A., Inc. or
MasterCard International, Inc.), the Company has the right to transfer NBC's
interest in the merchant accounts in which the Company owns an interest to
another processor upon payment to NBC of one-half of the equity value of the
portfolio, or, if such a transfer is not practicable, NBC has agreed to
terminate the merchant agreements to allow the Company to allow the merchants to
sign with another processor. To allow this transfer, NBC is entitled to be paid
its out-of-pocket expenses incurred in effecting the transaction.
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The agreement is for a term of three years, subject to one year automatic
renewals if not terminated at least 90 days prior to the end of the original or
any renewal term. The agreement can also be terminated early for certain
specified causes.
Marketing and Distribution Arrangements for the Company's Products and Related
- --------------------------------------------------------------------------------
Services
- --------
POS-50(R)
The POS-50(R) can be purchased or leased through a variety of ISO's,
cellular companies or the Company directly. The Company has no agreements in
which the reseller or distributor is obligated to purchase any specific quantity
of product from the Company.
The Company's most successful distributor to date has been Cardservice
International, Inc. ("CSI") of Agoura Hills, California. CSI currently processes
in excess of $4 billion in credit and debit card transactions for approximately
90,000 merchants. POS-50(R) sales to CSI accounted for approximately 53% and 25%
of the Company's total revenue in fiscal 1997 and 1996, respectively, and 30%
and 17% of the Company's revenue for the three and six month periods ended
December 31, 1997, respectively. Sales through CSI are expected to diminish as
the Company shifts from an emphasis on selling boxes to selling processing
services. See "Certain Transactions - Transactions with Cardservice
International, Inc."
In addition to CSI, the Company has entered into distribution
agreements with several other ISO's to sell and provide help desk services for
their POS-50(R) customers. ISO's usually use a commission-only sales force to
call on merchants to offer their credit card processing services and terminal
equipment. Presently, ISO's sell or lease nearly 80% of all stand-alone credit
card terminals used in the marketplace.
The Company also sells its POS-50(R) units directly to merchants with
or without credit card processing services. The pricing structure the Company
offers on the units is considerably more favorable when purchased with credit
card processing than without due to recurring revenue the Company expects from
transaction processing fees and discount rate margins.
TRANZ Enabler and POS-500 Sales and Marketing Plan
Starting in fiscal year 1998, the Company is continuing to implement a
new sales and marketing strategy for its CDPD-based products and bankcard
processing services. The Company has determined that it will only sell or
provide these products to merchants that sign up for bankcard processing
services with the Company. This approach is the fundamental basis of the
Company's current sales and marketing strategy. The Company will no longer just
sell a "box" without the ability to earn recurring revenue from each transaction
originated by its customers.
The Company intends to market its products and bankcard processing
services through joint marketing and operating agreements with its cellular
alliances and through its own direct sales organization. Presently, the Company
is focused on launching the TRANZ Enabler and its bankcard processing program
with NOVA through a joint marketing effort with GTE Mobilnet's commercial and
major account sales representatives. In furtherance of that roll-out, the
Company has established an extensive sales and service support staff. The
Company will concentrate on developing distribution of its products with
associated processing services in conjunction with CDPD carrier partners, and
through its own direct sales force to major accounts. CDPD carrier partners
provide an opportunity to leverage large sales organizations in the distribution
of the Company's products and services to a large number of merchants, although
to date the Company has signed only one agreement to jointly market its products
and services with a CDPD carrier.
In furtherance of this approach, the Company has entered into the
following agreements:
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Agreement with GTE Mobilnet. On August 1, 1997, the Company entered
into a CDPD Service and Equipment Agreement (the "GTE Agreement") with GTE
Mobile Communications Service Corporation, on its behalf and on behalf of GTE
Mobilnet Incorporated and Contel Cellular Inc. and their respective affiliates
(collectively "GTE Mobilnet") by which the Company has agreed to purchase CDPD
services in the markets served by GTE Mobilnet and GTE Mobilnet has agreed to
market CDPD-based processing services to merchants in its service territories
using the Company's TRANZ Enabler hardware, a USWD provided credit/debit card
transaction payment service and GTE Mobilnet's CDPD data network (the "USWD
Solution"). The initial term of the GTE Agreement is for a two year period
ending August 1, 1999. The GTE Agreement contains provisions by which GTE
Mobilnet has agreed to exclusively market and sell the "USWD Solution" to
merchants seeking to convert their land-line based dial-up phone service to CDPD
service while continuing to use their VeriFone TRANZ(R) 330 or 380 equipment. In
return, USWD has agreed to exclusively use GTE Mobilnet's CDPD services in all
of GTE Mobilnet's markets, except in the case of customers referred to USWD by
an alternative CDPD service provider. The GTE Agreement also requires the
Company to generate minimum CDPD service billings to GTE Mobilnet from merchants
signed up for GTE Mobilnet's CDPD service through the Company. The minimum
amount due escalates over the term of the GTE Agreement from $20,000 during the
first quarter to $2.75 Million by the eighth quarter. GTE has agreed to adjust
the commencement date for these obligations so that the start date for the first
quarter will be February 1, 1998. The Company also has agreed to pay GTE
Mobilnet a fixed activation fee for each CDPD address it requests be activated
on GTE Mobilnet's network and a fixed fee for each merchant referred to the
Company through GTE Mobilnet's marketing efforts. The Company was also required
to put a sales support staff in place to service the GTE Mobilnet
representatives in the field. The Company has implemented its obligations and
has approximately 35 support personnel trained and available to provide the
services required of the Company under the agreement. To date, however,
placements under the agreement have not materialized as the Company had
expected, although activity levels have just recently begun to improve as quotas
have been implemented on the GTE sales representatives as part of their
compensation plans and they have become more familiar with the Company's
wireless solution. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations" and "Risk Factors -
Risks Involving the Company and Its Business - CDPD Resale Containing Minimum
Purchase Obligations."
Agreements with Bell Atlantic Mobile. The Company has entered into two
agreements with Cellco Partnership, doing business as Bell Atlantic Mobile. The
first, a CDPD airtime reseller agreement was entered into as of August 14, 1997
and allows the Company to resell Bell Atlantic Mobile's CDPD service in markets
served by Bell Atlantic Mobile. The agreement is for a term of three years with
automatic one year renewals unless terminated by 60 days notice prior to the end
of a term. The Company does not have any minimum purchase obligations to Bell
Atlantic Mobile under this CDPD airtime agreement. The Company also entered into
a Joint CDPD Sales and Marketing Agreement with Bell Atlantic Mobile as of March
23, 1998, which provides for joint sales and promotion of the Company's products
and processing solutions in Bell Atlantic Mobile markets. Under the agreement,
the Company is required to provide Bell Atlantic Mobile and approved merchants
with the following significant products and services: all sales, marketing and
technical support necessary to enable Bell Atlantic Mobile to include the
Company's products in its proposals to merchants; reasonable sales training
material for each Bell Atlantic Mobile sales representative who will be
marketing to retail merchants; a minimum of one USWD representative residing in
the applicable Bell Atlantic Mobile region(s) to coordinate all USWD
responsibilities for the program; a fully operational demonstration unit for
each Bell Atlantic Mobile sales representative selling the Company's solutions;
a fully configured merchant system within a period of ten business days
following the approval of the merchant application by the credit card processor
used by the Company, with certain exceptions where the quantity of hardware is
greater than 25 units per occurrence; and terminal units installed in merchant
locations of the qualified and approved merchants within sixteen business days
from the time the completed application and applicable merchant application fees
are delivered to the USWD representative, with certain exceptions where
additional information or paperwork is required from the merchant. The Company
is also required to indemnify and hold Bell Atlantic Mobile harmless for any
claims liabilities, costs, fees, penalties or fines arising out of failure to
file reports or fulfill
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any registration or audit obligations or which might be asserted in any actions
by any person based upon a claim against Bell Atlantic Mobile of violation of
any rules, regulations, laws, ordinances or charters related to banking or
credit card processing. With certain exceptions, the Company is obligated to use
Bell Atlantic Mobile CDPD Service exclusively within certain defined "Bell
Atlantic Mobile Market Areas" whenever it places a solution through Company
agents or employees. The agreement runs for two years from March 23, 1998;
however, the agreement is terminable by either party on "30 days prior written
notice,". . . "with or without cause." The Company also must pay Bell Atlantic
Mobile an activation fee for each unit placed through the efforts of Bell
Atlantic Mobile under the agreement, plus a monthly fee commencing with the
thirteenth month after activation for each merchant which has met certain
minimum processing volume criteria. Placements of the Company's products in Bell
Atlantic Mobile service areas have been minimal to date.
Other CDPD Cellular Service Resale Agreements. As described above, the
Company has entered into a resale agreement to resell CDPD service provided by
AT&T Wireless Data, Inc. ("AT&T Wireless"). The Company intends to use the CDPD
service it will purchase in combination with the provision of transaction
processing services to merchants who want to utilize the Company's products to
satisfy their hardware needs. The Company also intends to enter into a joint
marketing agreement with AT&T Wireless which is similar to the marketing
agreements it has entered into with GTE Mobilnet and Bell Atlantic Mobile,
although no assurance can be given that the Company will be successful in
entering into such an agreement with AT&T Wireless or others. See "Risk Factors
- - Risks Involving the Company and Its Business."
Agreement with AT&T Wireless. The Company entered into an agreement
with AT&T Wireless as of April 30, 1997 to sell AT&T Wireless' CDPD
communications service for a term of three years, with automatic renewals of
additional one year terms if either party fails to give 90 days prior notice of
termination at the end of term. The Company is obligated to maintain a minimum
number of active CDPD addresses with AT&T Wireless over the term of the
agreement, or pay AT&T Wireless for such addresses even if the Company has not
resold the numbers to merchants. The Company is obligated to have 1,000 active
numbers by the one year anniversary of the agreement, 3,000 active numbers
within 18 months and 4,500 active numbers within three years of April 1, 1997.
Each active number carries a minimum charge of $4.50 per month to USWD. The
Company has been meeting its IP address targets under the agreement. A
significant number of units have been placed under the Unicard Agreement
described below, utilizing AT&T Wireless CDPD service.
Agreement with Unicard Systems, Inc. On September 18, 1997, the Company
entered into an agreement with Unicard Systems, Inc., of Dallas, Texas pursuant
to which the Company is developing terminal application software that will
perform both the Unicard enrollment process as well as deliver wireless credit
card transaction processing to Unicard's customers. Unicard Systems will become
a registered agent of the Company and has placed an initial order for 400 TRANZ
Enabler units. Unicard Systems is a Dallas based service provider to over 500
restaurants and nightclubs in Texas. Those merchants use Unicard's card to
verify the right of purchasers of alcoholic beverages in their establishments.
The agreement with Unicard demonstrates the flexibility of the Company's
products to be adapted to specific, dedicated applications beyond simple credit
and debit card processing services. Through the end of February 1998 Unicard has
taken delivery of 200 TRANZ Enablers and has another 100 units on order for
March 1998 delivery.
Agreement with GoldCan Recycling, Inc. As of September 29, 1997, the
Company entered into a letter of intent to supply GoldCan Recycling, Inc. with
TRANZ Enabler units for wireless monitoring of its state of the art automated
aluminum recycling/redemption centers. This is the first application of USWD's
TRANZ Enabler technology outside the credit card/point-of-sale industry. USWD
will receive a monthly equipment and wireless service fee on every TRANZ Enabler
placed by GoldCan. This agreement further demonstrates the potential of the
Company's technology for uses in nontraditional markets. Although the Company
has successfully tested its technology for use on this application, no purchase
order had been executed by GoldCan as of February 28, 1998, and no assurance can
be given that GoldCan will choose to proceed to implement the Company's wireless
solution.
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Manufacturing and Deployment Arrangements
- -----------------------------------------
Third Party Manufacturing Relationships
The Company utilizes high quality, third party manufacturers to build
its products. Uniform Industrial Corporation manufactures the Company's
POS-50(R) product. Wellex Corporation, a Freemont, California based
manufacturer, builds the TRANZ Enabler product line, and Finite Technologies, of
Pueblo, Colorado manufacturers the POS-500 CDPD-based terminal line.
The Company recently entered an agreement with Wellex Corporation which
includes specific build schedules and operating terms for the manufacture of the
TRANZ Enabler. The Company's engineering team develops a detailed manufacturing
manual for each of its product lines and manages the manufacturing process with
each respective manufacturer.
With the exception of certain claims which are presently being arbitrated
between the Company and Novatel, Inc. (formerly Novatel Communications, Ltd.)
the Company has not experienced any significant problems concerning its
manufacturing relationships, quality control, product returns or warranty
coverage. See "Business - Legal Proceedings - Dispute with Supplier."
Inventory Financing
The Company's business plan calls for third party financing of all
merchant placements of TRANZ Enablers. The Company does not presently have
adequate capital to fund inventory in the quantities that it expects will be
needed to supply demand if and when placements through, for example, GTE
Mobilnet or other wireless carriers begin to be significant. See "Risk Factors -
Risks Relating to the Company and Its Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition, Capital Resources and Liquidity."
Agreement with GTE Leasing Corporation. To finance a portion of its
inventory requirements the Company entered into a Loan and Security Agreement
with GTE Leasing Corporation as of April 2, 1998, to fund the manufacture of
TRANZ Enabler units by Wellex which are or will be deployed through the GTE
Mobilnet joint marketing agreement. The agreement with GTE Leasing is in the
form of a revolving credit facility in the maximum amount of $1,200,000. GTE
Leasing will pay the Company a fixed amount for each TRANZ Enabler unit
manufactured by Wellex for placement under the GTE Mobilnet joint marketing
agreement. At approximately $400 per unit, the Company has the ability to
finance up to 3,000 TRANZ Enabler units at any one time under this agreement.
The Company expects that repayment of the amounts financed under the credit
facility will be made from the recurring revenue generated by the units placed
under the GTE Mobilnet joint marketing agreement. However, the Company is
primarily obligated to repay all amounts owing under the credit facility,
irrespective of whether processing revenues are sufficient to pay such amounts.
To secure payment under the agreement the Company has granted GTE Leasing a
security interest in the units and the processing revenues from those units. The
Company also entered into a Notice, Consent and Agreement between itself, NOVA
Information Systems, Inc. ("NOVA") and GTE Leasing which acknowledges the
obligation of NOVA to pay GTE Leasing directly from amounts owed to the Company
by NOVA for amounts owing by the Company to GTE Leasing under the credit
facility. The agreement is terminable on certain defined events of default,
including the failure to pay any installment within ten days of its due date and
for other events of default which remain unremedied for ten days after notice is
given to the Company by GTE Leasing. The Company is presently finalizing several
technical and legal requirements before it can begin to draw funds under the
agreement.
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Third-party financing of 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. See "Risk Factors - Risks Relating to the Company
and Its Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition, Capital Resources and
Liquidity."
Equipment Deployment and Servicing
Until recently, the Company was doing its own equipment deployment and
servicing. However, as of January 26, 1998, it entered into an agreement with
TASQ Technology, Inc., of Rocklin, California ("TASQ"), to provide equipment
repair, deployment, call tag management, encryption services, inventory
management services, product sales (including equipment, accessories and
supplies), leasing, rentals, customer support and other related services on an
as-requested basis to merchants using the Company's wireless solutions. Under
this agreement, the Company pays TASQ fixed fees for the various products
provided and services rendered by TASQ to the Company's customers, on a 30-day
billed basis. TASQ charges inventory storage and handling fees for equipment,
accessories and supplies purchased from persons other than TASQ. The agreement
is for an initial term of twelve months from January 26, 1998, and renews for
successive terms of the same duration unless either party provides written
notice of termination at least 3 months prior to the end of a term. The Company
believes that this relationship will ultimately result in savings to the Company
over what it would cost to provide these services by its own personnel. In
addition, TASQ has a reputation for highly efficient, quality with service in
the industry and the Company hopes that this relationship will insure a high
level of satisfaction in the Company's customers.
Customers
- ---------
Cardservice International, Inc. ("CSI"), has been the Company's single
largest customer, with sales to CSI representing approximately 25% and 53% of
the Company's POS-50(R) revenues for the fiscal years ended June 30, 1996 and
1997, respectively, and 30% and 17% of the Company's revenue for the three and
six month periods ended December 31, 1997, respectively. It is, however,
expected that CSI will become a much less significant factor in revenue under
the Company's new business plan, although sales of POS-50(R) terminals may
continue to be made to CSI.
The Company's remaining revenue to date has been comprised primarily of
sales of its products to a variety of ISO's and direct sales to merchants.
As noted above, the Company has developed a new sales and marketing
plan for its CDPD based products. If successfully implemented, joint marketing
and distribution agreements with major cellular carriers will provide the
Company with a much broader reach to merchant end-users. No assurance can be
given, however, that the Company will be successful in implementing this
business strategy. See "Risk Factors - Risks Relating to the Company and Its
Business."
Patents, Trademarks and Other Proprietary Protection
- ----------------------------------------------------
Patents
The Company was granted a design patent on certain aspects of the
POS-50(R) product in June, 1994. The Company expects to file additional patents
as it determines appropriate.
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Trademarks
The Company's name and POS-50(R) are registered trademarks of the
Company. The Company identifies its mark in all its marketing material and
advertising campaigns. The Company may register future product related
trademarks as appropriate and resources are available to do so.
Other Proprietary Protection
Proprietary technology involved in the primary components of the
Company's products, including the cellular and CDPD transceiver and printer, is
owned or licensed by the respective component supplier. The Company does claim
proprietary rights with respect to the integration and use in the Company's
products. The Company also claims proprietary rights on certain aspects of its
application software as it relates to CDPD point-of-sale functionality and
diagnostic features. The Company may pursue additional intellectual property
protection on its hardware and software products as appropriate and it resources
are available.
Competition
- -----------
Currently, the Company believes it has no direct POS-50(R) competitor
that is manufacturing an integrated, battery powered, circuit-switched
cellular-based terminal and printer product. However, the company has identified
several non-integrated cellular based solutions that compete with the POS-50(R),
but are not as elegant or functional. These non-integrated solutions range from
a few hundred dollars to a few thousand dollars depending upon the distribution
channels and the type and number of components.
The Company has identified several potential competitors attempting to
develop CDPD-based terminals and solutions. Hypercom, a Phoenix-based terminal
manufacturer, has publicly announced their CDPD-based terminal product. The
Company perceives this product as direct hardware competition to the POS-500.
With the fundamental decision to enter the recurring revenue business, the
Company believes that it may be able to develop supplier relationships with its
perceived competitors which will essentially minimize potential direct
competition. See "Risk Factors - Risks Relating to the Company and Its
Business."
Government Regulation
- ---------------------
The POS-50(R), POS-500 and TRANZ Enabler use cellular RF channels in
the 800-900 megahertz bandwidth and are subject to regulation by the FCC for
both cellular transmission and unintentional interference radiation. The
products incorporate either a circuit-switched cellular or CDPD transceiver
manufactured by suppliers that comply with the appropriate FCC requirements and
have been issued an FCC identification number.
The Company has received confirmation from the FCC that the POS-50(R)
terminal product does not require FCC approval for sales of the terminal in the
U.S. marketplace.
The POS-50(R), POS-500 and TRANZ Enabler have passed all known UL and
CSA requirements in testing conducted at an independent certified test site.
Most foreign countries accept United States federal regulatory approval
for purposes of permitting commercial sales of electronic products; however,
specific regulatory approval of the product may be required in some countries
and could become an obstacle to sales of the product in such areas.
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Research and Development
- ------------------------
A substantial portion of the Company's early activities were involved
in the engineering and development of the initial POS-50(R) terminal product.
The Company completed development of POS-50(R) in early 1993. During the last
two fiscal years, ending June 30, 1996 and 1997, the Company expended $458,407
and $406,522 respectively, on research and product development activities.
During the first six months of the current fiscal year, the Company spent
$173,014 on research and development.
The Company employs four people who are engaged in research and
development. Current efforts are focused on CDPD-based products and on POS-50(R)
enhancement, including bringing a new manufacturer on line, cost reduction,
product efficiency and reliability, customization and software development. The
Company expects to add personnel to its R&D staff as the financial condition of
the Company improves and/or development contracts are obtained. It is
anticipated that the Company will spend approximately $450,000 on research and
development during the current fiscal year, based on present staffing levels and
projects currently under way, including development activities related to a
hand-held transaction processing unit.
Employees
- ---------
As of August 31, 1996, the Company had reduced its staff to 11
full-time employees including its officers, sales and marketing staff, product
research and development team, technical and customer support staff and
administrative staff. Due to continuing financial pressure, headcount remained
at approximately this level and was at 8 full-time employees at June 30, 1997
and 11 employees on August 31, 1997.
During the first quarter of fiscal 1998, the company added several key
management positions and has aggressively built a national sales and marketing
organization to fulfill its obligations under the GTE Mobilnet Joint Marketing
and Operating Agreement. This agreement requires a specific ratio of Company
support personnel within each GTE Mobilnet CDPD marketing region. From September
through early November, the Company added approximately 43 sales and sales
support personnel. The Company has also expanded its operations, human resources
and administrative staff and as of April 30, 1998 had approximately 60
employees, including five executive officers. See "Management" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Seasonal Variations of Business
- -------------------------------
The Company's merchant acquiring and transaction processing business is
relatively immune to seasonal variations, although the Company expects that
transaction processing revenue will reflect seasonal variations paralleling
consumer spending patterns, generally increasing somewhat during the Christmas
holiday season. However, the placement of point-of-sale terminals can be
expected to be slower during that season as well, due to the reluctance of
merchants to change processors during premier shopping seasons.
Backlog
- -------
The Company had a backlog of orders as of September 1997 of
approximately 200 TRANZ Enablers units due primarily to the lead time required
to ramp up production from its third party suppliers and a lack of adequate
capital to fund inventory purchases from the Company. From December 1997 through
January 1998, the Company had a backlog of POS-50(R) units, again due to a lack
of prior capital and the lead time required by its third party manufacturers to
commence production once capital to fund the purchases became available. As of
April 30, 1998 there is no order backlog due to product unavailability.
The Company's financial condition has precluded it from obtaining
credit from its manufacturers and adequate capital will be required to assure an
uninterrupted production of inventory as needed. The Company is
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hopeful that it will be able to obtain adequate third party financing for its
TRANZ Enabler inventory needs in the near future. However, despite the agreement
with GTE Leasing, no assurance can be given that this will be the case. See
"Risk Factors - Risks Relating to the Company and Its Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition, Capital Resources and Liquidity."
Impact of Environmental Laws
- ----------------------------
The Company does not believe that it is substantially affected by
environmental laws and does not expect any material impact as a result of such
laws.
Properties
The Company now occupies approximately 4,500 square feet of office and
general purpose space in a building in Emeryville, California, a suburb adjacent
to Oakland and San Francisco, California. The Company leased this space in
September 1997, at an initial rate of $9,942 per month commencing October 1997,
and continuing for a term of 5 years. The monthly rent will progress to a rate
of $11,640 in year five.
On October 23, 1996, the Company closed its Boulder office and
consolidated operations in Colorado Springs, Colorado, where it presently leases
approximately 1,200 square feet of office and laboratory space pursuant to a
lease which extends through July of 1998. The rent for this space is $1,200 per
month.
A customer service and POS-50(R) deployment office was open in Wheat
Ridge, Colorado from November 1996 through December 1997. The Company maintained
this space until it relocated its principal operations to California.
Legal Proceedings
- -----------------
Securities Class Actions Settlements
In September of 1996, the Company agreed to terms to settle securities
fraud litigation, pending since 1994, which was brought in connection with the
Company's initial public offering in 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 No. 94-Z-2258,
Appel, et al. v. Caldwell, et al. By its order approving the settlement, the
court certified a 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 its former
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, and no appeals have been filed in
that case.
To resolve cross-claims asserted by the underwriters in the litigation, the
Company agreed to issue to RAS Securities Corporation, H.J. Meyers & Co, Inc.,
Sands & Co. Ltd. and R.J. Steichen & Co. a total of 600,000 shares of Common
Stock upon the effective date of the Settlement Agreement, which was April 26,
1997. The shares issued under this settlement become saleable under SEC Rule 144
commencing on April 26, 1998. The Company has agreed to register such shares
upon demand of holders of not less than 25% of the shares, not sooner than April
26, 1998. See "Risk Factors - Risks Relating to the Company's Securities -
Market Overhang; Registration Rights; Possible Effect on Market for the
Company's Common Stock."
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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.
Settlement with Consultant
In July of 1997, the Company executed a two-year agreement effective as
of April 1, 1997 for consulting services previously provided and 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
note was convertible into Common Stock at $.40 per share, for a total of 125,000
shares issuable upon conversion of the principal amount of note. A dispute arose
between Mr. Woolley and the Company and the consulting agreement was terminated
by the Company as of the end of August 1997. Mr. Woolley and the Company have
now settled their dispute by the payment to Mr. Woolley of a total of $60,000
(including amounts previously paid to Mr. Woolley as a consulting fee prior to
termination) for all services rendered by Mr. Woolley to the Company. As part of
the settlement, an adjustment to the conversion terms of the promissory note was
made reflecting that all principal and accrued interest on the note could be
converted to 75,000 shares of the Company's Common Stock by election of Mr.
Woolley made on or before April 1, 1998. The shares were to be issued as
"restricted securities" as defined under Rule 144 under the Securities Act of
1933. Mr. Woolley elected to convert the note to shares of Common Stock as of
January 26, 1998. The shares became saleable under Rule 144 commencing on April
1, 1998.
Settlement of Claims of Certain Noteholders
From April through June 1997 the Company issued a total of $185,000 of
Demand Notes payable in full on or before April 11, 1998 (the "Demand Notes").
The principal and accrued interest on the Demand Notes became convertible into
shares of the Company's Common Stock as of November 1, 1997 at prices of $.35
per share (as to $75,000 of the Demand Notes) and $.50 per share (as to $110,000
of the Demand Notes). Commencing on November 3, 1997, the Company began
receiving conversion demands from the Noteholders and as of November 14, 1997,
holders of $135,000 of the Demand Notes had demanded conversion of their Demand
Notes into Common Stock and were insisting that the Company issue "free-trading"
shares to them. The Noteholders claimed that their right to free-trading stock
arose out of certain oral representations made at the time of issuance of the
Demand Notes, the fact that no "restricted securities" legends were imprinted on
the documents evidencing the Demand Notes and no other written advice as to the
"restricted" nature of the shares underlying the Demand Notes was given to them
at the time. The complaining Noteholders were asserting damages based on a
market price for the Company's Common Stock in the $8.00 per share range as of
the November 1, 1997 time period. The holder of the remaining $50,000 Demand
Note (which is convertible at $.50 per share) has not asserted any claims
against the Company in connection with his purchase of the Demand Note.
Rather than incur the expense and risks of litigation, the Company has
settled the complaining Noteholders' claims by agreeing to issue 1.4 times the
number of shares originally issuable as principal and interest on the Demand
Notes purchased by the complaining Noteholders (plus an additional 11,000 shares
to one Noteholder who purchased $50,000 of the Demand Notes), and providing the
Noteholders with certain guarantees as to the amount for which the shares can be
resold and a "put" which allows the Noteholders to require the Company to
repurchase any restricted shares remaining unsold at the end of the one year
period after the shares become saleable under SEC Rule 144. The shares issuable
upon conversion of the Demand Notes will be "restricted securities" as defined
under SEC Rule 144, but will become saleable pursuant to Rule 144 one year from
the date the converted Demand Note was purchased by the Noteholder. A total of
525,800 shares have been or will be issued to the complaining Noteholders upon
conversion of their notes which will be subject to the guarantee and put
agreements. The holder of the other $50,000 demand Note will be given the
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enhanced conversion rate (of 1.4 times the number of shares originally issuable)
and will receive 154,000 shares upon conversion of his Demand Note but will not
be given the guarantee or put.
The guarantee provision of the settlement agreement allows the former
Noteholders to recover the difference between the guarantee price (which is
$3.00 per share as to 360,800 of the shares and $4.29 per
share as to the remaining 165,000 shares issuable upon conversion of the Demand
Notes) and the gross amount the Noteholder receives upon a sale of the shares.
The guarantee is operative at any time during the one year period commencing on
the date the shares become saleable under SEC Rule 144. The Company is obligated
to pay the amount due within thirty days of receiving a demand, accompanied by
documentation confirming the sale. Under the "put" provision of the settlement
agreement, the former Noteholders will have a five day period commencing on the
date one year from the date the shares become saleable under SEC Rule 144 (or
the first business day thereafter if such day is a day on which the stock
markets are closed) during which the former Noteholders may "put" any restricted
shares remaining unsold by them at the time back to the Company. Upon exercise
of the put, the Company which must either (1) purchase the shares for the put
price (which is $3.00 per share for 360,800 of the shares and $4.29 per share
for 165,000 of the shares) or (2) require the shareholder to sell the shares
into the market, with the Company making up the difference between the put price
and the gross amount received by the shareholder upon such sale, within 15 days
after receipt of written notice and documentation confirming the sale. See "Risk
Factors - Risks Relating to the Company's Securities Market Overhang;
Registration Rights; Possible Effect on Market for the Company's Common Stock."
On July 2, 1997, the Company also issued a promissory note in the
amount of $16,825 to one of the investors who purchased the Demand Notes. This
note was due and payable in full as of July 30, 1997 and bore interest at a
default rate of 18% per annum if not paid when due. In return for the investor's
agreement not to require the Company to pay the note when it came due, the
investor claims that a representative of the Company promised that the Company
would treat the note the same as the other Demand Notes and convert it to Common
Stock on the same terms. At the same time as it settled the claims of this
investor arising out of the Demand Notes, the Company agreed to convert all
amounts owing as principal and interest by it under this note to a total of
18,507 shares of Common Stock. The shares issuable upon conversion of this note
are not entitled to the guarantee or put described above which applies to the
shares issuable upon conversion of the Demand Note purchased by this investor.
Dispute with Supplier
In April of 1995, the Company entered into an agreement with Novatel
Communications Ltd. (now called Novatel, Inc.) to supply it with modems for its
CDPD products. Novatel, Inc. has asserted a claim against the Company for
payment for product it delivered to the Company under that agreement. The claim
was asserted in October 1996 for $59,632. Although the Company has accrued a
liability in the amount of this claim, it asserts that Novatel delivered
defective product which has caused it damages to the Company in excess of the
amount being claimed by Novatel. The Company is therefore disputing the claim.
The Company and Novatel have agreed to arbitrate the dispute under an
arbitration provision of the agreement which requires arbitration before a
private arbitration agency located in Vancouver, British Columbia. The Company
believes it has a substantial basis for its refusal to pay the claim, but no
assurance can be given that it will prevail in arbitration.
DOCUMENTS FILED AS EXHIBITS
---------------------------
References made in this Prospectus to material contracts, agreements or
other documents are summaries only and are qualified in their entirety by
reference to the complete copy of the document which is filed as an Exhibit to
the Registration Statement of which this Prospectus is a part. Copies of such
documents can be obtained from the United States Securities and Exchange
Commission or from the Company by a written request addressed to the attention
of the Corporate Secretary. See "Available Information."
-52-
<PAGE>
MANAGEMENT
----------
Directors and Executive Officers
- --------------------------------
The following table sets forth information with respect to the
directors and executive officers of the Company.
Directors
Name Age Principal Occupation Director Since
---- --- -------------------- --------------
Evon A. Kelly 56 Chief Executive Officer August 1997
of the Company
Rod L. Stambaugh 37 President of the Company August 1991
Richard S. Barton 49 CEO and President of December 1997
ADATOM, Inc.
Caesar Berger 50 Vice President - Cardservice December 1995
International, Inc.
Chester N. Winter 66 General Partner of Colorado February 1994
Incubator Fund, L.P.
Director Appointee
Name Age Principal Occupation Directorship
---- --- -------------------- Commences
---------
Alvin C. Rice 74 Senior Associate, June 1, 1998
entrenet Group, LLC
Business Experience of Directors and Director Appointee
Evon A. Kelly. Until joining the Company in August of 1997, and since 1991,
Mr. Kelly was president of Kelly Learning Alliance, a consulting firm he
founded, which addresses areas in human resource development, organizational
development and sales dynamics. Kelly Learning Alliance clients have included
Motorola, Xerox Corp. and NEC Corp. From 1988 to 1991, Mr. Kelly was Senior Vice
President of sales and operations at Wilson Learning Corp., where he was
responsible for developing and implementing sales and marketing strategies. From
1986 to 1988, Mr. Kelly was a regional vice president of store operations for
Federated Department Stores Inc., where he supervised over 1,500 employees and
was responsible for profit and loss performance. From 1973 to 1983, Mr. Kelly
held several key positions with Xerox Corp., including manager of supply
business center where he directed a national sales force of 400. Mr. Kelly
received his bachelor's degree in liberal arts from Boston College.
Rod L. Stambaugh. Mr. Stambaugh served as Chief Executive Officer of the
Company from October 1996 until August 1997, when Mr. Kelly joined the Company.
He was Vice President in charge of marketing and business development for the
Company from 1991 through October 1996. Mr. Stambaugh was also the Corporate
Secretary from September 1995 until October 1996. Mr. Stambaugh is one of the
founders of the Company and has devoted his full business time to the Company
since August 1991. He co-founded U.S. Wireless, Inc., a nonaffiliated retail
cellular phone center, at which he worked full time from January 1990
-53-
<PAGE>
through July 1991. Mr. Stambaugh served on the Company's Board of Directors from
July 1991 through October 1994, rejoining the Board as Chairman in July 1995.
Mr. Stambaugh graduated from Baker University in 1982 with a B.S. degree in
psychology, and a minor in business administration.
Richard S. Barton. Mr. Barton is Chairman, Chief Executive Officer and
President of ADATOM, Inc., a California corporation which markets and sells
retail and shopping solutions, including electronic catalogues and stores. See
"Certain Transactions - Transactions with ADATOM, Inc." He completed a Sloan
Fellowship at Stanford University in Palo Alto, California from September 1995
through September 1996. From October 1993 through August 1995, Mr. Barton was a
corporate vice president and president of Xerox' United States Customer
Operations. From 1991 until October 1993 Mr. Barton was President of Xerox
Canada, Inc. Mr. Barton joined Xerox in 1971 as a sales representative and held
various positions in addition to those described above, including executive
assistant to the President, Chairman and CEO from 1985 through 1987, Vice
President, Marketing Operations for Xerox' United States Marketing Group from
1987 through 1989 and Vice President, North American Systems Sales for Xerox'
Integrated Systems Operations from 1989 through 1991. Mr. Barton holds a
Master's Degree in Business Management from Stanford University. Mr. Barton also
serves on the boards of Avon Products, Inc., a publicly traded company, and the
United States Chamber of Commerce.
Caesar Berger. Mr. Berger is a senior Vice President of Cardservice
International, Inc. where he is responsible for the Technology Group. Mr. Berger
joined Cardservice International in August of 1994. Prior to that, Mr. Berger
served for more than ten years as President, and was the founder of, Computer
Based Controls, Inc. a wholly-owned subsidiary of Electronic Clearing House Inc.
Mr. Berger was a principal on the American Express Money Order project which
resulted in the deployment of over 17,000 of the Money Order dispensers
operating today in over 10,000 retail locations nationwide. Mr. Berger graduated
in 1970 from Lvov Polytech Institute with the equivalent of an M.S. degree in
Electronics and Computer Science.
Chester N. Winter. Mr. Winter is a general partner of Colorado Incubator
Fund, L.P., a venture capital fund which invests in early stage high technology
enterprises including software, materials, medical and bio- technology; a
position he has held since 1991. Since March, 1993 he has also been Vice
President of Paradigm Partners, LLC, a consulting company. From February, 1994
until September, 1995 he served as Chairman of Highland Energy, Inc., an energy
services company that merged with EUA-Cogenics, a subsidiary of Eastern Utility
Associates, a publicly traded utility company. From March, 1989 until October,
1992 he was Chairman and Chief Executive Officer of Clinical Diagnostics, Inc.,
a home health care product distributor that merged with Polymedica, a publicly
held medical product distribution company. Mr. Winter has served in numerous
executive management positions with other companies, including Vice President of
Sinco International Investments, Inc. from 1986 through July, 1992, Vice
Chairman of Genro Corporation, a holding company with interests in financial
services, hotels, computer services and real estate, from October, 1982 through
September, 1986. Mr. Winter has also consulted with and served on the boards of
directors of numerous technology and growth companies over the last ten years.
He has consulting experience in seven countries with the International Executive
Service Corps and the South-North Development Initiative. He holds B.A. and M.S.
degrees in Economics from the University of Colorado and has completed the
Owner/President Management Program at Harvard University Graduate School of
Business.
Alvin C. Rice. Mr. Rice is currently affiliated with entrenet Group, LLC,
as a senior associate. He has been with entrenet since January 1998. He has
agreed to become a director of the Company as of June 1, 1998. His career in
banking, investment banking and commercial business management has spanned over
40 years. He served as Chairman of California Bancorp Systems, Inc. from January
1994 until December 1997 and as Chairman of the First National Bank of Marin
from 1989 until December 1993. In his 25 years with Bank of America, from 1947
until 1979, he served in various capacities including head of the International
Banking Division, Senior Credit Officer and Vice Chairman. In the latter
capacity, he was in charge of the Bank's worldwide commercial banking business.
He served as Chairman and President of Imperial Bank from 1979 until 1984. Mr.
Rice has also served as a Director of Memorex Corporation, Fairchild Camera &
Instrument Co., and the Montreal Trust Company. He is a cum laude graduate Phi
Beta Kappa graduate of Stanford University from which he received a B.A. degree.
-54-
<PAGE>
He attended the Graduate School of Banking at the University of Wisconsin and
Harvard's Advanced management program. See "Certain Transactions - Transactions
with entrenet Group, LLC."
Committees
The Company has an audit committee which consists of Messrs. Barton, Berger
and Winter. During the fiscal year ended June 30, 1997 and until February 6,
1998, the audit committee consisted of Messrs. Berger and Alan Roberts, a former
director of the Company. The audit committee recommends engagement of the
Company's independent accountants, approves services performed by such
accountants, and reviews and evaluates the Company's accounting system of
internal controls. The audit committee did not meet during fiscal year 1997;
however, these issues were discussed by the full board. The Company does not
have standing nominating or compensation committees. The functions which these
committees would perform are performed by the Board as a whole.
The Company's Board of Directors met once during fiscal year 1997. All
directors attended the meeting. Board actions were conducted primarily through
consultation among management and directors followed by consent resolutions
adopted by all members of the Board of Directors.
Other Significant Executive Officers
- ------------------------------------
Other significant executive officers of the Company who are not also
directors are:
Name Age Position with the Company Officer Since
---- --- ------------------------- -------------
Robert E. Robichaud 44 Chief Financial and Accounting September 1997
Officer, Treasurer and
Assistant Secretary
Clyde F. Casciato 42 Vice President, Sales August 1997
Raymond J. Mueller 56 Vice President, Operations December 1997
Business Experience of Significant Executive Officers
Robert E. Robichaud. Since 1985 Mr. Robichaud has held several key
financial management positions at Triad Systems Corp. including Director of
Financial Planning and Analysis and most recently, Director of Finance. Triad
Systems is a provider of software, hardware and information management solutions
which recorded 1997 revenues in excess of $175 million. Triad Systems was a
NASDAQ listed company and was acquired by Cooperative Computing Inc. on February
27, 1997. Prior to 1985, Mr. Robichaud held several financial positions with
Mohawk Data Services Corp. since 1978. Mr. Robichaud received a bachelors degree
in economics from Fairfield University in 1976 and an M.B.A. from Rutgers
Graduate School of Business in 1978.
Clyde F. Casciato. Since 1989, Mr. Casciato has held several management
positions at AT&T Wireless Services, the wireless business unit of AT&T Corp.,
including Director of Sales and Marketing, District Manager -Major/National
Accounts and most recently, Western U.S. Regional Sales/Distribution Manager -
Wireless Data. Mr. Casciato played a key role in helping to establish AT&T
Wireless Services as the market leader in the emerging wireless data (packet and
circuit switched) business segment. From 1984 to 1989, he held key sales
management positions at Xerox Corp. including Major Account Manager and Program
Sales Manager.
-55-
<PAGE>
Raymond J. Mueller. Mr. Mueller served as Director of Sales and Marketing
for Nicor, Inc., a pneumatic tool company, from 1995 until joining the Company.
From 1993 until joining the Company, Mr. Mueller was an independent consultant
in the areas of strategic planning, team building, decision-making and
compensation matters. Prior to that, he was Director of Sales and Marketing for
Wilson Learning Corp. from 1989 through 1993. Prior to 1993, he served as
Manager of Corporate Compensation and Director of Human resources at Borden,
Inc., Manager of Compensation at Avon Products, Inc. and Manager of Employment
at Bristol Meyers. He holds a Bachelors Degree in Economics from Xavier
University.
Executive Compensation
- ----------------------
The following table shows all the compensation paid by the Company to its
Chief Executive Officer (the "Named Executive Officer") during the fiscal year
ended June 30, 1997. Mr. Stambaugh, the Company's CEO at June 30, 1997, did not
serve as CEO for the Company during the fiscal years ended June 30, 1996 and
1995. No other executive office of the Company received total compensation
during the fiscal year ended June 30, 1997 in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
=============================================================================================================================
Annual Compensation Long Term Compensation
- -----------------------------------------------------------------------------------------------------------------------------
Other Restricted
Annual Stock Securities All Other
Name and Principal Fiscal Salary Bonus Compen- Awards Underlying Compensa-
Position Year ($) ($) sation ($) ($) Options (#) tion ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rod L. Stambaugh, 1997 $79,881 $-0- (2) $-0- -0- $-0-
Chief Executive
Officer(1)
=============================================================================================================================
<FN>
(1) Mr. Stambaugh commenced service as CEO as of October 23, 1996. Mr. Stambaugh succeeded Mr.
Michael Brisnehan, who resigned as CEO at that time.
(2) No amounts are shown under "Other" as the aggregate incremental cost to
the Company of personal benefits provided to the executive officer did
not exceed 10% of his annual salary and bonus during the year.
</FN>
</TABLE>
Option Grants in Fiscal Year Ending June 30, 1997
As reflected in the following table, no options were granted to the Named
Executive Officer during the fiscal year ended June 30, 1997. Also reported are
the values for "in-the-money" options, which represent the positive spread
between the exercise price of any existing stock options owned by the Named
Executive Officer and the year-end price of the Company's Common Stock.
-56-
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
-----------------------------------------------
and FY-End Option Values
------------------------
=========================================================================================================================
Value of
Number of Securities Unexercised In-the-
Shares Underlying Unexercised Money Options at
Acquired on Value Options at FY-End (#) FY-End ($)
Name Exercise (#) Realized ($) Vested/Unvested Vested/Unexercisable(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rod L. Stambaugh -0- $-0- 133,400/21,600 $20,010/$3,240
=========================================================================================================================
<FN>
(1) Based on the average traded price of the underlying shares of Common Stock of $.28 per share at June 30,
1997, less the per share exercise price of the options.
</FN>
</TABLE>
Director Compensation
Directors who are not employees of the Company receive an annual stock
option to purchase 20,000 shares of the Company's Common Stock. The grant is
made pursuant to the Company's 1992 Stock Option Plan as of each director's
anniversary date, with an exercise price equal to the market value of the
underlying stock as of the date of grant. Options vest 25% on each six month
anniversary following the date of grant. This is the only arrangement for
compensation of directors. A total of 20,000 stock options were granted to one
non-employee director during the fiscal year ended June 30, 1997, and an
additional 40,000 options are issuable to two non-employee directors for
services rendered during fiscal year 1997. 20,000 options have been or will be
issued to each non-employee director (presently four people) during fiscal year
1998.
Proposed Executive Bonus Plan
Management of the Company is in the process of formulating a
performance-based bonus plan for the Company's executive officers and key
personnel, which may include provisions for cash bonus compensation as well as
stock based compensation under the Company's 1992 Stock Option Plan. Other than
certain contingent bonus compensation that has been offered to certain executive
officers of the Company as described below, and which is subject to adoption of
criteria by the Board of Directors, the Board has not yet approved the
parameters of such a bonus plan.
Employment Agreements and Change In Control Provisions
Evon A. Kelly. The Company presently has an employment arrangement with
Evon A. Kelly, its current CEO, pursuant to which Mr. Kelly receives $150,000 in
cash compensation per year, plus up to $150,000 in additional bonus
compensation, with criteria to be reviewed by the Board of Directors. Mr. Kelly
has also been granted a non-qualified stock option to purchase up to 600,000
shares of the Company's Common Stock at $1.00 per share, exercisable as to 10%
as of the date of grant (August 4, 1997) and vesting at the rate of 3% per month
thereafter so long as Mr. Kelly remains in the employ of the Company. All
options must be exercised within 10 years of the date of grant. All options
immediately vest and become exercisable upon a change in control of the Company.
The Company has agreed to indemnify Mr. Kelly for a portion of the tax liability
differential between non-qualified stock option and incentive stock option tax
treatment, when and if he should exercise his options and dispose of the shares.
The Company has also agreed to register the shares underlying Mr. Kelly's option
with the SEC on a Form S-8 registration statement as soon as practicable.
-57-
<PAGE>
Rod L. Stambaugh. The Company has an arrangement under which it pays Rod L.
Stambaugh, its President, $130,000 per year. Mr. Stambaugh may also be granted
bonus compensation and/or stock options as approved by the Board of Directors
from time to time, although the Company has no present commitment to grant any
bonus or options to Mr. Stambaugh at this time. It is anticipated that Mr.
Stambaugh will be entitled to participate in any performance-based bonus plan
approved by the Board of Directors.
Other Executive Officers. The Company also has employment arrangements with
Robert E. Robichaud, Clyde F. Casciato and Raymond J. Mueller. Mr. Robichaud
receives a salary of $125,000 per year and may be entitled to a performance
bonus of up to $25,000 for fiscal year 1998, based on the performance of the
Company. He was granted options to purchase up to 50,000 shares of Common Stock
at $3.95 per share under the Company's 1992 Stock Option Plan, with a vesting
schedule of 10% as of his date of hire (September 5, 1997) and 3% per month
thereafter. Mr. Casciato receives a salary of $80,000 per year, and may be
entitled to a bonus of $30,000 for fiscal year 1998, based on the Company's
performance. Mr. Mueller receives a salary of $100,000 per year and may be
entitled to a bonus of $25,000 for fiscal year 1998, based on the Company's
performance. Messrs. Casciato and Mueller have been granted stock options under
the Company's 1992 Stock Option Plan to purchase 50,000 shares of Common Stock,
exercisable at $3.53 per share (for Mr. Casciato's options) and $6.34 per share
(for Mr. Mueller's options). The options have the same vesting schedule as Mr.
Robichaud's options. Mr. Casciato's date of hire was August 25, 1997; Mr.
Mueller was hired on November 24, 1997. These executive officers may also be
granted up to an additional 50,000 options based on the attainment by the
Company of certain performance goals under the terms of the executive bonus plan
as finally approved by the Board of Directors. Pursuant to the Amended 1992
Stock Option Plan, all options granted to these individuals immediately vest and
become exercisable upon a merger, acquisition, sale of all assets or other
change in control of the Company.
Stock Option Plan
General. The Company's Amended 1992 Stock Option Plan (the "Plan") was
adopted for the purpose of granting employees, directors and consultants of the
Company options to purchase Common Stock so that they may have the opportunity
to participate in the growth of the Company and to provide these people with an
increased incentive to promote the interests of the Company.
Administration of the Plan. The Plan is administered by at least two
disinterested members of the Board of Directors (the "Board") or the Board
itself. The Board may from time to time adopt rules and regulations as it deems
advisable for the administration of the Plan, and may alter, amend or rescind
any such rules and regulations in its discretion. The Board has the power to
interpret, amend or discontinue the Plan.
Grant of Options. Options may be granted under the Plan for a total of
2,680,000 shares of Common Stock. The number of shares underlying options
available to the Plan was increased to 2,680,000 from 880,000 on August 6, 1997,
by the Board of Directors. This amendment was approved by shareholders at the
Annual Meeting of Shareholders held February 6, 1998. Additional grants of
options may be made only to employees, directors and consultants of the Company
and any parent or subsidiary. The Board determines the terms of options granted
under the Plan, including the type of option (which can be an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or a non-qualified stock option), the exercise price,
the number of shares subject to the option, and the exercisability thereof. The
Board also determines, at the time of grant, the period during which the option
will be exercisable, subject to the limitations of the Plan. Unless otherwise
provided at the time of grant, options to employees vest 10% at the time of
grant and 3% per month thereafter. An option to purchase 20,000 shares at fair
market value is automatically issued under the Plan to each non-employee
director as of the director's anniversary date. Options granted to non-employee
directors vest 25% at the time of grant and 25% at each six month anniversary
thereafter. See also "Management - Director Compensation," above. Information
regarding presently outstanding options is set forth in the table below. See
"Options Presently Outstanding Under the Plan," below.
-58-
<PAGE>
Terms and Conditions of Options. The Board may impose on an option any
additional terms and conditions which it deems advisable and which are not
inconsistent with the Plan. The exercise price of any stock option granted under
the Plan must not be less than 100% of the fair market value of a share of
Common Stock on the date of grant, except that as to an optionee who at the time
an incentive stock option is granted owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, the exercise
price of such incentive stock option must be at least equal to 110% of the fair
market value of the shares as of the date prior to the date of the grant. In
addition, no incentive stock option can be granted to any employee where the
aggregate fair market value of the shares (determined at the date of such option
grant) for which such incentive stock options are exercisable for the first time
in any calendar year exceeds $100,000. In connection with a merger, sale of all
of the Company's assets, or other transaction which results in the replacement
of the Company's Common Stock with the stock of another corporation, all granted
options (including unvested options) become exercisable immediately prior to the
consummation of the transaction, unless other provisions are made with respect
to those options.
Exercise of Options. An optionee may exercise less than all of the vested
portion of an option, in which case such unexercised, vested portion shall
continue to remain exercisable, subject to the terms of the Plan, until the
option terminates. Vested options must be exercised within three months of an
optionee's termination of employment with the Company.
Federal Income Tax Consequences.
Incentive Stock Options. The Company anticipates that all options granted
under the Plan and treated by the Company as "incentive stock options," that is,
a stock option described in Section 422 of the Code, will have the following
anticipated (but not guaranteed) federal income tax consequences, among others:
the optionee will recognize no income at the time of grant; upon exercise of the
incentive stock option, no income will result to any party; if there is no
disposition of the shares until a date that is both (i) two years from the grant
of an incentive stock option and (ii) one year from its exercise, no amount will
be ordinary income and, upon disposition in a taxable transaction, the employee
will receive long-term capital gain or loss treatment equal to the difference
between the amount realized and the option price; any gain realized upon a
disposition other than as set forth above may result in ordinary income tax
treatment to the optionee; generally, the Company receives no deduction in
connection with the transaction; and, certain optionees may incur alternative
minimum tax treatment under the Code upon exercise of an incentive stock option.
Non-qualified Stock Options. The Company anticipates that all non-qualified
stock options granted under the Plan will have the following anticipated (but
not guaranteed) federal income tax consequences, among others: the optionee will
recognize no income at the time of grant; upon exercise of the non-qualified
stock option, the individual to whom the option is granted should be deemed to
receive ordinary income at the time of exercise equal to the excess, if any, of
the fair market value of the acquired shares at such time over the option price
for such shares; if the shares acquired upon the exercise of a non-qualified
stock option are disposed of in a taxable transaction, the individual disposing
of such shares will have a realized and recognized capital gain or loss equal to
the difference, if any, between the amount realized and the adjusted basis of
such shares to the holder; such gain or loss will be long-term or short-term
depending on whether or not such shares are held for longer than six months;
and, the adjusted basis usually (but not always) will include the option price
plus any ordinary income described above with respect to such shares.
Form S-8 Registration of Shares of Common Stock
Issuable Pursuant to Options Under the Plan
The Company registered 880,000 shares of Common Stock underlying options
issuable under the Plan with the United States Securities and Exchange
Commission (the "SEC") under a Form S-8 Registration Statement that was
effective as of September 1995. The Company intends to file another registration
statement on Form
-59-
<PAGE>
S-8 in the near future to register the additional shares issuable pursuant to
the exercise of options that have been or may be issued under the Plan.
Options Presently Outstanding Under the Plan
As of February 28, 1998 there were a total of 757,431 options outstanding
under the Plan, 402,931 of which were vested at that date. Of the total options
outstanding at February 28, 1998, 272,781 were held by directors (one of whom is
also an officer of the Company), 150,000 were held by other executive officers,
and 334,650 were held by employees or consultants of the Company. The weighted
average exercise price of all options outstanding under the Plan as of February
28, 1998, was $3.03. No additional options have been issued by the Company
either under or outside the Plan since February 28, 1998. See also "Management -
Executive Compensation - Stock Option Plan."
-60-
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
-----------------------------------------------------------
The following tables set forth certain information regarding the beneficial
ownership of the Company's Common Stock and Series A Preferred Stock as of
February 28, 1998, by (i) each Director and Director appointee, (ii) the Named
Executive Officer and the current Chief Executive Officer, (iii) all persons,
including groups, known to the Company to own beneficially more than five
percent (5%) of the outstanding Common Stock of the Company, and (iv) all
executive officers and directors as a group. A person (or group) is deemed to be
a beneficial owner of Common Stock that can be acquired by such person or group
within 60 days from February 28, 1998 upon the exercise of warrants, options or
other rights exercisable for, or convertible into, Common Stock. As of February
28, 1998, there were a total of 9,319,601 shares of Common Stock and 3,060,000
shares of Series A Preferred Stock outstanding.
Except as otherwise indicated, the address of each of the following persons
is c/o U.S. Wireless Data, Inc., 2200 Powell Street, Suite 450, Emeryville, CA
94608.
<TABLE>
<CAPTION>
Certain Holders of Common Stock
-------------------------------
Shares of Common Stock
Beneficially Owned (1)
Number Percent
of of
Name of Beneficial Owner Shares Class
- ------------------------ ------ -----
<S> <C> <C>
Rod L. Stambaugh................................. 427,700 (2) 4.5%
Evon A. Kelly.................................... 204,000 (3) 2.1%
Richard S. Barton................................ -0- 0.0%
Caesar Berger.................................... 10,000 *
Chester N. Winter................................ 85,281 (4) 0.9%
Alvin C. Rice.................................... -0- 0.0%
John M. Liviakis................................. 4,065,000 (5) 34.0%
2420 "K" Street, Suite 220
Sacramento, CA 95816
Robert B. Prag................................... 1,515,000 (6) 14.9%
2420 "K" Street, Suite 220
Sacramento, CA 95816
Liviakis Group................................... 5,340,250 (7) 41.6%
2420 "K" Street, Suite 220
Sacramento, CA 95816
entrenet Group, LLC.............................. 615,435 (8) 6.2%
1304 Southpoint Boulevard, Suite 220
Petaluma, CA 94954
All directors, director appointees and
executive officers as a group (8 persons)......... 1,169,665 (9) 11.9%
- ------------------
* Represents less than 1% of outstanding shares.
-61-
<PAGE>
<FN>
(1) Except as specifically indicated in the footnotes to this table, the
persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable. Beneficial ownership
is determined in accordance with the rules of the United States Securities
and Exchange Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of
Common Stock subject to options, warrants or rights held by that person
that are currently exercisable or exercisable, convertible or issuable
within 60 days of February 28, 1998, are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Includes shares underlying a total of 75,200 options exercisable within 60
days of February 28, 1998.
(3) Includes shares underlying a total of 204,000 options exercisable within 60
days of February 28, 1998.
(4) Includes shares underlying a total of 72,781 options exercisable within 60
days of February 28, 1998.
(5) The information shown is based upon Schedule 13D/A (Amendment No. 2) dated
November 26, 1997 filed on behalf of Liviakis Financial Communications,
Inc. ("LFC"), John M. Liviakis, Renee A. Liviakis and Robert B. Prag
(collectively the "Liviakis Group") and information known to the Company
based on its consulting agreement with LFC and the number of shares
issuable to LFC under that agreement. John M. and Renee A. Liviakis are the
owners of LFC and Robert B. Prag is an executive officer of LFC. The number
of shares shown includes a total of 2,625,000 shares of Common Stock and
1,200,000 shares of Common Stock underlying warrants owned by Mr. Liviakis
as an individual, plus 240,000 shares of Common Stock issuable to LFC and
Mr. Robert B. Prag (as described in footnote 6 to this table) pursuant to a
consulting agreement between the Company and LFC effective as of July 25,
1997, under which the Company was obligated to issue 210,000 of the shares
as of February 28, 1998 and 30,000 additional shares of Common Stock within
60 days of February 28, 1998. See "Certain Transactions - Transactions with
Liviakis Financial Communications, Inc." and "Selling Security Holders."
(6) The information shown is based upon Schedule 13D/A (Amendment No. 2) dated
November 26, 1997 filed on behalf of the Liviakis Group and information
known to the Company based on its consulting agreement with LFC and the
number of shares issuable to LFC under that agreement. Robert B. Prag is an
executive officer of LFC. The number of shares shown includes a total of
875,000 shares of Common Stock and 400,000 shares of Common Stock
underlying warrants owned by Mr. Prag as an individual, plus the full
240,000 shares of Common Stock issuable to LFC and Mr. Prag as described in
footnote (5) to this table which are reported in the Schedule 13D/A as
being subject to shared voting and dispositive power between John M. and
Renee A. Liviakis, Robert B. Prag and LFC. See "Certain Transactions -
Transactions with Liviakis Financial Communications, Inc." and "Selling
Security Holders."
(7) The information shown is based upon Schedule 13D/A (Amendment No. 2) dated
November 26, 1997 filed on behalf of the Liviakis Group. The number of
shares shown includes all shares of Common Stock included in footnotes (5)
and (6) to this table as to which any person in the Liviakis Group
exercises sole or shared voting and disposition power, except that the
240,000 shares issuable to LFC under the consulting agreement are included
only once in the share number shown despite being included in both Messrs.
Liviakis' and Prag's share ownership figures. See "Certain Transactions -
Transactions with Liviakis Financial Communications, Inc." and "Selling
Security Holders."
(8) Includes 325,000 shares underlying a convertible promissory note issued as
a consulting fee to entrenet which are issuable as of or within 60 days of
February 28, 1998. Also includes 280,000 shares which were issuable to
entrenet (or its designated assignees) as of February 28, 1998 as a
finder's fee (which became payable as of August 6, 1997). 165,200 of these
shares have been assigned to certain individual members of entrenet and the
shares were issued as of April 3, 1998. Also includes 10,435 shares of
Common Stock underlying a Common Stock Purchase Warrant issued to entrenet
as of March 12, 1998, which is presently exercisable. See "Certain
Transactions - Transactions with entrenet Group, LLC" and "Selling Security
Holders."
(9) Includes all shares underlying options and warrants as described in
footnotes (2) - (4) of this table, plus 45,000 shares underlying options
issued to three additional executive officers which are exercisable within
60 days of February 28, 1998. See "Management - Executive Compensation."
The number of shares also includes 397,684 shares that were subject to a
shareholder voting agreement and a call option granted to the Company by
Mr. Richard P. Draper, the owner of such shares, in October 1995. Under
this agreement,
62
<PAGE>
the Company was granted authority to vote such shares in its discretion and
to purchase such shares from Mr. Draper at $.25 per share until October 5,
1998. As of March 12, 1998, the Company entered into an agreement with Mr.
Draper pursuant to which it paid Mr. Draper's assignee $25,000 and released
its voting and call option rights as to 30,000 of the shares in return for
Mr. Draper's consent to allow the Company to assign its call option as to
the remaining shares to a third party. See "Certain Transactions
Transactions with Richard P. Draper."
</FN>
</TABLE>
<TABLE>
<CAPTION>
Certain Holders of Series A Preferred Stock
-------------------------------------------
Shares of Series A Preferred
Stock Beneficially Owned (1)
Number Percent
of of
Name of Beneficial Owner Shares Class
- ------------------------ ------ -----
<S> <C> <C>
Rod L. Stambaugh.................................................. -0- 0%
Evon A. Kelly..................................................... -0- 0%
Richard S. Barton................................................. -0- 0%
Caesar Berger..................................................... -0- 0%
Chester N. Winter................................................. -0- 0%
Alvin C. Rice..................................................... -0- 0%
All directors, director appointees and executive officers
as a group (9 persons)............................................ -0- 0%
RBB Bank Aktiengesellschaft (2)...................................
Burgring 16
8010 Graz Austria 1,600,000 52.3%
The Endeavor Capital Fund.........................................
14/14 Divrei Chaim Street
Jerusalem 94479 Israel 1,000,000 32.7%
CNCA - SCT Brunoy.................................................
Sub A/C BGP
30 Rue des Vallies
91300 Brunoy France 200,000 6.5%
- ------------------
<FN>
(1) To the Company's knowledge, except as otherwise indicated in the footnotes
to this table, all persons named in this table have sole voting and
investment power with respect to all shares of Series A Preferred Stock
shown as beneficially owned by them, subject to community property laws
where applicable. Beneficial ownership is determined in accordance with the
rules of the United States Securities and Exchange Commission. There are no
shares of Series A Preferred Stock which are subject to options, warrants
or rights held by any person.
(2) RBB Bank Aktiengesellschaft is the record owner of the shares. RBB holds
the shares as agent for 30 individuals who share voting and investment
power over the shares. The Company has been advised that no single
individual in the group owns 5% or more of the shares of Series A Preferred
Stock. See "Selling Security Holders."
</FN>
</TABLE>
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<PAGE>
CERTAIN TRANSACTIONS
--------------------
Transactions with Cardservice International, Inc.
Mr. Caesar Berger, a director of the Company, is also an officer of
Cardservice International, Inc. See "Management." CSI has been involved with the
Company in what is primarily a customer - vendor relationship, and CSI purchased
approximately $698,000 and $398,000 in product from the Company in the fiscal
years ended June 30, 1997, and 1996, respectively. In fiscal 1996, CSI advanced
the Company $162,500 for the purchase of raw materials in exchange for 142,544
shares of Common Stock, plus the royalty right described in the following
paragraph. The Company valued the shares at 150% of the then current market
price for purposes of the transaction. CSI was granted registration rights on
the underlying shares. In 1995, CSI was granted warrants exercisable for 100,000
shares of Common Stock at $.10 per share, which it exercised as of April 26,
1996. Rather than exercise its registration rights, CSI has sold shares from
time to time under SEC Rule 144 and as of January 31, 1998, CSI had sold all of
the shares of Common Stock it acquired through exercise of the warrants and as
partial consideration for the loan.
In conjunction with the $162,500 loan, the Company obligated itself to pay
royalties to CSI on future non- CSI sales of POS-50(R) product built with the
inventory purchased by CSI in the amount of $150 per unit on the first 1,000
units and $100 per unit on any additional units. The Company has not paid any
royalties to CSI under this agreement to date and is in the process of
determining the number of units that have been sold that are subject to the
royalties payable under this agreement.
Transactions with Liviakis Financial Communications, Inc. ("LFC") and Affiliates
of LFC
In July of 1997, the Company entered into a Consulting Agreement with
Liviakis Financial Communications, Inc. ("LFC") pursuant to which LFC provides
the Company with financial and business consulting and public and investor
relations services. The Company is obligated to pay Liviakis consulting fees of
$10,000 in cash and 300,000 shares of its Common Stock over the one year term of
the Consulting Agreement. 75% of the shares are issuable to LFC and 25% are
issuable to Mr. Robert B. Prag, an executive officer of LFC. The Company has
agreed to register the 300,000 shares of Common Stock issuable to LFC and Mr.
Prag and those shares are included in the registration statement of which this
Prospectus is a part. See "Selling Security Holders." Pursuant to the Consulting
Agreement, the Company must also pay LFC cash equal to 2.5% of the gross
proceeds received in any direct financing located for the Company by LFC. In
connection with the closing of the sale of $3,060,000 of 8% Convertible
Debentures, the Company paid LFC $76,500 as a finder's fee for locating JW
Charles Securities, Inc., the finder used by the Company in the offering of the
8% Convertible Debentures. See "Business - History of the Company - Recent
Significant Securities Issuances Private Offering of 8% Adjustable Rate
Convertible Subordinated Debentures Due December 31, 1999."
The Company also sold a total of 3,500,000 shares of Common Stock and
warrants to purchase up to an additional 1,600,000 shares of Common Stock
exercisable at $.01 per share (the "Liviakis Warrants") to two affiliates of
LFC, Messrs. John Liviakis and Robert B. Prag, in August 1997, for $500,000 in
cash. Pursuant to this transaction, Messrs. Liviakis and Prag became significant
shareholders of the Company. See "Security Ownership of Principal Shareholders
and Management." The Common Stock issued (and issuable pursuant to the
Consulting Agreement and upon exercise of the Liviakis Warrants) to LFC and
Messrs. Liviakis and Prag carries registration rights (which include the right
to register any other shares of the Company which they may possess at the time
of any registration in which they have a right to include shares), including a
one-time demand registration right and unlimited "piggyback" registrations, with
the costs thereof to be borne by the Company. The registration rights expire at
the earlier of three years from August 4, 1997 or at such time as all shares may
be sold without restriction under SEC Rule 144. The shares of Common Stock that
LFC and Messrs. Liviakis and Prag can acquire by exercise of the Liviakis
Warrants and under the consulting agreement
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<PAGE>
are being included in the registration statement of which this Prospectus is a
part. However, in connection with the purchase of the Company's 8% Convertible
Debentures by the investors in that offering, LFC and Messrs. Liviakis and Prag
agreed that they will not commence sales any of their shares in the Company
prior to August 1, 1998. See "Selling Security Holders."
Since the LFC related financing transaction and the LFC Consulting
Agreement were entered into by the Company at approximately the same time, the
Company has treated these transactions as one transaction for accounting
purposes. To properly ascribe a fair value to the Consulting Agreement, the
Company obtained an independent valuation of the Company's share price from an
accredited valuation firm. Based on the fair market value of the Common Stock as
determined by the valuation, the total of all shares issuable in the
transactions, and the cash proceeds received, the Consulting Agreement was
valued at $1,390,000 and recorded as prepaid consulting services with a
corresponding increase in equity. The consulting services will be amortized on a
straight-line basis over the term of the Consulting Agreement (one year) as an
element of operating expense, within selling, general and administrative expense
in the statement of operations, commencing with the July 25, 1997 effective date
of the agreement.
Pursuant to the agreement by which they purchased the Company's securities,
Messrs. Liviakis and Prag were granted the right to approve the appointment of a
Chief Executive Officer, Chief Financial Officer and Vice President of Sales,
which they have done. They also have the right to approve the nominations of up
to two non-employee directors. They have approved the appointment of Richard S.
Barton as a director of the Company but have not exercised their rights
regarding another director as of the date of this Prospectus.
Between October 14 and November 30, 1997, the Company received several
bridge loans from LFC in the total amount of $475,000. The Company was obligated
to pay LFC interest on the amount borrowed at the rate of 9% per annum. The
Company paid LFC the amount due on these loans, with interest at the stated
rate, from the proceeds of the sale of the 8% Convertible Debentures sold on
December 10, 1997. See "Business - History of the Company - Recent Significant
Securities Issuances - Private Offering of 8% Adjustable Rate Convertible
Subordinated Debentures Due December 31, 1999."
Transactions with entrenet Group, LLC
In June 1997, the Company entered into a consulting agreement with entrenet
Group, LLC ("entrenet"), for purposes of assisting the Company in strategic
planning, the creation of a detailed business and marketing plan and in locating
financing sources. For its services, the Company issued a $150,000 convertible
promissory note to entrenet, with interest payable at 10% per annum, due in full
on or before June 2, 1998. Principal and interest are convertible into Common
Stock of the Company over the year ending June 2, 1998, at $.50 per share. See
"Security Ownership of Principal Shareholders and Management." In addition, the
Company was obligated to pay entrenet a finder's fee of 8% for any direct
financing it located for the Company, payable in Company securities identical to
what was sold by the Company in any such financing. Entrenet located LFC and was
therefore entitled to a finder's fee for that $500,000 financing. A difference
then developed between the Company and entrenet over interpretation of the
provisions specifying the consideration payable to entrenet as its finder's fee
for locating LFC. The matter was finally resolved by the Company and entrenet
agreeing that the Company would issue entrenet a total of 280,000 shares of its
Common Stock at such time as the Company obtained shareholder approval for an
increase in authorized Common Stock to no less than 40,000,000 shares. This
occurred on February 6, 1998. The Company also granted entrenet "piggyback
registration rights" covering all shares of Common Stock issuable to it under
the debenture and as payment of the finder's fee, which entitle entrenet to have
their shares included in any registration filed by the Company. Those shares are
included in the registration statement of which this Prospectus is a part. See
"Selling Security Holders."
As of March 12, 1998, the Company entered into an agreement with entrenet
to provide business and financial consulting services to the Company and to
assist the Company in locating additional financing. The
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<PAGE>
term of the agreement is for six months from March 12, 1998 and renews for
additional six month terms unless at least 60 days notice is given to terminate
the agreement prior to the end of a term. For its advisory services under the
agreement, entrenet will receive a fee of $60,000, payable in the form of a
promissory note bearing 10% interest, due on or before the earlier of March 11,
1999, or the receipt by the Company of aggregate gross proceeds from financings
of $2,000,000. In addition, entrenet received a Common Stock Purchase Warrant to
purchase 10,435 shares at $5.75 per share, exercisable until March 11, 2003. The
shares issuable pursuant to the warrant carry piggyback registration rights that
entitle entrenet to have the shares registered at any time the Company effects a
registration of its securities under the Securities Act of 1933, as amended,
subject to exclusion for registrations on ineligible forms. See "Description of
Securities - entrenet Warrant." Upon the consummation of any financing
transaction entered into by the Company during the term of the agreement (with
the exception of financings from certain identified, excluded sources) or for
two years after termination with respect to any financing obtained from a source
introduced to the Company by entrenet, entrenet is entitled to receive cash
compensation as follows: for debt financings, 2% of the total amount of the
financing, payable in cash or in the form of a 10% note due in one year; for
equity financings, 7% of the total gross financing proceeds (payable in cash),
unless there is a licensed investment banker entitled to receive compensation as
a result of the transaction, in which case the amount payable to entrenet is
reduced to 2 1/2% of the gross proceeds (payable in cash), plus a five year
Common Stock purchase warrant which entitles entrenet to purchase that number of
shares of Common Stock equal in value (as determined by a defined fair market
price) to the full amount of compensation payable to entrenet in cash, at a per
share exercise price equal to the then current market value of the Common Stock
(as defined); for mergers and acquisitions, 5% of the total consideration paid
or received in the transaction (payable in cash), unless there is a licensed
investment banker entitled to receive compensation as a result of the
transaction, in which case the amount payable to entrenet is reduced to 3%
(payable in cash) of such consideration, plus a five year Common Stock purchase
warrant which entitles entrenet to purchase that number of shares of Common
Stock equal in value (as determined by a defined fair market price) to the full
amount of compensation payable to entrenet in cash, at a per share exercise
price equal to the then current market value of the Common Stock (as defined).
If entrenet assists the Company in locating an executive-level candidate who is
hired by the Company, entrenet is entitled to receive a fee equal to 30%
(payable in cash) of the candidate's total first year compensation.
Transactions with ADATOM, Inc.
The Company purchased office furniture and computer equipment in the
approximate amount of $200,000 through ADATOM, Inc., a company owned by Richard
S. Barton, who is a director of the Company. Mr. Barton also serves as an
executive officer of ADATOM. See "Management." ADATOM is in the business of
selling such furniture and equipment and the Company offered to purchase through
ADATOM if it was able to meet quotes obtained by the Company from competing
independent suppliers of the same furniture and equipment. ADATOM was able to
meet such quotes. The Company believes that the terms upon which it has
purchased items from ADATOM are at least as favorable as it could have obtained
from independent, unaffiliated parties. The Company may make additional
purchases from ADATOM in the future, subject to the same conditions.
Proposed Transactions with International Verifact, Inc.
The Company is presently negotiating to purchase certain credit/debit card
transaction processing equipment from International Verifact, Inc. ("IVI"), a
company for which Alan Roberts, a director of the Company until February 6,
1998, serves as Vice President of Product Development. At this point, the
details of the purchase relationship have not been finalized and no specific
dollar amount of such purchases, if any, is known, although the amount of such
purchases could be material.
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<PAGE>
DESCRIPTION OF SECURITIES
-------------------------
Authorized Capital
- ------------------
The authorized capital stock of the Company consists of 40,000,000 shares
of no par value common stock (the "Common Stock") and 15,000,000 shares of no
par value preferred stock (the "Preferred Stock"), 4,000,000 shares of which
have been designated as Series A Cumulative Convertible redeemable Preferred
Stock (the "Series A Preferred Stock"). Because only 3,060,000 of the 4,000,000
shares of Series A preferred Stock were sold are outstanding, the Board of
Directors will likely remove 940,000 shares of the Series A Preferred Stock from
the designation and reinstate it as authorized and available for redesignation
and issuance.
Common Stock
- ------------
The Common Stock has attributes typical of common stock. Each share has one
vote on all matters submitted to shareholders and is entitled to participate pro
rata in all distributions made on the Common Stock after payment of all
preferences on any other class having superior rights. Cumulative voting in the
election of directors is not allowed and the Common Stock is not entitled to any
preemptive rights to purchase or subscribe for any securities to be issued by
the Company.
Transfer Agent for Common Stock
- -------------------------------
The transfer agent and registrar for the Common Stock is American
Securities Transfer & Trust, Inc. ("AST"). AST's operations center address is
938 Quail Street, Suite 101, Lakewood, Colorado 80215-5340 and its telephone
number is (303) 234-5300.
Certain Effects Of Authorized But Unissued Stock
- ------------------------------------------------
As of May 1, 1998, there are 22,486,527 shares of Common Stock (including
the reservation of a total of 1,026,241 shares of Common Stock estimated to be
issuable upon conversion of, and as dividends on, 3,060,000 shares of Series A
Preferred Stock, based on a projected market price of $4.00 per share for the
Common Stock at the time of conversion and payment of dividends) and 11,940,000
shares of Preferred Stock available for future issuance without further
shareholder approval (subject to reservation of any additional shares of Common
Stock as may be necessary to honor: conversion rights of, or dividends payable
on, the Series A Preferred Stock if the market price of the underlying Common
Stock is less than $4.00 per share; or antidilution provisions of any
outstanding options, warrants or other convertible securities). These additional
shares may be utilized for a variety of corporate purposes including future
private or public offerings to raise additional capital, to pay Company debts or
to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
the Company's management. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company.
With respect to authorized and unissued Preferred Stock, the Board of
Directors may determine the rights, preferences, privileges and restrictions of
the unissued Preferred Stock without any further action by shareholders. The
purpose of authorizing the Board of Directors to determine such rights and
preferences is to eliminate delays associated with a shareholder vote on
specific issuances. The Board of Directors may issue Preferred Stock with voting
and conversion rights which could adversely affect the voting power of the
holders of Common Stock, and which could, among other things, have the effect of
delaying, deferring or preventing a change in control of the Company. However,
any issuance of preferred stock with voting rights could have the
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<PAGE>
effect of reducing the Company's ability to use it NOLs prior to expiration. See
"Risk Factors - Risks Relating to the Company's Securities - Possible Loss of
NOLs."
The Company does not currently have any plans to issue additional shares of
Common Stock or Preferred Stock other than shares of Common Stock which may be
issued as dividends on, or in conversion of, the Series A Preferred Stock, and
upon the exercise of options, warrants and other present commitments to issue
Common Stock which have been granted to date or which may be granted in the
future to the Company's employees, nonemployee directors and consultants.
Certain Anti-Takeover Provisions of Colorado Law
- ------------------------------------------------
Under Section 7-106-205 of the Colorado Business Corporation Act, the Board
of Directors of a Colorado corporation may issue rights, options, warrants or
other convertible securities (hereafter "rights") entitling the holders of the
rights to purchase, receive or acquire shares or fractions of shares of the
corporation or assets or debts or other obligations of the corporation, upon
such terms as are determined by the Board of Directors, but subject to the
fiduciary duties of directors to the shareholders of the corporation. In the
absence of fraud, the judgment of the Board of Directors in determining the
adequacy of the consideration received by the corporation for the rights is
conclusive. The Board of Directors is free to structure the issuance or exercise
of the rights in a manner which may exclude "significant shareholders" from
being entitled to receive such rights or to exercise such rights or in a way
which may impose conditions on the exercise of such rights which is different
for "significant shareholders" as compared to other shareholders. The statute
defines "significant shareholder" as being any person owning, or offering to
acquire, directly or indirectly, a number or percentage, as specified by the
Board of Directors, of the outstanding voting shares of the corporation, or any
transferee of such person. By structuring and issuing rights of this type, the
Board of Directors could effectively prevent a takeover of the corporation by
persons deemed hostile to management. Nothing presently contained in the
Articles of Incorporation of the Company prohibits the Board from using these
types of rights in this manner.
Preferred Stock
- ---------------
The Company is authorized to issue a total of 15,000,000 shares of no par
value preferred stock (the "Preferred Stock") which is commonly known as "blank
check" Preferred Stock. The term "blank check" Preferred Stock refers to stock
for which the designations, preferences, conversion rights, cumulative,
relative, participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof are determined by the board
of directors of a company. The Board of Directors may designate a series and
issue shares of Preferred Stock for a variety of corporate purposes including
future private or public offerings to raise additional capital, to pay Company
debts or to facilitate corporate acquisitions, conversions of convertible
securities, employee benefit plans, stock splits effected in the form of stock
dividends, and other general corporate purposes. This can be done without any
additional shareholder approval, except as might be required by applicable stock
exchange rules. The Company is not presently subject to any stock exchange rules
which would require the Board to secure shareholder approval for such an
issuance of Preferred Stock.
There are presently 4,000,000 shares of Preferred Stock which have been
designated as Series A Cumulative Convertible Redeemable Preferred Stock (the
"Series A Preferred Stock"). A total of 3,060,000 shares of Series A Preferred
Stock are issued and outstanding. Such shares were issued as of February 9,
1998, upon designation of the Series A Preferred Stock, in exchange for
$3,060,000 of the Company's 8% Convertible Debentures. The Board of Directors
will likely dedesignate the remaining 940,000 shares of Series A Preferred
Stock, and those 940,000 shares will return to the status of authorized and
unissued shares of Preferred Stock. See "Description of Securities - Series A
Preferred Stock," below.
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<PAGE>
Description of "Blank Check" Preferred Stock, Including Anti-Takeover
Implications
The Board of Directors may authorize the issuance, at any time or from time
to time, of one or more series of Preferred Stock, and would at that time
determine all designations, relative rights, preferences, and limitations of
such stock including but not limited to the following: designation of series and
numbers of shares; dividend rights; rights upon liquidation or distribution of
assets of the Company; conversion or exchange rights; redemption provisions;
sinking fund provisions; and voting rights.
One of the primary purposes of authorizing directors to designate and issue
shares of Preferred Stock is to eliminate delays associated with a shareholder
vote on specific issuances. The Board of Directors may, however, subject to
their duties to existing shareholders, issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock, and which could, among other things, have the effect of
delaying, deferring or preventing a change in control of the Company. The Board
of Directors is required to make any determination to issue shares of Preferred
Stock based on its judgment as to the best interests of the shareholders and the
Company; however, the Board of Directors could issue shares of Preferred Stock
that could, depending on the terms of such series, make more difficult an
attempt to obtain control of the Company by merger, tender offer, proxy contest
or other means.
While the Company may consider effecting an equity offering of Preferred
Stock or otherwise issuing such stock in the future for purposes of raising
additional capital or for acquisitions, the Company, other than the Series A
Preferred Stock that was immediately designated upon authorization of Preferred
Stock by the Company's shareholders, has no agreements or understandings as of
the date hereof with any third party to effect any such offering or acquisition,
or to purchase any shares offered in connection therewith, or to vote any such
shares, and no assurances are given that any offering will in fact be effected
or that an acquisition pursuant to which such shares may be issued will be
proposed and consummated. Therefore, the terms of any Preferred Stock that might
be designated and issued in the future by the Board of Directors (other then the
Series A Preferred Stock described herein) cannot be stated or estimated with
respect to any or all of the securities authorized.
Series A Preferred Stock
- ------------------------
The Company's Articles of Incorporation were amended by director action as
of February 9, 1998, to designate 4,000,000 shares of Preferred Stock as Series
A Cumulative Convertible Redeemable Preferred Stock (the "Series A Preferred
Stock"), following shareholder authorization of up to 15,000,000 shares of
Preferred Stock on February 6, 1998.
$3,060,000 of the Company's 8% Convertible Debentures, which were sold as
of December 10, 1997, automatically converted into 3,060,000 shares of Series A
Preferred Stock upon the authorization of the Series A Preferred Stock by the
Company. At the time of the offering of the 8% debentures the Company was not
authorized to issue Preferred Stock; consequently, the Company elected to issue
the 8% Convertible Debentures, subject to the condition that upon approval of an
adequate number of shares of Preferred Stock by shareholders, the 8% Convertible
Debentures would automatically convert into shares of Series A Preferred Stock
at the rate of one share of Series A Preferred Stock for each dollar of 8%
Convertible Debentures owned by an investor at the time. The 8% Convertible
Debentures therefore had essentially identical terms as the Series A Preferred
Stock into which they converted, insofar as the right to receive interest
(dividends on the Series A Preferred Stock), conversion rights, registration
rights relating to shares of Common Stock issuable upon conversion or as
interest on the 8% Convertible Debentures, and the Company's redemption rights.
Therefore, no description of the 8% Convertible Debentures has been included in
this section as none of the 8% Convertible Debentures remains outstanding as of
the date of this Prospectus.
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<PAGE>
The Series A Preferred Stock is convertible into shares of Common Stock at
the option of the holders and dividends on the Series A Preferred Stock are
payable in shares of Common Stock, as described below. The shares of Common
Stock issuable upon conversion of, and as dividends on, the Series A Preferred
Stock, are being registered in the registration statement of which this
Prospectus is a part. See "Selling Security Holders."
The Series A Preferred Stock has the following rights and preferences.
Face Value
For all calculations for which a value of the Series A Preferred Stock is
needed, such as dividend payments and conversion ratios, the Series A Preferred
Stock has a designated face value of $1.00 per share, which was the equivalent
purchase price of the Series A Preferred Stock.
Conversion into Common Stock
The Series A Preferred Stock is convertible at the option of the Holder
into shares of Common Stock effective upon the earlier of (i) a declaration of
effectiveness by the SEC of a registration statement covering the Common Stock
into which the Series A Preferred Stock is convertible or (ii) 150 days from
December 10, 1997. The Series A Preferred Stock will be convertible into Common
Stock based on the face value of the Preferred Stock being converted at a rate
(the "Conversion Price") equal to the lesser of (i) $6.00 per share of Common
Stock or (ii) 80% of the average of the closing bid price of the Common Stock as
reported on the OTC Electronic Bulletin Board or, if available, the closing bid
price as quoted on NASDAQ or any other national securities exchange upon which
the Common Stock is then listed, over the five trading days prior to conversion.
Subject to certain penalties for failure to obtain effectiveness of a
registration statement covering the shares of Common Stock issuable upon
conversion of, and as dividends payable on, the Series A Preferred Stock, within
150 days of December 10, 1997, the Conversion Price will in no case be less than
$4.00 per share of Common Stock for the first 270 days following December 10,
1997 (the "Minimum Conversion Price"). After such 270 day period, the Minimum
Conversion Price is eliminated. If the Company has not obtained effectiveness of
a registration statement covering the shares of Common Stock issuable upon
conversion of, and as dividends payable on, the Series A Preferred Stock, the
Conversion Price (or Minimum Conversion Price, if then in effect) for the Series
A Preferred Stock is discounted by 2% off the then-existing conversion price for
each thirty day period (or fraction of any thirty day period) during which the
registration statement is not effective after such 150th day and such discount
will apply thereafter to determine the Conversion Price or Minimum Conversion
Price applicable to the Series A Preferred Stock. No fractional shares of Common
Stock will be issued upon conversion of the Series A Preferred Stock; rather, a
holder entitled to a fractional share may receive the next higher whole number
of shares of Series A Preferred Stock if the fractional share to which such
Holder is otherwise entitled is equal to 0.5 or greater, or the next lower
number of whole shares if the fractional share to which such Holder is otherwise
entitled is less than 0.5. Instead of applying the rounding formula, the
Company, at its election, may pay cash in lieu of any fractional share otherwise
issuable upon conversion of the Series A Preferred Stock. The Company is
obligated to deliver share certificates to the holders of the Series A Preferred
Stock within eight business days of the date it receives a properly submitted
conversion notice and is subject to an escalating penalty (based on the face
amount of the Series A Preferred Stock being converted) of for each day beyond
such eight day period that delivery of share certificates is late.
The shares of Common Stock into which the Series A Preferred Stock is
convertible and which are issuable as dividends on the Series A Preferred Stock
are hereafter referred to as the "D/PS Common Stock."
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<PAGE>
Dividends
Holders of the Series A Preferred Stock are entitled to receive cumulative
quarterly dividends, when, as and if declared by the Board of Directors, out of
the funds of the Company legally available therefor, at the option of the
holder, initially at a per annum rate of 8% per share. The dividend rate will be
reduced to 4% per annum upon initial effectiveness of an SEC registration
statement covering the shares of Common Stock into which the Series A Preferred
Stock is convertible. Dividends are payable as of the record dates of March 31,
June 30, September 30 and December 31 of each year, commencing on the first such
date following the date of original issuance of the Series A Preferred Stock.
Dividends on the Series A Preferred Stock will be cumulative from the date of
original issuance, and will be payable to holders of record as they appear on
the stock books of the Company on such record dates. Payment dates shall be no
more than 15 days after the record dates. Any unpaid dividends will bear
interest at the same rate as the dividend rate then in effect for the Series A
Preferred Stock. The accrued interest on the 8% Convertible Debentures which
converted into shares of Series A Preferred Stock on February 9, 1998, is to be
paid at the same time as the next dividend on the Series A Preferred Stock.
Unless the full amount of cumulative dividends on the Series A Preferred
Stock have been paid or sufficient funds set aside therefor, dividends may not
be paid or declared and set aside for payment and other distribution may not be
made on the Common Stock or any other stock of the Company ranking junior to the
Series A Preferred Stock as to dividends.
Under Colorado law, dividends or distributions to shareholders may be made
only under certain circumstances. Dividends or distributions may not be paid in
cash or property of the Company if after giving effect to such distribution the
corporation (1) would not be able to pay its debts as they become due in the
ordinary course or (2) the corporation's total assets would be less than its
total liabilities plus the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution. The Company's ability to pay dividends in
the future may therefore depend upon its financial results, liquidity and
financial condition.
Registration Rights of Holders of Series A Preferred Stock
The Company also entered into an agreement with the purchasers of the
Series A Preferred Stock to file a registration statement with the SEC covering
the D/PS Common Stock within 90 days of December 10, 1997. The Company has
agreed to use its best efforts to obtain effectiveness of the registration
statement. If the Company is unable to do so within 150 days of December 10,
1997, the Conversion Price (or Minimum Conversion Price, if then in effect) for
the Series A Preferred Stock will be discounted by 2% off the then-existing
conversion price for each thirty day period (or fraction of any thirty day
period) during which the registration statement is not effective after such
150th day and such discount will apply thereafter to determine the Conversion
Price or Minimum Conversion Price applicable to the Series A Preferred Stock.
The Company is to use its best efforts to maintain effectiveness of the
registration statement for 16 months from June 30, 1998. All expenses of the
registration are to be borne by the Company, except for selling expenses,
commissions or counsel fees incurred by or on behalf of the holders of Series A
Preferred Stock.
The Company has also granted the holders of the Series A Preferred Stock
the right to be included in an unlimited number of "piggyback registrations" if
and when the Company registers any securities for its own account or for any
other selling security holders, subject to certain limitations in the event that
such a registration is for an underwritten offering of securities.
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<PAGE>
The Company and the holders of the Series A Preferred Stock have also
agreed to indemnify each other for certain liabilities to which they may become
subject in connection with the sale of the shares of Common Stock under any
registrations. See "Commission Position on Indemnification for Securities Act
Liabilities."
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, before any distribution of assets is made to holders
of Common Stock or any other stock of the Company ranking junior to the shares
of Series A Preferred Stock upon liquidation, dissolution or winding up, the
holders of Series A Preferred Stock shall receive a liquidation preference of
$1.00 per share and shall be entitled to receive all accrued and unpaid
dividends through the date of distribution. If, upon such a voluntary or
involuntary liquidation, dissolution or winding up of the Company, the assets of
the Company are insufficient to pay in full the amounts described above as
payable with respect to the Series A Preferred Stock, the holders of the Series
A Preferred Stock will share ratably in any such distributions of assets of the
Company first in proportion to their respective liquidation preferences until
such preferences are paid in full, and then in proportion to their respective
amounts of accrued but unpaid dividends. After payment of any such liquidation
preference and accrued dividends, the shares of Series A Preferred Stock are not
entitled to any further participation in any distribution of assets by the
Company.
A consolidation or merger of the Company with or into any other corporation
will not be deemed to be a liquidation, dissolution or winding up of the
Company, provided it is approved by a majority of the Series A Preferred Stock.
Optional Redemption
The Series A Preferred Stock is subject to redemption in whole or in part
at the election of the Company upon not less than 30 nor more than 60 days'
notice by mail, at any time up to 270 days following December 10, 1997 if,
during such period, the closing bid price of the Common Stock for at least 20
trading days in any consecutive 30 trading day period is less than $4.00 per
share. To redeem the Series A Preferred Stock, the Company must pay 118% of the
principal amount being redeemed, together with accrued but unpaid interest owing
to the date of redemption. If the 20 day period falls wholly within the last 60
days of the 270 day period, then the Company will have a full 60 days from the
end of the 270 day period within which to redeem the Series A Preferred Stock.
The Company may also redeem any Series A Preferred Stock outstanding after
36 months from December 10, 1997 by payment of $1.00 per share plus all accrued
and unpaid dividends to the date of redemption.
If fewer than all of the shares of Series A Preferred Stock are to be
redeemed, the shares to be redeemed shall be pro rata among all shares
outstanding. On and after the date fixed for redemption, provided that the
redemption price (including any accrued and unpaid dividends to but excluding
the date fixed for redemption) has been duly paid or provided for, dividends
shall cease to accrue on the Series A Preferred Stock called for redemption,
such shares shall no longer be deemed to be outstanding and all rights of the
holders of such shares as shareholders of the Company shall cease, except the
right to receive the monies payable upon such redemption, without interest
thereon, upon surrender of the certificates evidencing such shares.
Voting Rights
The holders of the Series A Preferred Stock will have no voting rights
except as described below or as required by law. In exercising any such vote,
each outstanding share of Series A Preferred Stock will be entitled to one vote,
excluding shares held by the Company or any affiliate of the Company, which
shares shall have no voting rights.
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<PAGE>
As long as any Series A Preferred Stock is outstanding, the Company may
not, without the affirmative vote or consent of the holders of at least 50%
(unless a higher percentage shall then be required by applicable law) of the
outstanding shares of Series A Preferred Stock amend or repeal any provision of
the Company's Articles of Incorporation (including the Designation) or Bylaws
which would have the effect of altering, changing or amending the preferences,
rights, privileges, or powers of, or the restrictions provided for the benefit
of, the Series A Preferred Stock.
Transfer Agent and Registrar for Series A Preferred Stock
The Company acts as transfer agent and registrar for the Series A Preferred
Stock, which is not publicly traded.
Common Stock Purchase Warrants
- ------------------------------
The Company presently has the following common stock purchase warrants
outstanding:
Liviakis Warrants
In August 1997, for total consideration of $500,000, the Company sold
3,500,000 shares of Common Stock and warrants to two affiliates of Liviakis
Financial Communications, Inc., Messrs. John Liviakis and Robert Prag. The
warrants entitle the holders to purchase up to 1,600,000 shares of the Company's
Common Stock at $.01 per share commencing January 15, 1998 and through August 4,
2002. The warrant shares (as well as the 3,500,000 shares issued to Messrs.
Liviakis and Prag, the 300,000 shares issuable under the consulting agreement
effective as of July 25, 1997 between the Company and Liviakis Financial
Communications, Inc. and any other shares of Common Stock that Messrs. Liviakis
or Prag own or have the right to acquire) carry registration rights which
entitle the holders of a majority of the shares to have such shares included in
any appropriate registration statement filed by the Company under the Securities
Act of 1933 for three years from August 4, 1998 (the "piggyback rights") plus a
one time right to have any shares owned or acquirable by such majority holders
registered upon demand. The Company must keep the registration statement open
for two years at its expense. The Liviakis Warrants also contain certain
antidilution provisions which protect the holders against issuances of Common
Stock at prices less than current market. Messrs. Liviakis and Prag have waived
these antidilution rights as to issuances of Common Stock dividends upon the
shares of Series A Preferred Stock. See "Security Ownership of Principal
Shareholders and Management," "Certain Transactions Transactions with Liviakis
Financial Communications, Inc. ("LFC") and Affiliates of LFC" and "Risk Factors
Risks Relating to the Offering and the Company's Securities - Offering to
Benefit Certain Existing Shareholders and Other Persons Holding the Company's
Securities" and "Selling Security Holders."
Underwriters' Warrants
In connection with its initial public offering which was completed in
December 1993, the Company issued warrants to the underwriters of that offering
exercisable to purchase up to 165,000 shares of Common Stock at $12.325 per
share, through December 1, 1998 (the "Underwriters' Warrants"). The shares
underlying the Underwriters Warrants (the "U/W Shares") have registration rights
exercisable through December 1, 1999, that require the Company to register the
stock for public resale, two times only, on demand of the holders of a majority
of the Underwriters' Warrants and/or the U/W Shares. The first registration is
at the expense of the Company, while the second is at the expense of the holders
of the Underwriter's Warrants or U/W Shares. In addition, an U/W Shares carry
rights to be included in an unlimited number of "piggyback registrations"
through December 1, 2000, subject to certain restrictions if the offering(s) are
underwritten and the underwriter objects to inclusion of the U/W Shares. Should
the Company refuse to register the U/W Shares on demand, or fail to file the
demand registration statement within 75 days after demand is made (90 days under
certain
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<PAGE>
circumstances) the Company is obligated to buy back the U/W Shares at a price
equal to fair market value (as defined in the warrant agreement) less the
exercise price of the Underwriters' Warrants.
The Underwriters' Warrants also contain anti-dilution provisions to protect
the holders against dilution in the event the Company issues shares of Common
Stock at less than market value (as defined in the Underwriters' Warrant
Agreement). Adjustments will be required to be made to the exercise price and
number of shares issuable upon exercise of the Underwriters' Warrants each time
Common Stock is issued at a discount to market pursuant to conversion of the
Series A Preferred Stock.
Former Management Warrants
Prior to going public, the Company issued three warrants to purchase a
total of 250,000 shares of Common Stock. The warrants were issued to one former
officer/director (two, 50,000 share warrants) (the "Directors's Warrants") and
one former officer (one 150,000 share warrant) (the "Officer's Warrants"). All
of these warrants are exercisable at $4.00 per share. The Director's Warrants
were originally exercisable through April 12, 1998; however, the Company has
agreed to extend the expiration date of the Directors' Warrants until the
earlier of six months from the effective date of a registration statement
including the shares underlying the 50,000 shares warrant which has registration
rights or April 12, 1999. The Officer's Warrant expires in April 2003. The
Company is obligated to register 50,000 shares underlying one of the Director's
Warrants on demand of the holder two times only, with the first registration at
Company expense and the second registration at the expense of the warrant
holder. The Company received a demand for registration of the 50,000 shares in
November 1997 and is including the shares underlying that Directors' Warrant in
the Registration Statement of which this Prospectus is a part. The expenses of
this registration are being borne by the Company. See "Selling Security
Holders." The other 50,000 share Director's Warrant had registration rights
which were satisfied by the Company by inclusion of the underlying shares in the
Company's initial public offering registration and does not have any additional
registration rights. The 150,000 share Officer's Warrant does not have
registration rights.
Direct Data Warrants
The Company issued warrants to purchase a total 29,548 shares of Common
Stock to the former shareholders of Direct Data, Inc., exercisable at $2.625 per
share. Of those warrants, 8,947 have been exercised, 5,752 have expired, and the
remaining 14,849 expire as of May 31, 1998. The shares underlying the warrants
have demand registration rights exercisable two times only, by which the holders
can demand to have the underlying shares registered, at the Company's expense.
Should the Company become eligible to use Form S-3, the holders have an
unlimited number of demand registrations available under a Form S-3
registration, provided the aggregate dollar amount of securities being
registered for the holders exceeds $500,000. In addition, the holders of the
warrants have an unlimited number of "piggyback" rights to have the shares
underlying the warrants included in any registration undertaken by the Company,
subject to certain limitations applicable to underwritten offerings. The shares
underlying the warrants are included in the registration statement of which this
Prospectus is a part. See "Selling Security Holders."
Finder's Warrant
In connection with the private offering of 8% Convertible Debentures closed
on December 10, 1997, the Company issued a Common Stock purchase warrant to JW
Charles Securities, Inc., of Boca Raton, Florida ("JW Charles") as part of the
finder's fee paid to JW Charles for services rendered to the Company in
connection in the offering. The warrant is exercisable to purchase 50,000 shares
of Common Stock at $6.525 per share at any time commencing on December 10, 1997,
and continuing until December 9, 2000. The warrant also provides for cashless
exercise. The warrant also contains antidilution protection to protect the
holder against certain issuances of Common Stock or securities convertible or
exchangeable for Common Stock
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<PAGE>
at less than market value (as defined in the warrant), although the antidilution
provisions do not apply to issuances of shares of Common Stock upon conversion
of Series A Preferred Stock, options or warrants outstanding as of December 10,
1997 or any options issued or issuable under the Company's 1992 Stock Option
Plan. The holders of the warrant also have registration rights entitling them to
a one time demand registration at any time during the exercise period at the
expense of the Company (subject to certain relief if financial statements are
required to be included other than those normally prepared by the Company in the
course of its ordinary reporting obligations under federal securities laws),
plus an unlimited number of "piggyback" registration rights which entitle the
holders to have the underlying shares included in any registration undertaken by
the Company, subject to certain limitations in the event of an underwritten
offering or as required by prior outstanding registration rights granted by the
Company. The registration rights terminate entirely at such time as the
underlying shares may be sold under SEC Rule 144 without any volume restrictions
within 90 days of the date of issuance of such shares. The 50,000 shares
underlying the warrant are included in the registration statement of which this
Prospectus is a part. See "Selling Security Holders."
entrenet Warrant
As of March 12, 1998, the Company issued a warrant to entrenet Group, LLC
to purchase 10,435 shares of Common Stock at $5.75 per share as a consulting
fee. The warrant expires as of March 11, 2003. The warrant has antidilution
provisions that protect the holders against dilution in the event of certain
transactions. The warrant also has "piggyback" registration rights entitling the
holders to have the underlying shares registered in any registration done by the
Company, other than registrations on ineligible forms with expenses of such
registrations to be borne by the Company. The holders of the warrant have agreed
to waive their registration rights with respect to the inclusion of the shares
in the Registration Statement of which this prospectus forms a part. See
"Certain Transactions - Transactions with entrenet Group, LLC."
Convertible Demand Notes
- ------------------------
From April - June, 1997 the Company issued promissory notes in the total
principal amount of $185,000 (the "Demand Notes"). These notes bore simple
interest of 10% per annum and were convertible to Common Stock of the Company
commencing on November 1, 1997. Principal and accrued interest owing on the
notes was convertible at $.35 per share (as to $75,000 of the notes) and $.50
per share (as to $110,000 of the notes). The notes were payable in the fourth
quarter of 1998, if not previously converted to Common Stock. The notes became
the subject of a dispute between the Company and holders of $135,000 of the
notes. In April 1998, the Company and the complaining noteholders settled the
dispute by the Company agreeing to issue 1.4 times the number of shares
originally issuable on conversion of the notes (plus an additional 11,000 shares
to one Noteholder who purchased $50,000 of the Demand Notes) and provide the
noteholders with a guarantee and "put" option as to any shares remaining unsold
at the end of the one year period commencing on the dates the shares issued on
conversion of the notes became saleable under SEC Rule 144. On July 2, 1997, the
Company issued a promissory note in the amount of $16,825 to one of the
investors who purchased the Demand Notes. This note was due and payable in full
as of July 30, 1997 and bore interest at a default rate of 18% per annum if not
paid when due. The Note was not paid when due; rather, the investor claims a
representative of the Company promised her that the note would be converted into
a Demand Note. At the same time as it settled the claims of this investor
arising out of the Demand Notes, the Company agreed to convert all amounts owing
as principal and interest by it under this note to a total of 18,507 shares of
Common Stock. See "Business - Legal Proceedings - Settlement of Claims of
Certain Noteholders" and "Risk Factors - Risks Involving the Company and Its
Business - Settlement of Claims of Certain Holders of Convertible Demand Notes."
Company's Option To Purchase Certain Shares
- -------------------------------------------
The Company has, since October 5, 1995, owned an option to purchase up to a
total of 397,684 shares of Common Stock from a shareholder at $.25 per share
(the "Call Option") and also has the right to vote those
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<PAGE>
shares in its discretion. As of March 12, 1998, the Company entered into an
agreement with the shareholder to allow the Company to assign the Call Option to
third parties. To induce the shareholder to consent to the assignment (which he
had the right to refuse), the Company agreed to pay the shareholder $25,000 in
cash and to release the Call Option and voting agreement as to 30,000 of the
shares. The Company has now assigned the Call Option to 150,000 of the shares
and is in the process of attempting to sell the Call Option as to the remaining
217,684 shares exclusively to accredited investors, who are expected to exercise
the Call Option immediately upon its purchase. The shares that are the subject
of the Call Option were originally issued in 1994 as "restricted securities" but
have had the legend removed pursuant to Rule 144(k). It is anticipated that the
shares may be immediately sold into the public market upon exercise of the Call
Option by an unaffiliated assignee. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Financial Condition" and "Certain
Transactions `- Transactions with Richard P. Draper' and `- Transactions with
RBB Bank Aktiengesellschaft.'"
Possible Future Application of California General Corporation Law to the Company
- --------------------------------------------------------------------------------
and Its Shareholders
- --------------------
Under Section 2115 of the California General Corporation Law, foreign
corporations that exceed an average of fifty percent for "the property factor,
the payroll factor and sales factor" for its latest full income year (as
computed under the same methods as are used in computing franchise tax payable
in California) and which have more than one-half of the corporation's
outstanding voting securities (as determined pursuant to Section 2115) held of
record by persons having addresses in California, become subject to certain
specified chapters and sections of the California General Corporation Law upon
the first day of the first income year of the corporation commencing on or after
the 135th day of the latest income year during which the above-described tests
have been met or during which a final order has been entered by a court of
competent jurisdiction declaring that those tests have been met. The Company
believes that it presently exceeds the shareholder address test and is likely to
have exceeded the other test as of the 135th day of its fiscal year ending June
30, 1999. The Chapters and Sections of the California General Corporation Law
that apply to a foreign corporation that exceeds these thresholds are: Chapter 1
(general provisions and definitions), to the extent applicable to the following
provisions; Section 301 (annual election of directors); Section 303 (removal of
directors without cause); Section 304 (removal of directors by court
proceedings); Section 305, subdivision (c) (filling of director vacancies where
less than a majority in office elected by shareholders);Section 309 (directors'
standard of care); Section 316 (excluding paragraph (3) of subdivision (a) and
Paragraph (3) of subdivision (f)) (liability of directors for unlawful
distributions); Section 317 (indemnification of directors, officers, and
others); Sections 500 to 505, inclusive (limitations on corporation
distributions in cash or property); Section 506 (liability of shareholder who
receives unlawful distribution); Section 600, subdivisions (b) and (c)
(requirement for annual shareholders' meeting and remedy of same not timely
held); Sections 708, subdivisions (a), (b) and (c) (shareholders right to
cumulate votes at any election of directors); Section 702 (supermajority vote
requirement); Section 1001, subdivision (d) (limitations on sale of assets);
Section 1101 (provisions following subdivision (e)) (limitations on mergers);
Chapter 12 (commencing after Section 1200) (reorganizations); Chapter 13
(commencing after Section 1300) (dissenters' rights); Sections 1500 and 1501
(records and reports); Section 1508 (action by Attorney General); and Chapter 16
(commencing after Section 1600) (rights of inspection). Application of these
provisions of the California General Corporation Law to the Company may give
greater or lesser protection to shareholders in certain instances than is
available to shareholders under Colorado law, the Company's State of
incorporation. Compliance with these provisions of California law may be more or
less onerous to the Company than compliance with analogous provisions of
Colorado law.
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<PAGE>
SELLING SECURITY HOLDERS
------------------------
This Prospectus relates to the resale of up to 7,324,106 shares of the
Company's Common Stock by the Selling Security Holders named below. The shares
being offered by the Selling Security Holders were or will be acquired in
transactions as follows:
<TABLE>
<CAPTION>
==========================================================================================================================
Number of Shares
Name of Selling of Common Stock Transaction by which Shares Purchased or
Security Holder Owned or Purchasable by Selling Security Holder
Acquirable
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RAS Securities 82,500 Shares Shares underlying Underwriters' Warrant issued as of
Corporation December 2, 1993, in connection with the Company's
Initial public offering, exercisable at $12.325 per share.
See "Description of Securities - Common Stock Purchase
Warrants - Underwriters' Warrants."
- --------------------------------------------------------------------------------------------------------------------------
Walford & Company 82,500 Shares Shares underlying Underwriters' Warrant issued as of
Incorporated December 2, 1993, in connection with the Company's
Initial public offering, exercisable at $12.325 per share.
See "Description of Securities - Common Stock Purchase
Warrants - Underwriters' Warrants."
- --------------------------------------------------------------------------------------------------------------------------
James B. Walters 50,000 Shares Shares underlying common stock purchase warrant issued
as of April 12, 1993, exercisable at $4.00 per share. See
"Description of Securities - Common Stock Purchase
Warrants - Director's Warrants."
- --------------------------------------------------------------------------------------------------------------------------
Former Shareholders 18,796 Shares Shares issued or issuable upon exercise of common stock
of Direct Data, Inc. purchase warrants issued as consideration in the
acquisition of Direct Data, Inc., as of September 29,
1994, exercisable at $2.625 per share. The warrants
and/or shares are owned by the following individuals
in the following amounts: Peter Roehl -
3,947 Shares; K.M. Lawlis and M.W. Lawlis,
as Trustees for the K.M. Lawlis 1990 Revocable Trust -
warrants to purchase 8,459 Shares; Henry
Nichols - warrants to purchase 3,759 Shares;
and Alan B. Roberts (a former director officer
and Director of the Company) - warrants to
purchase 2,631 Shares. See "Description of
Securities - Common Stock Purchase Warrants
- Direct Data Warrants."
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<PAGE>
==========================================================================================================================
Number of Shares
Name of Selling of Common Stock Transaction by which Shares Purchased or
Security Holder Owned or Purchasable by Selling Security Holder
Acquirable
- --------------------------------------------------------------------------------------------------------------------------
entrenet Group, LLC Up to 610,000 Shares 330,000 Shares issuable upon conversion of a $150,000
and Affiliates Convertible Promissory Note issued as consulting fees as
of June 3, 1997; 280,000 Shares issued in payment of a
finder's fee owing under the consulting agreement dated
June 3, 1997. 165,200 of the 280,000 finder's fee Shares
have been assigned to various members of entrenet,
consisting of five persons, as follows: Alternative
Technologies International, Inc. - 74,200 Shares; J.A.
Billington & Associates, Inc. - 49,000 Shares; KBK
Enterprises, Inc. - 14,000 Shares; Timothy Jaeger -
14,000 Shares; and Eugene McCord - 14,000 Shares.
See "Certain Transactions - Transactions with entrenet
Group, LLC."
- --------------------------------------------------------------------------------------------------------------------------
Liviakis Financial 225,000 Shares Shares issued or issuable under a Consulting Agreement
Communications, effective as of July 25, 1997 between the Company and
Inc. LFC; although the shares are being included in this
("LFC") registration statement, they cannot be sold before August
1, 1998. See "Certain Transactions - Transactions with
Liviakis Financial Communications, Inc. ("LFC") and
Affiliates of LFC."
- --------------------------------------------------------------------------------------------------------------------------
John M. Liviakis Up to 3,825,000 2,625,000 Shares owned outright and 1,200,000 Shares
Shares underlying common stock purchase warrants exercisable
at $.01 per share; the Shares and warrants
were issued under a Subscription Agreement
dated as of August 4, 1997 for total consideration
of $375,000; although the Shares are being
included in this registration statement,
they cannot be sold before August 1, 1998.
See "Certain Transactions - Transactions with
Liviakis Financial Communications, Inc.
("LFC") and Affiliates of LFC."
- --------------------------------------------------------------------------------------------------------------------------
Robert B. Prag Up to 1,350,000 875,000 Shares owned outright and 400,000 Shares
Shares underlying common stock purchase warrants exercisable
at $01 per share; the Shares and the warrants
were issued under a Subscription Agreement
dated as of August 4, 1997 for total
consideration of $125,000; and 75,000
Shares issued or issuable under a
Consulting Agreement between the Company and
LFC effective as of July 25, 1997; although
the shares are being included in this
registration statement, they cannot be sold
before August 1, 1998. See "Certain
Transactions - Transactions with
Liviakis Financial Communications, Inc.
("LFC") and Affiliates of LFC."
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==========================================================================================================================
Number of Shares
Name of Selling of Common Stock Transaction by which Shares Purchased or
Security Holder Owned or Purchasable by Selling Security Holder
Acquirable
- --------------------------------------------------------------------------------------------------------------------------
Brefo S.A. Up to 16,836 Shares 15,625 Shares estimated to be issuable upon conversion of
50,000 shares of Series A Preferred Stock; 997 Shares of
Common Stock estimated to be issuable as dividends on
the 50,000 shares of Series A Preferred Stock from April
1, 1998 through December 31, 1999; and 214 Shares of
Common Stock previously issued as interest on $50,000
of 8% Convertible Debentures (prior to conversion into
shares of Series A Preferred Stock) and as dividends on
the shares of Series A Preferred Stock, through March
31, 1998. See Footnote (1) to this table, immediately
following. See also, "Description of Securities -
Preferred Stock - Series A Preferred Stock."
- --------------------------------------------------------------------------------------------------------------------------
CNCA - SCT Up to 67,340 Shares 62,500 Shares estimated to be issuable upon conversion of
Brunoy Sub A/C 200,000 shares of Series A Preferred Stock; 3,986 Shares
BGP of Common Stock estimated to be issuable as dividends
on the 200,000 shares of Series A Preferred
Stock from April 1, 1998 through December
31, 1999; and 854 Shares of Common Stock
previously issued as interest on $200,000 of
8% Convertible Debentures (prior to
conversion into shares of Series A Preferred
Stock) and as dividends on the shares of Series
A Preferred Stock, through March 31, 1998.
See Footnote (1) to this table, immediately
following. See also, "Description of
Securities - Preferred Stock - Series A
Preferred Stock."
- --------------------------------------------------------------------------------------------------------------------------
Inversiones Welsa, Up to 16,836 Shares 15,625 Shares estimated to be issuable upon conversion of
S.A. 50,000 shares of Series A Preferred Stock; 997 Shares of
Common Stock estimated to be issuable as
dividends on the 50,000 shares of Series A
Preferred Stock from April 1, 1998 through
December 31, 1999; and 214 Shares of Common
Stock previously issued as interest on $50,000
of 8% Convertible Debentures (prior to
conversion into shares of Series A Preferred
Stock) and as dividends on the shares of Series
A Preferred Stock, through March 31, 1998.
See Footnote (1) to this table, immediately
following. See also, "Description of
Securities - Preferred Stock - Series A
Preferred Stock."
-79-
<PAGE>
==========================================================================================================================
Number of Shares
Name of Selling of Common Stock Transaction by which Shares Purchased or
Security Holder Owned or Purchasable by Selling Security Holder
Acquirable
- --------------------------------------------------------------------------------------------------------------------------
The Endeavor Up to 336,702 Shares 312,500 Shares estimated to be issuable upon conversion
Capital Fund of 1,000,000 shares of Series A Preferred Stock; 19,932
Shares of Common Stock estimated to be issuable as
dividends on the 1,000,000 shares of Series A Preferred
Stock from April 1, 1998 through December 31, 1999;
and 4,270 Shares of Common Stock previously issued as
interest on $1,000,000 of 8% Convertible Debentures
(prior to conversion into shares of Series A Preferred
Stock) and as dividends on the shares of Series A
Preferred Stock, through March 31, 1998. See Footnote
(1) to this table, immediately following. See also,
"Description of Securities - Preferred Stock - Series A
Preferred Stock."
- --------------------------------------------------------------------------------------------------------------------------
RBB Bank Up to 538,723 Shares 500,000 Shares estimated to be issuable upon
conversion Aktiengesellschaft, as of 1,600,000
shares of Series A Preferred Stock; 31,890 agent Shares
of Common Stock estimated to be issuable as
dividends on the 1,600,000 shares of Series A Preferred
Stock from April 1, 1998 through December 31, 1999;
and 6,833 Shares of Common Stock previously issued as
interest on $1,600,000 of 8% Convertible Debentures
(prior to conversion into shares of Series A Preferred
Stock) and as dividends on the shares of Series A
Preferred Stock, through March 31, 1998. See Footnote
(1) to this table, immediately following. See also,
"Description of Securities - Preferred Stock - Series A
Preferred Stock."
- --------------------------------------------------------------------------------------------------------------------------
Reg-S Up to 33,670 Shares 31,250 Shares estimated to be issuable upon conversion of
Intercontinental 100,000 shares of Series A Preferred Stock; 1,993 Shares
Investment, Ltd. of Common Stock estimated to be issuable as dividends
on the 100,000 shares of Series A Preferred
Stock from April 1, 1998 through December
31, 1999; and 427 Shares of Common Stock
previously issued as interest on $100,000 of
8% Convertible Debentures (prior to
conversion into shares of Series A Preferred
Stock) and as dividends on the shares of Series
A Preferred Stock, through March 31, 1998.
See Footnote (1) to this table, immediately
following. See also, "Description of
Securities - Preferred Stock - Series A
Preferred Stock."
-80-
<PAGE>
==========================================================================================================================
Number of Shares
Name of Selling of Common Stock Transaction by which Shares Purchased or
Security Holder Owned or Purchasable by Selling Security Holder
Acquirable
- --------------------------------------------------------------------------------------------------------------------------
L. Gene Tanner Up to 20,203 Shares 18,750 Shares estimated to be issuable upon conversion of
60,000 shares of Series A Preferred Stock; 1,196 Shares
of Common Stock estimated to be issuable as dividends
on the 60,000 shares of Series A Preferred Stock from
April 1, 1998 through December 31, 1999; and 257
Shares of Common Stock previously issued as interest on
$60,000 of 8% Convertible Debentures (prior to
conversion into shares of Series A Preferred Stock) and as
dividends on the shares of Series A Preferred Stock,
through March 31, 1998. See Footnote (1) to this table,
immediately following. See also, "Description of
Securities - Preferred Stock - Series A Preferred Stock."
- --------------------------------------------------------------------------------------------------------------------------
JW Charles 50,000 Shares Shares underlying common stock purchase warrant issued
Securities, Inc. as of December 10, 1997, exercisable at $6.525 per share
as a portion of a finder's fee paid to JW Charles
Securities, Inc. in conjunction with the private offering of
the Company's 8% Convertible Debentures. See
"Description of Securities - Common Stock Purchase
Warrants - Finder's Warrant."
==========================================================================================================================
- ------------------
<FN>
(1) The number of Shares estimated to be issuable upon conversion of, and as
dividends on, the Series A Preferred Stock is based on a hypothetical
market price of $4.00 per share for the underlying Common Stock at the time
of conversion and at each dividend payment date. The choice of this
hypothetical market price is based on recent prices of the Company's Common
Stock and the "floor" price that is applicable to conversion of the Series
A Preferred Stock for 270 days from December 10, 1997. No implication
should be drawn from the use of this hypothetical market price for this
purpose as to what value the Company ascribes to its Common Stock.
</FN>
</TABLE>
The shares of Common Stock offered by this Prospectus may be sold from time
to time by the Selling Security Holders or by pledgees, donees, transferees or
other successors in interest. Such sales may be made in the over-the-counter
market, or otherwise at prices and at terms then prevailing or at prices related
to the then current market price, or in negotiated transactions. The shares may
be sold by one or more of the following: (a) a block trade in which the broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
effecting sales, brokers or dealers engaged by the Selling Security Holders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Selling Security Holders in amounts to
be negotiated immediately prior to the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Act in connection with such sales. In addition, any
securities covered by this Prospectus which qualify for sale pursuant to Rule
144 may be sold under Rule 144 rather than pursuant to this Prospectus.
-81-
<PAGE>
Upon the Company being notified by any of the Selling Security Holders that
any material arrangement has been entered into with a broker-dealer for the sale
of shares through a block trade, special offering, or secondary distribution or
a purchase by a broker or dealer, a supplemental prospectus will be filed, if
required, pursuant to Rule 424(b) under the Act, disclosing (i) the name of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction.
The following table sets forth the names and certain information concerning
the Selling Security Holders.
<TABLE>
<CAPTION>
=================================================================================================================================
Number of Shares Number of
Owned or Shares Percentage of
Acquirable Prior Number of Owned After Class After
Selling Security Holder to Offering (1) Shares Offered Offering Offering
=================================================================================================================================
<S> <C> <C> <C> <C>
RAS Securities Corporation 82,500 82,500 -0- -0-
=================================================================================================================================
Walford & Company Incorporated 82,500 82,500 -0- -0-
=================================================================================================================================
James B. Walters 100,000 (2) 50,000 50,000 *
=================================================================================================================================
Peter Roehl 3,947 3,947 -0- -0-
=================================================================================================================================
K.M. Lawlis and M.W. Lawlis, as Trustees 8,459 8,459 -0- -0-
for the K.M. Lawlis 1990 Revocable Trust
=================================================================================================================================
Henry Nichols 3,759 3,759 -0- -0-
=================================================================================================================================
Alan B. Roberts 2,631 2,631 -0- -0-
=================================================================================================================================
entrenet Group, LLC 455,235 (3) 444,800 10,435(3) *
=================================================================================================================================
Alternative Technologies International, Inc. 74,200 74,200 -0- -0-
=================================================================================================================================
J.A. Billington & Associates, Inc. 49,000 49,000 -0- -0-
=================================================================================================================================
KBK Enterprises, Inc. 14,000 14,000 -0- -0-
=================================================================================================================================
Timothy Jaeger 14,000 14,000 -0- -0-
=================================================================================================================================
Eugene McCord 14,000 14,000 -0- -0-
=================================================================================================================================
Liviakis Financial Communications, Inc. 225,000 (4) 225,000 -0- -0-
=================================================================================================================================
John M. Liviakis 3,825,000 (4) 3,825,000 -0- -0-
=================================================================================================================================
Robert B. Prag 1,350,000 (4) 1,350,000 -0- -0-
=================================================================================================================================
Brefo S.A. 16,836 16,836 -0- -0-
=================================================================================================================================
CNCA - SCT Brunoy Sub A/C BGP 67,340 67,340 -0- -0-
=================================================================================================================================
Inversiones Welsa, S.A. 16,836 16,836 -0- -0-
=================================================================================================================================
The Endeavor Capital Fund 336,702 336,702 -0- -0-
=================================================================================================================================
Reg-S Intercontinental Investment, Ltd. 33,670 33,670 -0- -0-
=================================================================================================================================
L. Gene Tanner 20,203 20,203 -0- -0-
=================================================================================================================================
J. W Charles Securities, Inc. 50,000 50,000 -0- -0-
=================================================================================================================================
- -------------------
* Less than 1%.
<FN>
(1) Represents shares owned or acquirable as described in the table immediately preceding this table and/or as described in the
footnotes to this table.
(2) Represents 100,000 shares underlying an immediately exercisable common stock purchase warrants exercisable at $4.00 per
share.
(3) Includes 10,435 shares underlying an immediately exercisable common stock purchase warrants exercisable at $5.75 per
share.
(4) Does not include shares that the Selling Security Holder may be deemed to
own indirectly as a "beneficial owner" as described in the section of this
Prospectus entitled "Security Ownership of Principal Shareholders and
Management."
</FN>
</TABLE>
The Company has agreed to indemnify certain of the Selling Security Holders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), or contribute to payment that the
Selling Security Holders may be required to make in respect thereof. See
"Commission Position on Indemnification for Securities Act Liabilities."
-83-
<PAGE>
LEGAL MATTERS
-------------
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colorado.
CHANGE IN ACCOUNTANTS
---------------------
The Company has not changed accountants in the last two fiscal years.
COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES AND RELATED MATTERS
----------------------------------------------
Colorado Business Corporation Act Provisions and the Company's Articles of
Incorporation and Bylaws
Sections 7-109-102 through 7-109-110 of the Colorado Business Corporation
Act (the "CBCA") permit indemnification of directors, officers, employees,
fiduciaries and agents of corporations under certain conditions and subject to
certain limitations, including for liabilities to which such persons might
become subject under the Securities Act of 1933, as amended (the "Securities
Act").
The Company's Articles of Incorporation do not contain any provisions which
would limit the availability of such indemnification to the fullest extent
available under the above-referenced statute. The Company's amended Bylaws,
which parallel the CBCA sections referred to above, provide that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether formal or
informal, by reason of the fact that he is or was a director, officer, employee,
fiduciary or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, partner, trustee, employee, fiduciary or
agent of any foreign or domestic profit or nonprofit corporation or of any
partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company, or other enterprise or employee benefit
plan (a "Proper Person"). The Company is required to indemnify Proper Person(s)
against reasonably incurred expenses (including attorneys' fees), judgments,
penalties, fines (including any excise tax assessed with respect to an employee
benefit plan) and amounts paid in settlement reasonably incurred by him in
connection with such action, suit or proceeding if it is determined by a
majority of a quorum of the Board of Directors consisting of Directors who are
not parties to the proceeding, or, if a quorum of such Directors is not
available, a committee of the Board consisting of at least two Directors who are
not parties to the proceeding or, if a proper committee cannot be seated or a
majority of the Board or the committee desire, an independent counsel selected
by a majority of the full Board, or a vote of shareholders, that the proper
Person conducted himself or herself in good faith and that he or she reasonably
believed (i) in the case of conduct in his official capacity with the Company,
that his or her conduct was in the Company's best interests, or (ii) in all
other cases (except criminal cases), that his or her conduct was at least not
opposed to the Company's best interests, or (iii) in the case of any criminal
proceeding, that he or she had no reasonable cause to believe his or her conduct
was unlawful. A Proper Person will be deemed to be acting in his or her official
capacity while acting as a director, officer, employee or agent on behalf of the
Company and not while acting on the Company's behalf for some other entity. A
Proper Person may apply to the court conducting the proceeding or to another
court of competent jurisdiction for an order requiring the Company to indemnify
such person if the court determines that the person is entitled to
indemnification under Colorado law and has met the criteria set forth in the
Company's Bylaws.
No indemnification is available to a person with respect to any claim,
issue or matter in connection with a proceeding by or in the right of the
Company in which the person was adjudged liable to the Company or in connection
with any proceeding charging that the person derived an improper personal
benefit, whether or not involving action in an official capacity, in which he or
she was adjudged liable on the basis that he or she derived an improper personal
benefit. Further, indemnification in connection with a proceeding brought by or
in the right of the Company is limited to reasonable expenses, including
attorneys' fees, incurred in connection with the proceeding.
-84-
<PAGE>
To the extent that the provisions of a Colorado corporation's Articles of
Incorporation or Bylaws provide for indemnification to a greater extent than is
available under the CBCA, such provisions are void. The Company believes,
however, that the indemnification provisions contained in its Bylaws are no more
liberal than those set forth in the CBCA.
Indemnification of Selling Security Holders
The registration rights agreements entered into between the Company and
certain of the Selling Security Holders contain provisions providing for mutual
indemnification against certain liabilities, including liabilities which might
arise under the Securities Act. In general, the Company is required to indemnify
such persons, to the full extent permitted by law, against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of a material fact contained in any registration statement or any
prospectus or any omission or alleged omission to state therein a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as the same are caused by
or contained in any information with respect to the Selling Security Holder
furnished to the Company by the Selling Security Holder expressly for use in the
registration statement or prospectus. The Company, its officers, directors and
controlling persons is entitled to indemnification on a reciprocal basis for
information contained in the registration statement or any prospectus which was
provided to it for use therein by a Selling Security Holder.
Commission Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
EXPERTS
-------
The financial statements of the Company as of June 30, 1997 and for each of
the two years in the period ended June 30, 1997 included in this Prospectus have
been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to the financial statements for the period ended June 30,
1997) of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
-85-
<PAGE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
Report of Independent Accountants.....................................................F-2
Balance Sheet - as of June 30, 1997...................................................F-3
Statement of Operations - for the fiscal years ended
June 30, 1997 and June 30, 1996..............................................F-4
Statement of Cash Flows - for the fiscal years ended
June 30, 1997 and June 30, 1996..............................................F-5
Statement of Changes in Stockholders' Equity (Deficit) - for the period from
July 1, 1995 through June 30, 1997...........................................F-6
Notes to Financial Statements.........................................................F-7
- -----------------------------------------------------------------------------------------
Unaudited Financial Statements - for the period ended December 31, 1997
Balance Sheet --
December 31, 1997, June 30, 1997............................................F-16
Statements of Operations --
Three Months and Six Months Ended December 31, 1997 and 1996................F-17
Statements of Cash Flows --
Six Months Ended December 31, 1997 and 1996.................................F-18
Notes to Financial Statements...............................................F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and
Stockholders of U.S. Wireless Data, Inc.
In our opinion, the accompanying balance sheet and the related
statement of operations, of changes in stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
U.S. Wireless Data, Inc. (the "Company") at June 30, 1997, and the results of
its operations and its cash flows for each of the two years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered significant recurring losses from
operations and has an accumulated deficit of $16,960,853 that raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to this matter are described in Note 1. Additionally, due to
matters concerning the Company's ability to continue as a going concern, there
is also significant uncertainty surrounding the net realizable value of the
Company's inventory balances at June 30, 1997 (see Note 2). The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
PRICE WATERHOUSE LLP
Boulder, Colorado
October 13, 1997
F-2
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
BALANCE SHEET
As of June 30, 1997
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents .................................... $ 6,083
Accounts receivable, net of allowance
for doubtful accounts of $15,903 ........................... 120,531
Inventory, net ............................................... 208,867
Other current assets ......................................... 113,859
------------
Total current assets .................................... 449,340
Property and equipment, net ..................................... 40,445
Other assets .................................................... 11,495
------------
Total assets .................................................... $ 501,280
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................. $ 354,213
Accrued liabilities .......................................... 125,587
Notes payable ................................................ 737,866
------------
Total current liabilities ............................... 1,217,666
Long Term Debt .................................................. 45,000
------------
Total liabilities ............................................... 1,262,666
------------
Commitments and contingencies (Notes 9 and 11)
Stockholders' equity (deficit):
Common stock, no par value,
12,000,000 shares authorized,
5,613,952 shares issued and outstanding, stated value $1.00 5,613,952
Common stock subscribed ...................................... 0
Additional paid-in capital ................................... 10,613,465
Accumulated deficit .......................................... (16,960,853)
Notes Receivable from Shareholder ............................ (27,950)
------------
Total stockholders' equity (deficit) ............ (761,386)
------------
Total liabilities and stockholders' equity (deficit) ............ $ 501,280
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
U.S. WIRELESS DATA, INC.
STATEMENT OF OPERATIONS
Fiscal Year Ended
June 30, June 30,
1997 1996
---- ----
<S> <C> <C>
Revenue ................................................. $ 1,315,542 $ 1,582,553
Cost of goods sold ...................................... 809,447 2,886,432
----------- -----------
Gross margin (deficit) .................................. 506,095 (1,303,879)
----------- -----------
Operating Expenses:
Selling, general and administrative ................. 812,687 1,365,235
Research and development ............................ 406,522 458,407
----------- -----------
1,219,209 1,823,642
----------- -----------
Loss from operations .................................... (713,114) (3,127,521)
Interest income ......................................... 94 685
Interest expense ........................................ (32,637) (33,621)
Other income ............................................ 44,873 (4,506)
Litigation settlement ................................... (163,600) 0
Loss from continuing operations ......................... (864,384) (3,164,963)
----------- -----------
Loss from discontinued operation ........................ 0 (309,206)
----------- -----------
Loss before extraordinary item .......................... (864,384) (3,474,169)
Extraordinary gains on restructuring of payables and debt 0 3,431,823
----------- -----------
Net loss ................................................ $ (864,384) $ (42,346)
=========== ===========
Earnings (loss) per share:
From continuing operations .......................... $ (.17) $ (.72)
From discontinued operation ......................... 0 (.07)
From restructuring of payables and debt ............. 0 .78
---------- -----------
Net loss per share .................................. $ (.17) $ (.01)
=========== ===========
Weighted average common shares outstanding .............. 4,986,767 4,418,618
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Fiscal Year Ended
June 30, June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................... $ (864,384) $ (42,346)
Adjustments to reconcile net income to net cash used in operating activities:
Gain on restructuring of payables and debt ............................. -- (3,431,823)
Loss due to market decline of inventory ................................ -- 1,525,026
Depreciation and amortization .......................................... 56,958 107,525
Stock issued for services .............................................. -- 3,880
Lawsuit settlement ..................................................... 163,600 --
Consulting services .................................................... 50,000 --
Loss on disposal of asset .............................................. (441) --
Debt relieved by product sales ......................................... (32,400) --
Changes in assets and liabilities:
Accounts receivable .................................................... (78,768) 197,293
Inventory .............................................................. 412,369 1,702,058
Other current assets ................................................... 21,847 93,048
Accounts payable ....................................................... 136,581 (46,764)
Accrued liabilities .................................................... (102,010) (686,707)
----------- ---------
Net cash used in operating activities ....................................... (236,648) (578,810)
--
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and furniture ........................................ -- (3,000)
Proceeds from sale of equipment ............................................. 499 23,296
(Increase) decrease in other assets ......................................... 11,261 (565)
----------- -----------
Net cash provided by (used in) investing activities ...................... 11,760 19,731
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt .............................................. 185,000 292,678
Net proceeds from issuance of stock ......................................... 5,621 12,650
----------- -----------
Net cash provided by (used in) financing activities ...................... 190,621 305,328
(DECREASE) IN CASH ............................................................. (34,267) (253,751)
CASH, Beginning of period ...................................................... 40,350 294,101
----------- -----------
CASH, End of period ............................................................ $ 6,083 $ 40,350
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ...................................... $ 13,833 $ 33,621
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
Debt relieved with sale of inventory ........................................ $ 32,400 $ --
=========== ===========
Inventory purchased with stock .............................................. $ -- $ 162,500
=========== ===========
Issuance of debt for services/lawsuit settlement ............................ $ 210,000 $ --
=========== ===========
Stock issued for services/lawsuit settlement ................................ $ 109,046 $ 3,880
=========== ===========
Note executed for stock issuance ............................................ $ 27,950 $ --
=========== ===========
Non cash extinguishment of debt and payables
Fair value of assets transferred ......................................... $ -- $ 1,031,868
Payables and debt extinguished ........................................... -- 4,463,691
----------- -----------
Gains on restructuring of payables and debt .............................. $ -- $ 3,431,823
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
COMMON COMMON NOTE
STOCK STOCK PAID IN RECEIVABLE ACCUM.
SHARES AMOUNT SUBSCRIBED CAPITAL SHAREHOLDER DEFICIT
------ ------ ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, June 30, 1995 ............................ 4,390,910 $ 4,390,910 $ -- $ 11,514,859 $ -- $(16,054,123)
Shares issued for services at $.10 - .46 per share 18,123 18,123 (14,243)
Stock options exercised at $.215 per share ....... 9,300 9,300 (7,300)
Warrant exercised at $.10 per share .............. 100,000 100,000 (90,000)
Director stock option exercised at $.13 per share 5,000 5,000 (4,350)
Stock subscription ............................... 142,544 19,956
Net loss ......................................... (42,346)
------------------------------------------------------------------------------
BALANCES, June 30, 1996 ............................ 4,523,333 $ 4,523,333 $ 142,544 $ 11,418,922 $ -- $(16,096,469)
Shares issued for services at $.15 per share ..... 102,975 102,975 (87,529)
Stock issued in connection with class lawsuit .... 600,000 600,000 (506,400)
Stock options exercised at $.13-.215 per share ... 245,100 245,100 (211,530)
Stock subscription issued ........................ 142,544 142,544 (142,544)
Note receivable on stock option plan ............. (27,950)
Net loss ......................................... (864,384)
Rounding ......................................... 2
==============================================================================
BALANCES, June 30, 1997 ............................ 5,613,952 $ 5,613,952 $ -- $ 10,613,465 $(27,950) $(16,960,853)
==============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
U.S. WIRELESS DATA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
U.S. Wireless Data, Inc. (the "Company") was incorporated in the State of
Colorado on July 30, 1991. It designs, develops and manufactures a wireless
credit card authorization and check verification terminal utilizing both
analog and digital cellular network architectures. The Company began
generating its first significant revenue from product sales in fiscal 1995.
Prior to fiscal 1995, the Company was in the development stage. The Company
is now in a transition from only a "box maker" orientation to also
providing products and services which generate recurring revenue. The
recurring revenue component is expected to become the dominant component of
the Company's business.
Financial Condition
The Company has incurred an accumulated deficit of approximately $17.0
million since inception and has incurred additional losses subsequent to
the year ended June 30, 1997. In order 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; is negotiating new
distribution agreements and seeking additional debt or equity financing.
Subsequent to June 30, 1997, the Company has strengthened the management
team, signed several significant distribution agreements which are expected
to build a recurring revenue base, started the expansion of the sales force
and expanded its contract manufacturing relationships. The current sales
volume is inadequate to fund the infrastructure growth and business
transition. As a result, and as part of its continuing effort to find
working capital funding in order to continue operations, the Company has
entered into certain consulting agreements designed to facilitate financing
relationships with third parties. 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 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from the estimates
used.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost which approximates fair value.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the first-in, first-out method.
F-7
<PAGE>
Property and Equipment
Property and equipment are stated at cost. The Company uses the
straight-line method of depreciation based on the estimated useful lives of
the assets (generally three to seven years). Maintenance and repairs are
charged to operations as incurred.
Revenue Recognition and Major Customers
Direct sales are recognized upon shipment of products to customers. The
Company also leases products to customers with an option to buy. The
leasing arrangements are accounted for as sales-type leases. During fiscal
1997, Cardservice International, Inc. ("CSI") accounted for 53% of revenue.
During fiscal 1996, two customers, CSI and Superior Bankcard Services,
accounted for 25% and 11% of revenue, respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
Net Loss Per Share
Net loss per share is based on the weighted average number of shares of
common stock outstanding during each respective period. Shares issuable
upon the conversion of stock options and warrants were not included in the
calculation since their effect was anti-dilutive.
Fair Value of Financial Instruments
The carrying value of assets and liabilities reported on the balance sheet
is a reasonable estimate of their fair value.
Recent Pronouncements
In February, 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share". SFAS No. 128, which is effective for periods ending after December
15, 1997, requires changes in the computation, presentation, and disclosure
of earnings per share. All prior period earnings per share data must be
restated to conform with the provisions of SFAS No. 128. The Company will
adopt SFAS No. 128 during the fourth quarter of fiscal 1998, but does not
expect the new accounting standard to have a material impact on the
Company's reported loss per share.
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 with
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.
F-8
<PAGE>
Reclassifications
Certain reclassifications have been made in prior year to conform to current
year presentation.
NOTE 2. INVENTORY
<TABLE>
<CAPTION>
June 30,
1997
----
Inventory consists of:
<S> <C>
Raw material $ 111,299
Finished goods 208,095
Spare parts and accessories 1,895
Lower of cost or market reserve (112,422)
-------------------
$ 208,867
===================
</TABLE>
The Company has established a reserve against finished goods and raw materials
to reflect the estimated net realizable value of the inventory as of June 30,
1997, based on current selling prices.
NOTE 3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
June 30,
1997
----
Property and equipment consists of:
<S> <C>
Equipment and furniture $ 295,020
Tooling 124,267
Less: accumulated depreciation and amortization (378,842)
---------------------
$ 40,445
======================
</TABLE>
NOTE 4. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
June 30,
1997
----
Accrued liabilities consists of:
<S> <C>
Accrued wages/commissions 38,115
Relocation expense 30,300
Accrued revenue and royalty 44,888
Litigation Settlement 10,000
Other 2,284
---------------------
$ 125,587
=====================
</TABLE>
F-9
<PAGE>
NOTE 5. NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consist of the following:
June 30,
1997
----
Current Portion:
<S> <C>
Note payable - supplier $ 387,866
Notes payable - investors 185,000
Note payable - entrenet 150,000
Note payable - lawsuit settlement 15,000
---------------------
$ 737,866
=====================
Long-term portion of Note payable
- lawsuit settlement $ 45,000
=====================
</TABLE>
Note Payable - Supplier
The note payable to a supplier is currently in default. The Company
continues to accrue monthly interest payments. As of October 13, 1997, the
supplier had not called the note. The note bears interest at 8% and is
fully collateralized with certain inventory. The Company is currently in
discussion with the vendor regarding payment of the note and the accrued
interest.
Notes Payable - Investors
During the fourth quarter of fiscal 1997, the Company executed demand notes
with certain investors. The notes bear interest at 10% annually and are
convertible to common stock on or after November 1, 1997 at a conversion
price of $.35 per share ($75,000 of Notes) and $.50 per share ($110,000 of
Notes) for any or all outstanding principal and accrued interest. If not
converted, the notes are due in the fourth quarter of fiscal 1998.
Note Payable - entrenet
During June 1997, the Company executed a convertible debenture in exchange
for consulting services to be rendered during fiscal 1997 and 1998 by
entrenet Group, LLC. The debenture bears interest at 10% annually and is
convertible to common stock at a conversion price of $0.50 per share. If
not converted, the debenture is due June 3, 1998.
Note Payable - Lawsuit Settlement
As part of the class action lawsuit settlement, the Company executed a note
payable in September 1997 which is due in installments as follows: $5,000
due March 17, 1998; $10,000 due September 17, 1998; $20,000 due September
17, 1999; and $25,000 due September 17, 2000. See additional discussion of
the lawsuit settlement in Note 11. - Litigation.
NOTE 6. STOCKHOLDERS' EQUITY
Stock Options
In September 1992, the Company adopted an incentive stock option plan and a
non-qualified stock option plan covering 600,000 shares of the Common
Stock. In October 1994, the Shareholders approved an amendment to the stock
option plan increasing the number of available shares to 880,000. In
December 1995, the Shareholders approved an amendment to the stock option
plan making certain clarifications to the plan and providing for the annual
grant of an option for 20,000 shares to non-employee directors.
F-10
<PAGE>
Stock options have been granted under the option plan at the fair market
value of the common stock on the date of grant and generally vest over a
period of between two and four years. Options granted under the option plan
generally must be exercised no later than 10 years from the date of grant.
The following table summarizes information about stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Outstanding Options Outstanding Vested Options
----------------------------------- --------------------------
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Number Exercise Number
Exercise Price Life Price Outstanding Price Outstanding
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 - $0.13 8.4 $0.13 262,849 $0.13 233,449
$0.14 - $0.22 8.4 $0.21 166,800 $0.21 128,400
------- -------
429,649 361,849
========= =======
</TABLE>
Stock option transactions for the years ended June 30, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Weighted Average
Number of Exercise Price
Shares Per Share
-------------------------------
<S> <C> <C>
Balance at June 30, 1995 462,500 $3.67
Granted 827,849 $0.16
Exercised ( 14,300) $0.19
Terminated (482,500) $3.65
-------
Balance at June 30, 1996 793,549 $0.16
Granted 20,000 $0.16
Exercised (245,100) $0.14
Terminated (138,800) $0.22
-------
Balance at June 30, 1997 429,649 $0.16
=======
Exercisable at June 30, 1997 361,849 $0.18
========
</TABLE>
Notes Receivable from Stockholder
In connection with the resignation of the Company's former CEO, the Company
received a promissory note during October 1996 to fund the exercise of the
former CEO's stock options pursuant to the Company's Stock Option Plan. The
note evidences a three-year non-recourse loan which accrues interest at 6%
per annum.
SFAS No. 123
The Company applies APB No. 25 in accounting for its Stock Option Plan, and
no compensation expense has been recognized in the financial statements as
all options had been granted at the fair market value of the
F-11
<PAGE>
underlying common stock. Had compensation expense for the Company's Plan
been determined based on the fair value of the options at the grant dates
for awards under the Plan consistent with the method of accounting
prescribed by SFAS No. 123, the Company's net loss and loss per share would
have been increased to the proforma amounts indicated below:
<TABLE>
<CAPTION>
June 30,
1997 1996
---------------------
<S> <C> <C>
Net loss As reported ($864,382) ($42,346)
Pro forma ( 876,142) ( 58,562)
Net loss per common share As reported $(0.17) $(0.01)
Pro forma $(0.18) $(0.01)
</TABLE>
In accordance with the guidance under SFAS No. 123, fair values are based
on minimum values. The weighted average fair value of option is estimated
as $0.03 and $0.05 for options granted during fiscal year 1997 and 1996,
respectively, using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants during the years
ended June 30, 1997 and 1996: dividend yield of zero; expected volatility
of 162% and 101%, respectively; risk-free interest rate of 6.4% and 5.5%,
respectively; and an expected term of 3.5 years. The risk-free rates used
in the calculation represent the average U.S. Government Security interest
rates on the stock option grant date with maturities equal to the expected
term of the options granted. The effect of actual forfeitures is included
in the computation of compensation cost for options granted during each of
the respective years.
Stock Warrants
In fiscal 1993, the Company issued warrants to one officer and one director
of the Company to purchase an aggregate of 250,000 shares of common stock
at $4.00 per share. As of June 30, 1997, all of these warrants were fully
vested and had the following terms: 100,000 expire April 12, 1998; 150,000
expire May 1, 2003. In connection with the Company's December 1993 initial
public offering, the Company issued warrants to the underwriters to
purchase 165,000 shares of the Company's common stock at $12.33 per share,
which were fully vested at the date of issuance. Such warrants expire on
December 2, 1998.
In fiscal 1994, in conjunction with the acquisition of Direct Data, the
Company issued warrants to four former shareholders of Direct Data to
purchase 29,548 shares of common stock at $2.625 per share which were fully
vested at the date of issuance. In October 1994, warrants for the purchase
of 5,000 shares of common stock were exercised and 5,752 warrants expired.
The remaining 18,796 warrants expire May 31, 1998.
In October 1995, as partial consideration for entering into a development
contract, the Company issued warrants to a customer to purchase 100,000
shares of common stock at $0.10 per share. This warrant was subsequently
exercised during fiscal year 1996.
NOTE 7. INCOME TAXES
At June 30, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $11,700,000. Annual
utilization of the loss carryforwards is subject to significant limitations
due to changes in the Company's ownership which could result in little or
no benefit being derived from these carryforwards. Future changes in
ownership could further reduce the annual availability of these benefits.
If unused, the carryforwards will expire beginning in 2008.
F-12
<PAGE>
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carry-forwards $ 4,388,000 $ 3,880,000
Depreciation ( 3,000) ( 12,000)
Inventory reserves 31,000 195,000
Allowance for bad debts 6,000 35,000
Other 28,000 28,000
----------------- ------------------
$ 4,450,000 $ 4,126,000
Valuation allowance ( 4,450,000) ( 4,126,000)
----------------- ----------------
Net deferred tax asset $ -- $ --
===================== ================
</TABLE>
Deferred tax assets have been reduced to zero by a valuation allowance
based on current evidence which indicates that it is not considered more
likely than not that these benefits will be realized. During fiscal 1997,
the valuation allowance increased by $324,000 primarily due to additional
losses for which no tax benefit was recorded. During fiscal 1996, the
valuation allowance decreased by $1,090,000 primarily due to the
dissolution of Direct Data.
The difference between the zero provision for income taxes and the expected
amount determined by applying the federal statutory rate to the loss before
income taxes results primarily from a reduction of net operating loss
carryforwards due to an increase in the valuation allowance for the year
ended June 30, 1997 and due to the dissolution of Direct Data for the year
ended June 30, 1996.
NOTE 8. EMPLOYEE BENEFIT PLAN
In April 1994, the Company established a qualified Section 401(K) Savings
Plan. The Plan allows eligible employees to contribute up to 15% of their
salaries on a pre-tax basis. The Company did not make any contributions to
the Plan during fiscal year 1997.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office facilities under various operating lease
arrangements. Most of the leases contain certain provisions for rental
adjustments. In addition, the leases require the Company to pay property
taxes, insurance and normal maintenance costs. Future minimum rentals under
these arrangements are $18,105 in 1998. Rent expense was $73,550 during
fiscal 1997 and sublease income of $16,680 was received during fiscal 1997.
In September 1997, the Company executed a lease for office space in
Emeryville, California. Rental payments commence October 1, 1997 at an
initial rental rate of $9,942 per month for a term of 5 years. In year
five, the rental rate increases to $11,640 per month.
F-13
<PAGE>
NOTE 10. EXTRAORDINARY GAINS AND DISCONTINUED OPERATION
During the year ended June 30, 1996, the Company recognized $3.4 million in
gains related to the restructuring of debt and payables as follows:
<TABLE>
<S> <C>
Release of guarantee of bank debt by former officer of Direct Data $ 593,132
Release of liability for inventory by supplier 1,099,412
Liabilities of dissolved Direct Data subsidiary 1,739,279
-----------------
$ 3,431,823
=================
</TABLE>
The release of guarantee of bank debt by a former officer of Direct Data
("the Officer") occurred as a result of the September 1995 demand for
payment by a financial institution creditor of a $1.3 million loan made to
Direct Data. The loan was guaranteed by the Officer who paid the loan and
became a security holder of Direct Data's assets in early October 1995. The
Company was obligated to remove the Officer from his guarantee of the bank
loan, and in consideration for release of such liability, surrendered the
assets of Direct Data to the Officer on October 5, 1995. The excess
carrying value of the debt over the book value (which approximated fair
value) of the assets surrendered in satisfaction of the obligation was
$593,132. In connection with this transaction, the Officer granted the
Company an option to repurchase 397,684 shares of Company stock from the
Officer at a price of $.25 per share, as well as the right to vote such
shares.
During its fiscal year 1995, the Company entered an agreement with a
supplier, whereby the Company became liable for the purchase of certain raw
materials the supplier procured for manufacturing of Company products.
During 1996, the Company and the supplier agreed that the Company would
settle the liability of $1.4 million for consideration of approximately
$325,000, and that the Company or its designee would take possession of the
raw materials. Accordingly, the Company has recognized a gain of $1.1
million as a result of restructuring the liability during fiscal year 1996.
During October 1995, the Company dissolved Direct Data. Upon the
dissolution of Direct Data, approximately $1.7 million of unsecured trade
debt remained unpaid and the creditors were notified that Direct Data would
be unable to pay its remaining obligations. The Company believes it has no
liability for future claims arising from the unpaid obligations of Direct
Data; therefore, such unpaid obligations have been recognized by the
Company as a gain from restructuring of liabilities of the dissolved Direct
Data subsidiary during fiscal 1996.
Management believes Direct Data represented a separate and material line of
business from the Company. The pretax loss on disposal has been accounted
for as a loss from discontinued operations and prior years financial
statements have been reclassified to reflect the disposition. Revenue of
Direct Data for the year ended June 30, 1996 was $657,667.
NOTE 11. LITIGATION
In September of 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 plaintiffs' 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
F-14
<PAGE>
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.
NOTE 12. RELATED PARTIES
A director of the Company is also an officer of the Company's largest
customer, Cardservice International, Inc. ("CSI"). Additionally, CSI owns
approximately 5% of the Company's outstanding common stock as of June 30,
1997. Sales to CSI approximated $698,000 and $398,000 in fiscal years 1997
and 1996, respectively.
During fiscal 1996, CSI advanced the Company $162,500 for the purchase of
raw materials in exchange for 142,544 shares of common stock issued
subsequent to June 30, 1996 at 150% of then current fair market value plus
registration rights after one year on all stock owned by CSI. This
transaction increased CSI's ownership to from 2% to 5%. Additionally, the
Company will make royalty payments to CSI on future sales of POS-50(R)
product built with the raw materials purchased using the amounts advanced
from CSI. As of June 30, 1997, no units were built using the raw materials
referred to above.
NOTE 13. SUBSEQUENT EVENTS
In August 1997, the Company received $500,000 for the issuance of 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. ("Liviakis"). The
warrants are exercisable from January 15, 1998 through August 4, 2002.
Additionally, in July 1997, the Company executed a one year consulting
agreement with Liviakis for consulting services to be rendered during
fiscal 1998 and 1999. Fees related to the agreement are payable in cash of
$10,000 and stock, the issuance of 300,000 shares of common stock to occur
at various times during the consulting agreement, commencing November 15,
1997.
The Liviakis securities carry future registration rights, including a
one-time demand registration, with fees to be paid by the Company.
On August 4, 1997, the Company retained Evon A. Kelly as chief executive
officer. As part of Mr. Kelly's compensation package, the Board of
Directors issued 600,000 shares of non-qualified stock options exercisable
at $1.00 per share.
On September 4, 1997 and October 9, 1997, respectively, the Company
received notice that the federal and state courts dismissed all claims
against the Company related to the class action shareholder lawsuits filed
in 1994. See additional discussion in Note 11. - Litigation.
In September 1997, the Company entered into a lease agreement for office
space in California. See additional discussion in Note 9. - Commitments and
Contingencies.
F-15
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
BALANCE SHEET
(Unaudited)
December 31, 1997 June 30, 1997
----------------- -------------
ASSETS (Restated-see Note 6)
<S> <C> <C>
Current Assets:
Cash .................................................... $ 1,522,944 $ 6,083
Accounts receivable, net of allowance for ............... 123,369 120,531
doubtful accounts of $15,979 as of December 31, 1997,
and $15,903 as of June 30, 1997
Sales-type lease receivables ............................ 10,933 11,023
Inventory, net .......................................... 634,938 208,867
Other current assets .................................... 820,127 102,836
------------ -----------
Total current assets ........................... 3,112,311 449,340
Property and equipment, net ..................................... 142,333 40,445
Other assets .................................................... 434,030 11,495
------------ -----------
Total assets .................................................... $ 3,688,674 $ 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
------------ -----------
Total current liabilities ....................... 1,718,287 1,217,666
------------ -----------
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 and 5,613,952
shares issued and outstanding at December 31 and
June 30, 1997, respectively
Additional paid-in capital .............................. 9,564,694 10,613,465
Accumulated deficit ..................................... (19,523,668) (16,960,853)
Notes Receivable from Shareholder ....................... -- (27,950)
------------ ------------
Total stockholders' deficit ..................... (737,554) (761,386)
------------ ------------
Total liabilities and stockholders' equity (deficit) ............ $ 3,688,674 $ 501,280
============ ============
</TABLE>
Accompanying Notes are an integral part of the Financial Statements
F-16
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
12/31/97 12/31/96 12/31/97 12/31/96
(Restated - see Note 6) (Restated - see Note 6)
<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 .......... 1,499,191 169,619 2,281,632 340,406
and administrative
Research and development .. 77,700 95,019 173,014 213,488
----------- ---------- ---------- ----------
Total operating expense ... 1,576,891 264,638 2,454,646 553,894
----------- ---------- ---------- ----------
Loss from operations ...... (1,533,280) (70,791) (2,327,358) (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 ...................... $(1,757,139) $ (68,870) $(2,562,815) $ (230,390)
========== ========== ========== ==========
Basic / Diluted Earnings (loss) $ (.19) $ (.01) $ (.30) $ (.05)
=========== =========== ========== ===========
per share:
Weighted average common shares
outstanding - Basic/Diluted ... 9,209,152 4,738,458 8,489,500 4,732,261
========== ========== ========== ==========
</TABLE>
Accompanying Notes are an integral part of the Financial Statements
F-17
<PAGE>
U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
12/31/97 12/31/96
-------- --------
(Restated - see Note 6)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,562,815) $ (230,390)
Depreciation and amortization 10,348 39,051
Non-cash consulting services 770,808
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)
------------- --------------
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)
Repayments of notes payable -- (21,600)
Net Proceeds from issuance of debt 2,742,874 --
------------ -------------
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
--------------- -------------
CASH, End of period $ 1,522,944 $ 18,428
============= =============
</TABLE>
Accompanying Notes are an integral part of the Financial Statements
F-18
<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 $19.5
million since inception, including a loss of $805 thousand in the first
quarter and $1,757 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.
F-19
<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 5, 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 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 the result of the approval by shareholders on February 6,
1998, the Company authorized 4,000,000 shares of Series "A" Preferred
stock. The debenture automatically converts 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 July 1997, the Company retained LFC to advise and assist the Company in
matters concerning investor relations and corporate finance covering the
period from July 25, 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.
Since the LFC related financing transaction described in Note 4 and the LFC
Consulting Agreement were entered into by the Company at approximately the
same time, the Company has treated these transactions as one transaction
for accounting purposes. To properly ascribe a fair value to the Consulting
Agreement, the Company
F-20
<PAGE>
obtained an independent valuation of the Company's share price from an
accredited valuation firm. Based on the fair market value of the common
stock determined by the valuation, the total of all shares issuable in the
transactions, and the cash proceeds received, the Consulting Agreement was
valued at $1,390,000 and recorded as prepaid consulting services with a
corresponding increase in equity. The consulting services will be amortized
on a straight-line basis over the term of the Consulting Agreement (one
year) as an element of operating expense, within selling, general and
administrative expense in the statement of operations, commencing with the
July 25, 1997 effective date of the agreement.
Note 6 - PRIOR PERIOD ADJUSTMENTS
As discussed in notes 4 and 5, the Company entered into certain financing
and consulting transactions in exchange for cash and common stock. Such
consulting transactions were originally recorded based on the value of the
stock issued as determined by the value received for the Company's common
stock in a sale of common stock and warrants to LFC in exchange for cash.
It was subsequently determined that an independent valuation should be
obtained to determine the value of the Company's common stock issued as a
result of the LFC financing transaction and the consulting agreement as a
combined transaction.
As a result of the issuance of securities to LFC at the initially
determined value of the Common Stock, as described in Note 4, above, an
adjustment to the excerise terms of the Common Stock purchase warrants
issued to the underwriters in connection with the Company's December 1993
initial public offering was thought to be required. Those warrants, which
were initially exercisable to purchase 165,000 shares at $12.33 per share,
were adjusted to be exercisable to purchase 285,621 shares at $7.12 per
share. Based on the revised valuation of the LFC consulting contract, the
adjustment to the exercise terms of the warrants is no longer applicable.
As a result of the change in the value of the Company's Common Stock as
described above, the financial statements for the period ending December
31, 1997 have been restated to reflect the revised valuation of the
consulting contract. This restatement did not impact cash flow during the
current period. A summary of the impact for the periods presented is shown
below:
<TABLE>
<CAPTION>
December 31, 1997
Reported Restated
-----------------------------
(Unaudited)
BALANCE SHEET
<S> <C> <C>
Total Assets $ 2,927,977 $ 3,688,674
Additional paid-in-capital $ 8,214,994 $ 9,564,694
Accumulated Deficit $ (18,934,665) $ (19,523,668)
Total Stockholders' Equity $ (1,498,251) $ (737,554)
Total Liabilities and Stockholders' Equity $ 2,927,977 $ 3,688,674
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Three Months Ended
December 31, 1997
Reported Restated
---------------------------------
(Unaudited)
<S> <C> <C>
Selling, general and administrative $ 1,161,774 $ 1,499,191
Net Loss $(1,419,722) $ (1,757,139)
Loss per common share $ (0.15) $ (0.19)
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Six Months Ended
December 31, 1997
Reported Restated
------------------------------------
(Unaudited)
<S> <C> <C>
Selling, general and administrative $ 1,692,629 $ 2,281,632
Net Loss $(1,973,812) $(2,562,815)
Loss per common share $ (0.23) $ (0.30)
</TABLE>
Note 7 -- 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, which was April 25, 1997. 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
F-22
<PAGE>
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 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.
F-23
<PAGE>
No dealer, salesperson or other individual has been authorized to give
any information or to make any representations other than those contained in
this Prospectus in connection with the offer made by this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any
securities offered by this Prospectus, nor does it constitute an offer to sell
or a solicitation of an offer to buy the Preferred Stock by any person in any
jurisdiction in which such an offer or solicitation is not authorized, or in
which the individual making such offer or solicitation is not qualified to do
so, or to any individual to whom it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since that
date.
TABLE OF CONTENTS
Page
Available Information................................................. 3
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 10
Use of Proceeds....................................................... 21
Dividend Policy....................................................... 21
Market For the Company's Common Stock
and Related Matters................................................. 22
Capitalization........................................................ 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 25
Business.............................................................. 33
Documents Filed as Exhibits........................................... 52
Management............................................................ 53
Security Ownership of Principal
Shareholders and Management......................................... 61
Certain Transactions.................................................. 64
Description of Securities............................................. 67
Selling Security Holders.............................................. 77
Legal Matters......................................................... 84
Change in Accountants................................................. 84
Commission Position on Indemnification for Securities
Act Liabilities and Related Matters................................... 84
Experts............................................................... 85
Index to Financial Statements......................................... F-1
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in this Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
7,324,106 Shares
U.S. WIRELESS DATA, INC.
Common Stock
[ ] 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Sections 7-109-102 through 7-109-110 of the Colorado Business Corporation
Act (the "CBCA") permit indemnification of directors, officers, employees,
fiduciaries and agents of corporations under certain conditions and subject to
certain limitations, including for liabilities to which such persons might
become subject under the Securities Act of 1933, as amended (the "Securities
Act").
The Company's Articles of Incorporation do not contain any provisions which
would limit the availability of such indemnification to the fullest extent
available under the above-referenced statute. The Company's amended Bylaws,
which parallel the CBCA sections referred to above, provide that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether formal or
informal, by reason of the fact that he is or was a director, officer, employee,
fiduciary or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, partner, trustee, employee, fiduciary or
agent of any foreign or domestic profit or nonprofit corporation or of any
partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company, or other enterprise or employee benefit
plan (a "Proper Person"). The Company is required to indemnify Proper Person(s)
against reasonably incurred expenses (including attorneys' fees), judgments,
penalties, fines (including any excise tax assessed with respect to an employee
benefit plan) and amounts paid in settlement reasonably incurred by him in
connection with such action, suit or proceeding if it is determined by a
majority of a quorum of the Board of Directors consisting of Directors who are
not parties to the proceeding, or, if a quorum of such Directors is not
available, a committee of the Board consisting of at least two Directors who are
not parties to the proceeding or, if a proper committee cannot be seated or a
majority of the Board or the committee desire, an independent counsel selected
by a majority of the full Board, or a vote of shareholders, that the proper
Person conducted himself or herself in good faith and that he or she reasonably
believed (i) in the case of conduct in his official capacity with the Company,
that his or her conduct was in the Company's best interests, or (ii) in all
other cases (except criminal cases), that his or her conduct was at least not
opposed to the Company's best interests, or (iii) in the case of any criminal
proceeding, that he or she had no reasonable cause to believe his or her conduct
was unlawful. A Proper Person will be deemed to be acting in his or her official
capacity while acting as a director, officer, employee or agent on behalf of the
Company and not while acting on the Company's behalf for some other entity. A
Proper Person may apply to the court conducting the proceeding or to another
court of competent jurisdiction for an order requiring the Company to indemnify
such person if the court determines that the person is entitled to
indemnification under Colorado law and has met the criteria set forth in the
Company's Bylaws.
No indemnification is available to a person with respect to any
claim, issue or matter in connection with a proceeding by or in the right of the
Company in which the person was adjudged liable to the Company or in connection
with any proceeding charging that the person derived an improper personal
benefit, whether or not involving action in an official capacity, in which he or
she was adjudged liable on the basis that he or she derived an improper personal
benefit. Further, indemnification in connection with a proceeding brought by or
in the right of the Company is limited to reasonable expenses, including
attorneys' fees, incurred in connection with the proceeding.
To the extent that the provisions of a Colorado corporation's Articles of
Incorporation or Bylaws provide for indemnification to a greater extent than is
available under the CBCA, such provisions are void. The Company believes,
however, that the indemnification provisions contained in its Bylaws are no more
liberal than those set forth in the CBCA.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Preferred Stock being registered (all amounts are estimated
except the SEC Registration Fee).
<PAGE>
SEC Registration Fee.............................................. $ 9,710
Blue Sky Qualification Fees and Expenses (including legal fees)..... 15,000
Printing Expenses................................................... 5,000
Legal Fees and Expenses (other than blue sky)....................... 55,000
Accountant's Fees and Expenses...................................... 50,000
Transfer Agent and Registrar Fees................................... 2,000
Miscellaneous Expenses.............................................. 3,000
Total estimated expenses....................................... $139,710
- -------------
Item 26. Recent Sales of Unregistered Securities.
Within the past three years, the Registrant has sold securities
pursuant to the following transactions, all of which were exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act").
From April 1, 1995 - June 30, 1996, the following unregistered securities were
sold:
August, 1995: 18,123 shares of Common Stock issued to a consultant for services
rendered, at $.10 - $.46 per share;
October 18, 1995: 100,000 share Common Stock Purchase Warrant exercisable at
$.10 per share in consideration for entry of a development agreement;
April 26, 1996: 100,000 shares of Common Stock issued upon exercise of Common
Stock Purchase Warrant issued as of October 18, 1995, at $.10 per share; and
June 20, 1996: Stock subscription received for 142,544 shares of Common Stock to
be issued to a significant customer of the Company in return for the customer's
purchase of certain inventory from a supplier of the Company; the shares were
valued at $.15 per share; the share certificates were issued as of July 1, 1996;
From July 1, 1996 - June 30, 1997, the following unregistered securities were
sold:
November 15, 1996: 102,975 shares of Common Stock issued for services rendered
by a Company attorney at $.15 per share;
April 1, 1997: $50,000 convertible promissory note was issued to Company
consultant as a signing bonus, convertible into common stock at $.40 per share;
April 27, 1997: 600,000 shares of Common Stock issued in settlement of class
action lawsuit; certificates were issued as of May 16, 1997;
April - June, 1997: $185,000 of convertible Demand Notes convertible were issued
for cash at face value into Common Stock commencing November 1, 1997 at prices
of $.35 per share ($75,000 of the Notes) and $.50 per share ($110,000 of the
Notes); and
June 3, 1997: Agreement entered obligating Company to issue a $150,000
"convertible subordinated debenture" to a consultant of the Company; the
"debenture" was not issued at the time the agreement was entered into; the right
to the "debenture" was exchanged for a "convertible subordinated promissory
note" which was delivered on or about November 1, 1997.
From July 1, 1997 - May 1, 1998, the following unregistered securities were
sold:
July 2, 1997: $16,825 promissory note was issued for cash of $16,000; the note
was converted into a convertible Demand Note (see April - June, 1997
transactions described above) on or about July 30, 1997;
II-2
<PAGE>
August 6, 1997:
2,625,000 shares and 1,200,000 common stock purchase warrants exercisable at
$.01 per share from January 15, 1998 until August 4, 2002, to John M. Liviakis
for $375,000 in cash;
875,000 shares and 400,000 common stock purchase warrants exercisable at $.01
per share from January 15, 1998 until August 4, 2002, to Robert B. Prag for
$125,000 in cash;
November 15, 1997 - present: 240,000 shares issued under a consulting agreement
with Liviakis Financial Communications, Inc. ("LFC"). 165,000 shares were issued
as of November 15, 1998 and 15,000 shares were issued each month thereafter on
the 15th of each month; pursuant to the agreement, 75% of the shares were issued
to LFC and 25% of the shares have been issued to Robert B. Prag, an executive
officer of LFC;
December 10, 1997: $3,060,000 of 8% Adjustable Rate Convertible Subordinated
Debentures Due December 31, 1999 were issued for cash equal to face value; the
Company paid a finder's fee to J.W. Charles Securities, Inc. of Boca Raton,
Florida of $214,200, 7% of the gross offering proceeds, and issued a 50,000
share Common Stock Purchase Warrant exercisable at $6.525 per share, exercisable
through December 10, 2000. In addition, the Company paid a finder's fee to
Liviakis Financial Communications, Inc. of $76,500, or 2.5% of the gross
offering proceeds;
January 26, 1998: conversion of $50,000 promissory note issued to consultant was
converted (see April 1, 1997 transaction described above) to 75,000 shares of
common stock pursuant to agreement between the Company and a former consultant;
February 9, 1998: conversion of $3,060,000 face value of 8% Convertible
Debentures into 3,060,000 shares of Series A Preferred Stock (see December 10,
1997 transaction described above);
March 12, 1998: issuance of a $60,000 10% unsecured promissory note and 10,435
share Common Stock Purchase Warrant to a consultant of the Company for services
to be rendered over the six month period commencing March 12, 1998;
March 24 - April 17, 1998: sale of call options acquired by the Company in
October 1995, to purchase a total of 150,000 shares of Common Stock owned by an
unaffiliated third party, sold by the Company to an unaffiliated third party for
total consideration of $633,708 in cash; and
April 7 - 16, 1998: 544,307 shares issued upon conversion of convertible Demand
Notes issued from April - July, 1997.
As to each of the foregoing transactions, the Company relied upon the
registration exemption contained in Section 4(2) of the Securities Act of 1933,
as amended (the "Act"). As to the issuance of the 8% Convertible Debentures and
the conversion of those Debentures into Series A Preferred Stock, the Company
also relied upon the exemption contained in Rule 506 of Regulation D promulgated
under the Act. The transactions did not involve a public offering of securities;
the Company received investment representations from each purchaser to the
effect that such purchaser was taking for investment only and not with a view to
distribution of the securities; the Company had reason to believe that each
purchaser had such knowledge and experience, either alone or through a purchaser
representative not affiliated with the Company, that such purchaser was capable
of evaluating the merits and risks of an investment in the Company; each
purchaser, either in his or her capacity as an investor or an employee or
consultant to the Company, had access to adequate information concerning the
Company and its business; all certificates representing the securities (with the
exception of the Demand Notes issued from April - June, 1997) were imprinted
with customary "restricted securities" legends, and instructions were lodged
with the Company's transfer agent with respect to all shares of Common Stock
issued in the transactions as "restricted securities."
II-3
<PAGE>
Item 27. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------ -----------------------
<S> <C>
3.1 Amended Articles of Incorporation (8)
3.2 Amended Bylaws (3)
4.1 Representative's Warrant Agreement dated as of December 2, 1993 (5)
4.2 Common Stock Purchase Warrant issued to James B. Walters on or about April 12, 1993 (5)
4.3 Common Stock Purchase Warrant issued to Kenneth DeJohn on or about May 1, 1993 (5)
4.4 Consulting Agreement dated August 15, 1992, as amended April 12, 1993, with James B. Walters (1)
4.5 Form of Common Stock Purchase Warrants issued to John Liviakis and Robert Prag as of August 4, 1997
(This exhibit is included in Exhibit 10.13)
4.6 Designation of Series A Preferred Stock (this exhibit is included in Exhibit 3.1)
4.7 Common Stock Purchase Warrant dated December 10, 1997 issued to J.W. Charles Securities, Inc. (10)
4.8 Common Stock Purchase Warrant dated March 12, 1998, issued to entrenet Group, LLC
4.9 Promissory Note for $60,000 issued to entrenet Group, LLC, as of March 12, 1998
5.1 Form of Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C. as to the legality of issuance of the Company's
Common Stock.#
10.1 License and Volume Purchase Agreement with OMRON Systems of America with Solectron Addendum (1)
10.2 Promissory Note with OMRON Systems, Inc. (3)
10.3 Supply Agreement with Novatel Communications LTD. (3)
10.4 Release Agreement with Richard P. Draper (3)
10.5 Copy of Amended 1992 Stock Option Plan (7)
10.6 Agreement for Manufacture and Purchase between USWD, Uniform Industrial Corp and
Cardservice International, Inc. (3)
10.7 AT&T CDPD Value Added Reseller Agreement dated April 30, 1997* (6)
10.8 Bell Atlantic AIRBRIDGE Packet Service Agreement dated August 12, 1997* (6)
10.9 Engagement Agreement between USWD and entrenet Group, LLC dated June 3, 1997 (6)
10.10 GTE Leasing Corporation Promissory Note dated August 6, 1997 (6)
10.11 GTE Mobilnet Communications Service and Equipment Agreement dated August 1, 1997* (6)
10.12 Form of Demand Note issued to private investors during the fourth quarter of fiscal year 1997 (6)
II-4
<PAGE>
10.13 Liviakis Financial Communications, Inc. Consulting Agreement and forms of Subscription Agreements for
the purchase of U.S. Wireless Data, Inc. Common Stock and Warrants from John M. Liviakis Robert B, Prag
and effective as of July 25, 1997 (6)
10.14 Member Service Provider Sales and Service Credit Card Processing Agreement between
U.S. Wireless Data, Inc. and NOVA Information Systems, Inc. dated January 1, 1997* (6)
10.15 Purchase Agreement with Unicard Systems, Inc. dated September 18, 1997* (6)
10.16 Purchase Agreement with Wellex Systems Manufacturing & Distribution Group dated August 7, 1997 (6)
10.17 Underwriting Agreement between the Company, RAS Securities Corp., Walford & Company, Incorporated
and Thomas James Associates, Inc. dated December 2, 1993 (2)
10.18 Merchant Marketing and Services Agreement with National Bank of Commerce dated March 9, 1998*
10.19 Assignment Agreement (with Escrow Provisions) with Richard P.
Draper, Tillicombe International LDC and Ireland, Stapleton,
Pryor & Pascoe, P.C., as escrow agent, dated March 12, 1998
10.20 Form of Option Purchase and Assignment Agreement (relating to
assignment of call option on Tillicombe stock)
10.21 Loan and Security Agreement with GTE Leasing Corporation dated
April 2, 1998 (with attached Notice, Consent and Agreement with
NOVA Information Systems dated as of _________, 1998)#
10.22 Joint CDPD Sales and Marketing Agreement with Bell Atlantic Mobile dated as of March 23, 1998*
10.23 Engagement Agreement between the Company and entrenet Group, LLC, dated as of March 12, 1998
10.24 Form of Settlement and Mutual Release Agreement between the
Company and the Delle Donne Noteholders entered into as of April 9, 1998
10.25 Form of Settlement and Mutual Release Agreement between the
Company and certain Noteholders entered into as of April 7, 1998
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ireland, Stapleton, Pryor & Pascoe, P.C. (see Exhibit 5.1)#
25.1 Power of Attorney - See Page II-8.
- -----------------
<FN>
# To be filed by amendment.
* Confidential treatment for certain portions of this document has been
requested by the Company pursuant to Commission Rule 24b-2 promulgated
under of the Securities Exchange Act of 1934 and/or Rule 406
promulgated under the Securities Act of 1933, as identified on the
first page of the document, and at the specific item in the document
for which such treatment has been requested. The omitted material has
been filed separately with the Commission pursuant to Rules 24b-2
and/or 406.
(1) Incorporated by reference from the like-named exhibit filed with the
Company's Registration Statement on Form SB-2, effective on or about
December 2, 1993 (SEC File No. 33-69776).
(2) Incorporated by reference from the like-named exhibit filed with
Amendment No. 5 to the Company's Registration Statement on Form SB-2,
SEC File No. 33-69776-D.
II-5
<PAGE>
(3) Incorporated by reference from the like-named exhibit filed with the
Company's Annual Report on Form 10-KSB for the Fiscal Year Ended June
30, 1995, filed on October 13, 1996 (SEC Control No. 95201388).
(4) Incorporated by reference from the like-named exhibit filed with the
Company's Annual Report on Form 10-KSB for the Fiscal Year Ended June
30, 1996, filed on October 21, 1996 (SEC Control No. 96645557).
(5) Incorporated by reference from the like-named exhibit filed with the
Company's Annual Report on Form 10-KSB/A (Amendment No. 2) for the
Fiscal Year Ended June 30, 1997, filed on January 2, 1998.
(6) Incorporated by reference from the like-named exhibit filed with the
Company's Annual Report on Form 10-KSB/A (Amendment No. 3) for the
Fiscal Year Ended June 30, 1997, filed on February 25, 1998.
(7) Incorporated by reference from the like-named exhibit filed as Exhibit
C to the Company's Definitive Revised Proxy Statement for the 1997
Annual Meeting of Shareholders held on February 6, 1998, filed on
January 14, 1998.
(8) Incorporated by reference from the like-named exhibit filed with the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
December 31, 1997, filed on February 23, 1998.
(9) Incorporated by reference from the like-named exhibit filed with the
Company's Quarterly Report on Form 10- QSB/A (1st Amendment) for the
fiscal quarter ended December 31, 1997, filed on March 18, 1998.
(10) Incorporated by reference from the like-named exhibit filed with the
Company's Current Report on Form 8-K Reporting an Event of November 14,
1997 (earliest event reported), filed on December 17, 1997.
</FN>
</TABLE>
Item 28. Undertakings.
The undersigned small business issuer hereby undertakes that:
A. It will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities as that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
B. If the issuer relies on Rule 430A under the Securities Act, it will:
(1) For determining any liability under the Securities Act the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer pursuant to Rule 424(b)(1), or (4)
or 497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
II-6
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement relating for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Emeryville,
California on this 11th day of May, 1998.
U.S WIRELESS DATA, INC.
By: /s/ Evon A. Kelly
---------------------
Evon A. Kelly
Chief Executive Officer
Power of Attorney
The undersigned directors and/or officers of the Registrant, by
virtue of their signatures to this Registration Statement appearing below,
hereby constitute and appoint Evon A. Kelly and Robert E. Robichaud, or either
of them, with full power of substitution, as attorney-in-fact in their names,
places and steads to execute any and all amendments to this Registration
Statement in the capacities set forth opposite their names and hereby ratify all
that said attorneys-in-fact may do by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Signatures Title Date
- ---------- ----- ----
/s/ Evon A. Kelly Chief Executive Officer May 11, 1998
Evon A. Kelly & Director (Principal
Executive Officer)
/s/ Rod L. Stambaugh President & Director May 11, 1998
- ---------------------------
Rod L. Stambaugh
/s/ Robert E. Robichaud Chief Financial Officer, May 11, 1998
- ---------------------------
Robert E. Robichaud Secretary & Treasurer
(Principal Financial and
Accounting Officer)
/s/ Richard S. Barton Director May 11, 1998
- ---------------------------
Richard S. Barton
- --------------------------- Director ------------
Caesar Berger
/s/ Chester N. Winter Director May 11, 1998
- ---------------------------
Chester N. Winter
II-8
WARRANT
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
Number: EG-1 10,435 Shares
WARRANT TO PURCHASE COMMON STOCK
U.S. Wireless Data, Inc, a Colorado corporation (the "Corporation"), hereby
grants to entr[THETA]net Group LLC (the "Holder") the right to purchase from the
Corporation 10,435 shares of the common stock of the Corporation (the "Warrant
Shares"), subject to the terms and conditions set forth below. This Warrant is
issued in connection with and subject to certain rights, privileges and
restrictions set forth in the Engagement Agreement entered into between the
Holder and the Corporation (the "Engagement Agreement") as of March 12, 1998.
1) Term. This Warrant may be exercised into fully paid and nonassessable shares
of the Corporation's Common Stock, at the option of the Holder, at any time and
from time to time in whole or in part during the five years ending March 11,
2003 (the "Exercise Period"), subject to certain stand-off limitations and
extensions as set forth in Section 9 (below).
2) Purchase Price. This Warrant shall be exercisable into the Corporation's
Common Stock at a price equal to the lower of Five Dollars and Seventy Five
Cents ($5.75) per share, as adjusted pursuant to Section 9 below.
3) Exercise of Warrant. This Warrant may be exercised in whole or in part, but
not for less than one hundred (100) Warrant Shares (or such lesser number of
Warrant Shares as may at the time of exercise constitute the maximum number
exercisable) and in excess of 100 Warrant Shares in increments of 100 Warrant
Shares. It is exercisable at any time during the Exercise Period by the
surrender of the Warrant to the Corporation at its principal office together
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder, accompanied by the amount, in full, of the aggregate purchase
price of the Warrant Shares in immediately available funds. The Corporation
agrees that the Warrant Shares so purchased shall be issued as soon as
practicable thereafter, and that the Holder shall be deemed the record owner of
such Warrant Shares as of and from the close of business on the date on which
this Warrant shall be surrendered together with payment in fill as required
above.
<PAGE>
4) Cashless Exercise Option. Notwithstanding the foregoing, in lieu of
exercising this Warrant for cash, the Holder may elect to receive Warrant Shares
equal to the value of this Warrant (or equal to the value of the portion of the
Warrant Shares thereof being cancelled) which shall be that number of Warrant
Shares equal to the excess, if any, by which the Fair Market Value of the
aggregate Warrant Shares exceeds the aggregate Exercise Price (determined by
subtracting the Warrant Exercise Price for one Warrant Share on the exercise
date from the Fair Market Value of one Warrant Share on the exercise date
multiplied by the number of Warrant Shares exercised) on the exercise date. Fair
Market Value of one share of a Warrant Share shall mean the fair market value as
determined by the parties in good faith, taking into account publicly quoted
prices for the Corporation's Common Stock if such are available. In the event of
a cashless exercise, the underlying Warrant must be surrendered, and no new
Warrant shall be issued. 5) Fractional Interest. The Corporation shall not be
required to issue any fractional shares on the exercise of this Warrant.
6) Warrant Confers No Rights of Shareholder. The Holder shall not have any
rights as a shareholder of the Corporation with regard to the Warrant Shares
prior to actual exercise resulting in the purchase of the Warrant Shares.
7) Investment Representation. Neither this Warrant nor the Warrant Shares
issuable upon the exercise of this Warrant have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws. The Holder acknowledges by acceptance of the Warrant that (a)
he has acquired this Warrant for investment and not with a view to distribution;
and either (b) he has a pre-existing personal or business relationship with the
Corporation, or its executive officers, or by reason of his business or
financial experience be has the capacity to protect his own interests in
connection with the transaction; and (c) he is an accredited investor as that
term is defined in Regulation D promulgated under the Securities Act. The Holder
agrees that any Warrant Shares issuable upon exercise of this Warrant will be
acquired for investment and not with a view to distribution and such Warrant
Shares will not be registered under the Securities Act and applicable state
securities laws and that such Warrant Shares may have to be held indefinitely
unless they are subsequently registered or qualified under the Securities Act
and applicable state securities laws or, based on an opinion of counsel
reasonably satisfactory to the Corporation, an exemption from such registration
and qualification is available. The Holder by acceptance hereof, consents to the
placement of the following restrictive legends or similar legends, on each
certificate to be issued to the Holder by the Corporation in connection with the
issuance of such Warrant Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES
LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) There
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH
SECURITIES, OR (B) THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THE SECURITIES SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE QUALIFICATION REQUIREMENTS
UNDER APPLICABLE STATE LAW.
<PAGE>
8) Reservation of Shares. The Corporation agrees at all times during the
Exercise Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon exercise of this Warrant, a sufficient number of
shares of its common stock to provide for the exercise of the rights represented
hereby.
9) Adjustment for Re-Classification of Capital Stock. If the Corporation at any
time during the Exercise Period shall, by subdivision, combination or
re-classification of securities, change any of the securities to which purchase
rights under this Warrant exist under the same or different number of securities
of any class or classes, this Warrant shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares immediately prior to
such subdivision, combination, or reclassification. If shares of the
Corporation's common stock are subdivided into a greater number of shares of
common stock, the purchase price for the Warrant Shares upon exercise of this
Warrant shall be proportionately reduced and the Warrant Shares shall be
proportionately increased; and conversely, if shares of the Corporation's common
stock are combined into a smaller number of common stock shares, the price shall
he proportionately increased, and the Warrant Shares shall be proportionately
decreased.
10) The Corporation's Obligation to Register. If the Corporation at any time
proposes to initiate a registration of its securities under the Securities Act
of 1933, as amended (the "Securities Act") and thereafter to register any of its
securities under the Securities Act (other than a registration effected solely
to implement an employee benefit plan, a transaction to which Rule 145 of the
Commission is applicable or any other form or type of registration in which
Registrable Securities cannot be included pursuant to Commission rule or
practice), it will give written notice to Holder of this Warrant of its
intention to do so. If such registration is proposed to be on a form which
permits inclusion of the Stock underlying the exercise of this Warrant, upon the
written request from any Holder within 20 days after transmittal by the
Corporation to the Holder of such notice, the Corporation will, subject to the
limits contained in this Section, use its best efforts to cause all such Stock
underlying the exercise of this Warrant to be registered under the Securities
Act and qualified for sale under any relevant state blue sky law, all to the
extent requisite to permit such sale or other disposition by Holder of the Stock
so registered. Notwithstanding any other provision of this Section, if the
underwriter managing such registration notifies the Holder in writing that
market or economic conditions limit the amount of securities which may
reasonably be expected to be sold, Holder will at a minimum be allowed to
register their Stock pro rata based on the ratio of the total number of shares
of Stock to be offered for sale by the Corporation to the total shares
outstanding just prior to the offering.
11) Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Corporation of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any Warrant or stock certificate, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Corporation of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Corporation will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
this Warrant or stock certificate.
12) Assignment. The Holder of this Warrant shall not assign or transfer this
Warrant without the
<PAGE>
consent of the Corporation; provided however, that the Holder, if a limited
liability company, may assign this Warrant to its Members without the consent of
the Corporation. The Holder of this Warrant shall not assign his Warrant unless
such assignment is in compliance with applicable state and federal securities
laws. In giving its consent to an assignment, the Corporation may request an
opinion of counsel reasonably acceptable to it that such transfer is in
compliance with all applicable state and federal securities laws.
13) Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts between
California residents entered into and to be performed entirely within the State
of California.
14) Amendments. Any term of this Warrant may be amended with the written consent
of the Company and the holders of warrants representing not less than a majority
in interest (50% +) of the shares of Common Stock issuable and issued upon
exercise of all Series A Warrants.
15) Notices. Unless otherwise provided, any notice required or permitted under
this Warrant shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified by hand or professional
courier service or five (5) days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party in the Subscription
Agreement, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
16) Attorneys' Fees. If any action at law or in equity is necessary to enforce
or interpret the terms of this Warrant, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
Executed as of March 12, 1998
By: /s/ Evon Kelly
-----------------------
Evon Kelly
Chief Executive Officer
The name and address of the registered Holder of this Note is:
entrenet Group LLC
1304 Southpoint Blvd., Suite 220
Petaluma, California 94954
Fax 707-781-2514
Email [email protected]
<PAGE>
NOTICE OF EXERCISE
To: ______________________
1. The undersigned hereby elects to purchase ______ shares of Common Stock of
____________________________, pursuant to the terms of the attached Warrant and
tenders herewith payment of the purchase price for such shares in full.
2. In exercising this Warrant, the undersigned hereby confirms and acknowledges
that the shares of Common Stock are being acquired solely for the account of the
undersigned and not as a nominee for any other party, or for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
shares of Common Stock except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws.
3. Please issue a certificate representing said shares of Common Stock in the
name of the undersigned:
4. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned:
Dated: ___________________________ HOLDER
By: _____________________________
---------------------------------
(Print Name & Title)
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING THIS
NOTE AND/OR SUCH SECURITIES, OR THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THE NOTE AND/OR SUCH SECURITIES SATISFACTORY TO THE CORPORATION
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE
QUALIFICATION REQUIREMENTS UNDER STATE LAW.
U.S. WIRELESS DATA, INC.
10%, UNSECURED and NONASSIGNABLE,
PROMISSORY NOTE
DUE March 11, 1999
$60,000 March 12, 1998
1) Obligation. FOR VALUE RECEIVED, U.S. Wireless Data, Inc., a Colorado
corporation (hereinafter called the "Corporation"), hereby promises to pay
entr[THETA]net Group LLC (hereinafter called the "Holder") on the earlier of
March 11, 1999 or upon a "Financing Event", (the "Payment Date") the principal
sum of Sixty Thousand Dollars ($60,000) and interest on such principal sum from
the date hereof at the annual rate of ten percent (10%) per annum (based on a
360-day year, 30-day month) until payment in full of principal. A Financing
Event shall have been considered to have occurred upon the Corporation having
received a gross proceeds of $2,000,000, cumulative from the date of this note,
from the sale of the Corporations Equity Securities, instruments convertible
into Equity and the sale of the Stock Repurchase Rights.
2) Medium of Payment. The principal and interest on this promissory note (this
"Note") are payable in lawful money of the United States of America at the
Holder's address set forth below, or at such other address as the Holder hereof
may from time to time designate to the Corporation in writing.
3) Prepayment. The Corporation may prepay this Note in whole or in part at any
time prior to due date of this Note.
4) Default.
a. Events of Default. Without notice, except as expressly provided
herein, the following will be deemed to be events of default:
i. Covenants. Failure on the part of the Corporation to observe or
perform any of the covenants or agreements on the part of the Corporation
contained in this Note after (A) written notice of such failure, requiring
the Corporation to remedy the same, has been given to
<PAGE>
the Corporation by the Holder, and (B) such failure has continued without
remedy for a period of thirty days; or
ii. Receivership. The entry of a decree or order of a court having
jurisdiction in the matter for the appointment of a receiver and such
decree or order has continued in force undischarged or unstayed for a
period of one hundred twenty days; or
iii. Bankruptcy. The Corporation institutes proceedings to be adjudged
a voluntary bankrupt, or consents to the filing of bankruptcy proceedings
against it, or files a petition or answer or consent seeking reorganization
under the National Bankruptcy Act or any other similar or applicable
federal or state law, or consents to the filing of any such petition, or
consents to the appointment of a receiver, liquidator, or trustee in
bankruptcy, or makes a general assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they become
due; or
iv. Attachment. Any judgment, writ, or warrant of attachment or of any
similar process in an amount in excess of $100,000 is entered or filed
against the Corporation or against any of its property or assets and
remains unpaid, unvacated, unbonded or unstayed for a period of 120 days.
b. Acceleration of Maturity. If any one or more of the foregoing events
of default occurs, the Holder, by notice in writing to the Corporation, may
declare the principal of and all accrued interest on this Note then outstanding
immediately due and payable without further notice or demand; provided, however,
that at any time after such declaration the same may be rescinded and such event
of default may be waived by the Holder by written notice to the Corporation.
c. Payment on Acceleration. Upon any such acceleration of the maturity
of this Note, the Corporation will within 90 days pay to the Holder the entire
principal balance unpaid on this Note, together with accrued interest thereon to
the date of such payment.
d. Failure to Pay. If the Corporation fails to make payment to the
Holder as provided in the preceding Subsection (Payment on Acceleration), the
Holder will be entitled and empowered to take such measures as may be
appropriate to enforce the Corporation's obligations under this Note, by
judicial proceedings or otherwise. If suit is brought to enforce payment of this
Note, the Corporation promises to pay reasonable attorneys' fees to be fixed by
the Court.
5) No Assignment. This Note is unsecured, nontransferable and nonassignable.
Holder may not sell, assign, pledge, hypothecate or otherwise transfer this Note
6) Notices. Any communication or notices may be delivered or mailed to the
offices of the Corporation at its principal place of business and to the Holder
at the Holder's address set forth below, or to such other addresses as the
Corporation, or Holder, may designate in writing from time to time.
<PAGE>
7) Applicable Law. This Note shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts between
California residents entered into and so be performed entirely within the State
of California.
Executed as of March 12, 1998
By: /s/ Evon Kelly
-----------------------
Evon Kelly
Chief Executive Officer
The name and address of the registered Holder of this Note is:
entrenet Group LLC
1304 Southpoint Blvd., Suite 220
Petaluma, California 94954
Fax 707-781-2514
Email [email protected]
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY U.S. WIRELESS DATA, INC. FOR
CERTAIN INFORMATION CONTAINED IN SCHEDULE A TO THIS AGREEMENT
MERCHANT MARKETING AND SERVICES AGREEMENT
This Merchant Marketing and Services Agreement (the "Agreement"), dated
March 9, 1998, is by and between National Bank of Commerce ("Bank") and U.S.
Wireless Data, Inc.
("ISO/MSP").
WITNESSETH
WHEREAS, In connection with Bank's membership in the Visa U.S.A., Inc.
and MasterCard International Incorporated bank card associations, Bank processes
bank card transactions on behalf of certain retail merchants that accept credit
and debit cards in payment for customer purchases; and
WHEREAS, ISO/MSP is engaged in the business of providing bank card
merchant services including merchant solicitation and related sales and
services, to financial institutions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and conditions herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS.
1.01. "ACH" means the Automated Clearing House maintained by the Federal
Reserve System.
1.02. "Bank Card" means a credit card or debit card issued by a member of
the Card Associations (as defined below) and bearing their respective trade
names, trademarks and/or trade symbols.
1.03. "Business Day" means any day on which Bank conducts substantially all
of its business, excluding Saturdays, Sundays and Bank holidays.
1.04. "Card Association(s)" means Visa U.S.A., Inc. or MasterCard
International, Inc.
1.05. "Charge-Back" means the amount of any previously accepted Bank Card
sales Transaction that, in accordance with Card Association Rules, the Bank Card
issuer reimburses to the Cardholder's bank card account and returns to Bank.
1.06. "Merchant" means each business or entity solicited by ISO/MSP,
approved by Bank and with which Bank enters into a Merchant Agreement (as
defined below) as a result of such solicitation.
1.07. "Merchant Agreement" means any agreement in effect by and between
Bank and a business or entity that has been solicited by ISO/MSP under this
Agreement.
<PAGE>
1.08. "Merchant Fees" means the fee charged to Merchant by Bank, as
provided in each Merchant Agreement.
1.09. "Merchant Services" means the operations, policies and procedures
established by Bank for the solicitation, approval, processing, clearing and
settlement of Bank Card Transactions for Merchants.
1.10. "Program" means Bank's business plan for furnishing the Merchant
Services to Merchants.
1.11. "Residual Account" means a commercial account maintained by ISO/MSP
with Bank in ISO/MSP's name as described in Section 5 of this Agreement.
1.12. "Transaction" means each sale of, or credit for, merchandise or
services of a Merchant for which a customer makes payment through the use of a
Bank Card.
2. AGREEMENT.
2.1. ISO/MSP agrees to actively, and through the use of all reasonable
efforts, market the Program to prospective Merchants (including but not limited
to the customers of Bank) and to provide other Program-related services to the
Merchants on behalf of Bank, as provided in this Agreement.
2.2. The validity and enforceability of this Agreement are contingent upon
both (i) ISO/MSP's being accepted for registration as an Independent Service
Provider or Member Service Provider by the Card Associations, and (ii) the
acceptance of this Agreement by both Card Associations.
3. OBLIGATIONS OF ISO/MSP.
3.1. Merchant Accounts. ISO/MSP will use its best efforts to solicit
prospective Merchants to become Merchants under the Program and to promote
on-going Merchant participation in the Program. ISO/MSP shall submit all
marketing materials and all marketing strategies it plans to use for such
solicitations to Bank for prior approval, which shall not be unreasonably
withheld. All such prospective Merchants' acceptance into the Program shall be
subject to approval by Bank in accordance with the Programs's underwriting
criteria.
3.2. Merchant Services. ISO/MSP shall obtain all information and complete
all documents required by Bank for each prospective Merchant, including the
negotiation and execution by each Merchant of a Merchant Sales Agreement
acceptable to Bank. After submission to and acceptance by Bank of all such
required information and documents, Bank shall notify ISO/MSP whether or not
each prospective Merchant has been accepted to participate in the
-2-
<PAGE>
Program. Within 10 days of ISO/MSP's receipt of notice that Bank has accepted a
prospective Merchant to participate in the Program, ISO/MSP shall provide the
Merchant with point-of-sale access, including set-up and maintenance of
electronic terminal hardware and other equipment at each Merchant location, to
an authorization and data capture network that is connected to the Card
Association's interchange networks. ISO/MSP shall provide customer service to
each Merchant, including training, supplies, Program information and other
services relating to the Program.
3.3. Card Association Compliance. ISO/MSP understands and agrees to comply
with all applicable rules and regulations of the Card Associations, particularly
those applicable to Service Providers. ISO/MSP further agrees to comply with all
federal, state and local laws and regulations governing the transactions
contemplated in this Agreement.
3.4. Access to Records. ISO/MSP shall, prior to the date of this Agreement,
provide Bank with copies of ISO/MSP's audited financial statements. During
normal business hours for the term of this Agreement, ISO/MSP shall allow Bank
access to ISO/MSP's records with respect to the Merchants, the Program and any
other matters, financial or otherwise, relating to this Agreement.
4. OBLIGATIONS OF BANK.
4.1. Accounting Functions. Bank shall perform financial and accounting
functions relating to the clearing and settlement of Bank Card Transactions and
other services provided under this Agreement. Such functions include, but are
not limited to, disbursement of Merchants' funds via ACH, collecting Merchant
Fees and crediting ISO/MSP's Residual Account for its portion thereof, payment
of card Associations' fees and assessments, and payment of any Service Provider
charges.
4.4. Documents; Access to Data. Bank shall provide ISO/MSP with all
documents and other materials necessary or appropriate for a Merchant's
participation in the program. Bank shall ensure that ISO/MSP has access to all
documentation necessary for ISO/MSP to perform its obligations under this
Agreement.
4.5. Dispute Notification. Bank shall promptly inform ISO/MSP of (i) any
Merchant inquiries or disputes concerning services provided by ISO/MSP or its
Service Providers, or (ii) of any communication between Bank or the Card
Associations relating to such services.
4.6. Personnel. During the term of this Agreement, Bank shall maintain
sufficient personnel to perform the services contemplated under this Agreement
on a timely basis.
4.7. Training. Bank shall provide ISO/MSP's employees with training in
Bank's underwriting standards.
4.8. Reports. Bank shall provide ISO/MSP a monthly report containing an
accounting summary of Bank Card activities of the Merchants during the previous
month.
5. ESTABLISHMENT AND OPERATION OF ACCOUNTS.
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<PAGE>
Prior to the implementation of this Agreement, ISO/MSP shall establish
the Residual Account(s), which shall consist of one or more commercial checking
accounts at Bank in the name of ISO/MSP, for settlement of residuals and
charge-backs, if any, and to hold funds representing any reserve required by
Bank.
6. MERCHANT FEES.
With respect to each Merchant Agreement presented or assigned by
ISO/MSP to Bank and accepted by Bank under the terms of this Agreement, Bank
shall charge each Merchant a Merchant Fee equal to a fixed percentage of the
total dollar amount of the Merchant's daily Transactions, plus other applicable
fees, in accordance with the Merchant Agreement. Bank shall collect the Merchant
Fees from each Merchant, and shall credit ISO/MSP's Residual Account with the
total amount of Merchant Fees collected, after deducting the per-transaction and
applicable one-time and per-occurrence fees indicated on Schedule A and any
Charge- Backs. ISO/MSP's portion of the Merchant Fee shall be calculated and
credited to the Residual Account within 10 Business Days following the close of
business each calendar month. Bank's obligation to ISO/MSP under this Paragraph
6 shall not be the subject of any ownership or security interest, lien, set-off,
recoupment, charge equity, or other encumbrance with respect to any funds held
by, for or at Bank either directly or through any other financial institution.
7. TERM.
7.1. This Agreement shall have an initial term of three (3) years from the
effective date hereof and shall automatically renew for successive one (1) year
terms unless either party gives the other party prior written notice of
non-renewal at least ninety (90) days prior to the end of the initial term or
any renewal term.
7.2. Notwithstanding the foregoing, this Agreement may be terminated as
follows:
(a) Immediately and automatically upon the deregistration of
ISO/MSP by either Card Association;
(b) By Bank, with sixty (60) days prior written notice, to
ISO/MSP upon a material breach by ISO/MSP of any Card Association
rule or regulation with respect to the Program or this Agreement;
(c) By Bank, with sixty (60) days prior written notice, upon the
occurrence of either of the following:
(i) Termination of Bank's status as a licensed processing
bank by either Card Association; and
-4-
<PAGE>
(ii) Termination of the Program by Bank.
(d) By either party, automatically, if the other party ceases to
conduct business in the ordinary course, admits its insolvency,
makes an assignment for the benefit of creditors, or becomes a
party to any judicial or administrative proceeding in bankruptcy,
receivership or reorganization.
(e) By either party, immediately, if the other party fails to
correct a material breach of this Agreement within thirty (30)
days of receipt by the breaching party of written notice from the
non-breaching party specifying the nature of the breach.
8. RIGHTS UPON TERMINATION.
The rights and responsibilities of the parties hereto with respect to
Transactions entered into prior to termination shall not be affected by the
termination of this Agreement. The parties hereto agree to cooperate with each
other following termination to ensure an orderly transition for any Merchants
that are to receive Merchant Services from another Card Association member
following termination.
9. MISCELLANEOUS.
9.01. Expenses. Both parties agree to be responsible for their own
respective expenses associated with the transactions contemplated under this
Agreement.
9.02. Assignment. Neither party may assign this Agreement without prior
written approval by either party which will not be unreasonably withheld;
provided, however, that either party may assign this Agreement to any entity
that controls, is controlled by or under common control with such party.
9.03. Waivers. Either party may waive any of the provisions set forth
herein by doing so in writing by a duly authorized representative.
9.04. Notices. Any notice under this Agreement shall be in writing and
delivered personally, by facsimile transmission or by registered or certified
mail, postage prepaid, as follows:
-5-
<PAGE>
(a) If to Bank: Lewis H. Holland
President
National Bank of Commerce
One Commerce Square
Memphis, TN 38150; and
Charles A. Neale
Senior Vice President and General Counsel
One Commerce Square
Memphis, TN 38150
(b) If to ISO/MSP:
, and
9.05. Entire Agreement. This Agreement supersedes any and all prior oral or
written agreements and contains the entire agreement of the parties relating to
this matter. This Agreement may only be amended by a written agreement signed by
all of the parties hereto.
9.06. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee applicable to agreements made
and entirely to be performed within such state but in accordance with any
applicable federal laws and regulations.
9.07. Severability. Should any provision in this Agreement be held to be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions hereof shall not be affected or impaired thereby.
9.08. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one instrument.
9.09. Creditors' Rights. The enforceability of this Agreement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws effecting the enforcement of creditors' rights generally.
9.10. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon
-6-
<PAGE>
ISO/MSP and NBC and their respective successors and assigns.
9.11. No Delay or Waiver. Neither any delay on the part of a party in
exercising any right hereunder, nor any failure to exercise the same shall
operate as a waiver of such right; nor in any event shall any modification or
waiver of the provisions hereof be effective unless in writing signed by the
party granting the waiver, nor shall any such waiver be applicable except in the
specific instance for which it is given.
9.12. Exhibits. All of the Exhibits to this Agreement are hereby
incorporated into and made a part of this Agreement as if set forth fully
herein.
9.13. Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the interpretation of this
Agreement.
9.14. Further Assurances. The parties agree that upon request, they shall
do such further acts and deeds, and shall execute, acknowledge, deliver and
record such other documents and instruments, as may be reasonably necessary from
time to time to evidence, confirm or carry out the intent and purposes of this
Agreement.
9.15. Arbitration. Any and all disputes or disagreements arising between
the parties pertaining to or relating in any manner to this Agreement, including
any breach of this Agreement are to be decided by arbitration in accordance with
the rules of the American Arbitration Association. The parties agree to be bound
by the majority decision of the arbitrators. The arbitration proceeding shall
take place in Memphis, Tennessee, unless another location is mutually agreed to
by the parties. Three arbitrators shall be selected for the arbitration panel.
One arbitrator shall be selected by each party. The third arbitrator shall be
selected by the arbitrators named by each party. The costs and expenses of the
third arbitrator shall be shared equally by the parties. Each party shall be
responsible for its own costs and expenses in arbitrating the dispute. The award
of the arbitrators shall be final and a judgment on the award may be entered in
any court having jurisdiction. This provision shall survive the termination of
this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
BANK:
NATIONAL BANK OF COMMERCE
By: /s/ Richard E. Kauerz
----------------------
Name:
Title: President of Merchant Services
ISO/MSP:
By: /s/ Evon Kelly
---------------
Name:
Title: CEO
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<PAGE>
SCHEDULE A (Pricing)
Interchange Pass Through, Card Association Assessment + # (All Transaction
Types)
Transactions Monthly
1-500,000 - $#
500,000-1,000,000 - $#
1,000,00 + - $#
Account on File - $# Monthly Retrieval Requests - $# Chargebacks - $#
Performance Provision
Per Transaction Rate From Day One Will Be Charged At The # Transaction Rate
($.#). Six Months From Execution Of This Agreement, If the # Per Month
Transaction Level Is Not Attained, All Transactions Retroactive to Day One Will
Be Charged At the Appropriate Per Transaction Rate.
Interchange and Assessment Increases
Interchange and Assessment Service Fees set by the Bank Card Associations can
and do change periodically. Bank will notify ISO/MSP in writing thirty (30) days
prior to any effective date of such change.
# CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY U.S. WIRELESS
DATA, INC. FOR THIS PORTION OF THIS DOCUMENT PURSUANT TO
COMMISSION RULES 24b-2 AND/OR 406. THE OMITTED MATERIAL HAS BEEN
FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
March 09, 1998
RE: Residual Rights: Merchant Marketing and Services Agreement dated March 09,
1998 (the "ISO/MSP Agreement"), between National Bank of Commerce ("Bank") and
U.S. Wireless Data, Inc., its employees, independent contractors or agents
("ISO/MSP")
Evon Kelly
2200 Powell Street
Suite 450
Emeryville, CA 94608
Dear Evon,
Please consider this letter a confirmation of our agreement concerning the
equity and residual rights of Bank and ISO/MSP with respect to each business or
entity ("Merchant"), solicited by ISO/MSP, approved by Bank and with which Bank
has entered into an agreement ("the Merchant Agreement") to provide processing
and settlement of credit and debit card transactions for the Merchant ("Merchant
Services"), all in accordance with the ISO/MSP Agreement. This letter is
intended as an addendum to the Merchant Marketing and Services Agreement (the
"Merchant Agreement").
1. Equity Rights. ISO/MSP and Bank will each have an undivided
one-half (1/2) equity interest in the portfolio of Merchants
for whom Bank provides Merchant Services as a result of
ISO/MSP's marketing efforts or Merchants that ISO/MSP is
otherwise responsible for bringing into the Bank's Merchant
Services program ("the Equity Merchants"). Bank will not,
however, share with ISO/MSP its equity interest in Merchants
to which Bank is currently providing Merchant Services, but
that are solicited by ISO/MSP and enter into a mew Merchant
Agreement due to ISO/MSP's more advantageous technological
capabilities (the "Non-Equity Merchant(s)"). ISO/MSP will,
however continue to receive payments of residuals, in
accordance with Paragraph 6 of the ISO/MSP Agreement, on
each such Non-Equity Merchant as long as Bank continues to
provide Merchant Services, on a continuous basis, to such
Non-Equity Merchant through ISO/MSP's technology.
2. Liability for Non-Payment. ISO/MSP will reimburse Bank for
fifty percent (50%) of any fees or charges owed to Bank by
any Merchant jointly owned by Bank and USWD, under a
Merchant Agreement, that remains unpaid for 60 days,
including any Merchant's liability to Bank for fraud,
Charge-backs, adjustments, fees, and any and all other
amounts owing by a Merchant to Bank. ISO/MSP will be liable
for one hundred percent (100%) of all such unpaid fees or
charges resulting from the fraud of ISO/MSP collusion
between ISO/MSP and a Merchant, or ISO/MSP's intentional
falsification of information provided to
<PAGE>
Bank. The amount of such ISO/MSP liability is not limited to
any reserve amount Bank may require ISO/MSP to maintain.
3. Service Providers. ISO/MSP will not enter into any agreement
with a Service Provider to provide services with respect to
this Agreement without the prior written consent of Bank
with the exception of established transaction processors.
4. Sale of Merchants. In the event of a proposed sale of the
Equity Merchant portfolio of Bank by either party, the
selling party will notify the non-selling party of the terms
of the proposed sale. The non-selling party will have the
option, exercisable within thirty (30) days of its receipt
of such notice, to purchase the selling partner's one-half
interest in the Equity Merchant Portfolio at a price equal
to one-half the proposed buyer's offering price. If the
non-selling party does not exercise such option, the selling
party may proceed with the proposed sale. At the closing of
such sale of the Equity Merchant portfolio, the selling
party and the non-selling party will each receive one-half
of the purchase price.
5. Transfer of Merchants. Upon termination of the ISO/MSP
Agreement for any reason other than pursuant to Paragraph
7.2(a) of the ISO/MSP Agreement, ISO/MSP will have the right
to transfer the Equity Merchants to another Card Association
Member for receipt of Merchant Services upon payment to Bank
of one-half of the equity value of the Equity Merchant
portfolio. Bank will cooperate with ISO/MSP in such transfer
by legally transferring all Equity Merchant's Merchant
Agreements to the Card Association member designated by
ISO/MSP, or, if such assignment is not practicable, Bank
will terminate all such Merchant Agreements as provided
therein, to allow the designated member to enter into new
agreements with the Equity Merchants. ISO/MSP will reimburse
Bank for out-of-pocket expenses incurred by Bank with
respect to such assignment or termination.
If the foregoing accurately reflects our agreement concerning the matters
discussed herein, please so indicate by signing each duplicate original of this
letter in the space provided below and returning the original to us.
Agreed To and Accepted: NATIONAL BANK OF COMMERCE
By: /s/ Evon Kelly By: /s/ Richard E. Kauerz
--------------- ----------------------
Date: 3/13/98
ASSIGNMENT AGREEMENT
(WITH ESCROW PROVISIONS)
This Assignment Agreement is made and entered into effective
as of the 12th day of March, 1998, between U.S. Wireless Data, Inc., a Colorado
corporation ("USWD") and Richard P. Draper, an individual ("Draper"), Tillicomb
International LDC, a Cayman Island company ("Tillicomb") and Ireland Stapleton
Pryor & Pascoe, P.C. ("Escrow Agent").
RECITALS
--------
WHEREAS, Tillicomb is a Cayman company which is beneficially
owned solely by Draper and his immediate family which, as Draper's assignee, is
the owner of a total of 397,684 shares of the no par value Common Stock of USWD
(the "Shares"), which are the subject of an agreement between USWD and Draper
dated as of October 5, 1995 (the "Original Agreement");
WHEREAS, pursuant to the Original Agreement, the Shares are
subject to a call option for the benefit of USWD which entitles USWD to purchase
the shares from Draper at any time prior to October 5, 1998 for $.25 per share
(the "Option");
WHEREAS, USWD desires to assign the Option to certain third
parties, and Draper and Tillicomb have agreed to any such assignments and to
cooperate with the exercise of the Option on the terms set forth herein;
WHEREAS, USWD, Draper and Tillicomb have agreed to utilize the
services of an escrow agent (the "Escrow Agent") to facilitate the transactions
to be completed hereunder and the Escrow Agent has agreed to provide its
services on the terms set forth herein;
NOW, THEREFORE, based on the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties, the parties hereby agree
as follows:
AGREEMENT
---------
1. Transfer of Shares to Tillicomb; Representations of Draper and Tillicomb.
Prior to the initial transaction described in paragraph 2 below, the Shares
shall be submitted for transfer to Tillicomb.
In connection with the transfer of the Shares to Tillicomb, Draper
represents to USWD that:
a. Tillicomb is beneficially owned solely by Draper and his
Assignment Agreement
(With Escrow Provisions)
<PAGE>
immediate family; (b) Draper acquired the Shares in about September of 1994
and has been the beneficial owner of the Shares since that time; (c) he has
not been an affiliate of USWD for at least the preceding 90 days; (d)
Tillicomb has not been an affiliate of USWD for at least the preceding 90
days.
b. Draper and Tillicomb agree that the Shares shall remain subject to the
restrictions applicable to the Shares under the Original Agreement after
the Shares have transferred to Tillicomb. The restrictions applicable to
the Shares under the Original Agreement shall be removed only as set forth
in this Agreement.
2. Initial Transaction. The parties shall complete the following initial
transaction within thirty (30) days of the day this Agreement is signed by
Draper, USWD and Tillicomb (the "Initial Closing"). At the Initial Closing, the
following actions shall occur:
a. Tillicomb shall deliver 367,684 Shares (the "Escrow Shares") to the
Escrow Agent for deposit into the Escrow Account (as defined below). It is
understood and agreed that stock certificate No. 0617 representing the
397,684 Shares Draper owns has been lost, stolen, destroyed or misplaced,
and that the parties will cooperate in having a replacement stock
certificate issued to Draper without the payment of any indemnity bond or
other expense to Draper (other than a $520 charge payable to USWD's
Transfer Agent, American Securities Transfer & Trust, Inc., in connection
with issuing the replacement certificate). Draper agrees to execute and
deliver to USWD and AST a lost stock certificate affidavit, including
indemnification provisions running in favor of USWD and AST, their legal
representatives, successors and assigns, which will hold such persons
harmless from any and all liabilities, losses, damages, costs, charges,
counsel fees and other reasonable expenses of every nature and character
which they shall at any time sustain or incur by reason of any claim or
demand which may be made as a result of or arising out the inability of
Draper to submit Certificate No. 0617 for cancellation or the issuance of a
new certificate representing the Shares.
b. USWD shall deliver $25,000 by wire transfer of immediately available
federal funds to Tillicomb.
3. Release of Option as to Remaining Shares. Concurrently with the Initial
Closing, USWD shall release the Option as to the remaining 30,000 Shares (the
"Tillicomb Shares"). Thereafter, the Tillicomb Shares shall be the sole and
unencumbered property of Tillicomb and all rights of USWD relating to the
Tillicomb Shares under the Original Agreement or otherwise shall terminate.
Assignment Agreement
(With Escrow Provisions)
-2-
<PAGE>
4. Consent to Assignment of Option as to Escrow Shares; Payments of Option
Exercise Price to Tillicomb; Release of Shares by Escrow Agent.
a. Draper and Tillicomb hereby consent to the assignment of the Option by
USWD as to the Escrow Shares, or any portion thereof, to any person
designated by USWD (the "Assignee"); provided, that any partial assignment
of the Option (except the last assignment, which may be for any balance of
shares remaining subject to option) shall be for a minimum of at least
fifty thousand (50,000) Shares at any one time, and provided further, that
USWD shall take all reasonable steps to assure that any such assignments
comply in all respects with applicable state and federal securities laws.
USWD shall indemnify and hold Draper and Tillicomb harmless from and
against any and all liability, including reasonable attorneys' fees, to
which he becomes subject as a result of any failure of such transactions to
comply with such laws, including any amounts incurred by Draper and/or
Tillicomb as a result of any allegation, claim or investigation commenced
as a result of any alleged failure of such transactions to comply with
applicable securities laws.
b. Upon assignment of the Option as to any or all of the Escrow Shares by
USWD (an "Assigned Option"), USWD shall provide the Assignee with all
necessary information to allow the Assignee to exercise the Assigned Option
by making payment of $.25 per Share for each Share included in the Assigned
Option (the "Option Exercise Price") directly to Tillicomb (through the
Escrow Agent) for the Shares being purchased by the Assignee.
c. Upon receipt of the Option Exercise Price for an Assigned Option by the
Escrow Agent, as soon as the Escrow Agent has in its possession collected
funds, the Escrow Agent shall, within one business day after receipt of
such funds, pay such amount over to Tillicomb by wire transfer of
immediately available federal funds. Upon transmittal of such payment to
Tillicomb, the Escrow Agent shall immediately release the appropriate
number of Shares that are the subject of the Assigned Option to the
Assignee which has exercised the Assigned Option. For purposes of this
Agreement, the term "collected funds" shall mean all funds received by the
Escrow Agent which have cleared normal banking channels and are in the form
of cash.
d. All Escrow Shares shall be purchased and paid for by Assignees by no
later than October 5, 1998. Any Escrow Shares not purchased by exercise of
the Option by an Assignee by such date shall be purchased and paid for by
USWD at $.25 per share by the delivery of collected funds therefor to the
Escrow Agent by no later five business days thereafter. Any Escrow Shares
which have not been so purchased by the date five business days after
October 5, 1998 shall be returned to Tillicomb unencumbered by the Option
and any other restrictions on such Shares under the Original Agreement.
Assignment Agreement
(With Escrow Provisions)
-3-
<PAGE>
5. The Escrow Account and the Escrow Agent. Ireland Stapleton Pryor & Pascoe,
P.C., is hereby appointed and agrees to serve as Escrow Agent hereunder, subject
to the following terms and conditions:
a. Establishment of Escrow Account. The escrow account (the "Escrow
Account") shall be established by the Escrow Agent as described in
paragraph 2, for the benefit of Tillicomb and USWD. The Escrow Account may
be a part of the general trust account of the Escrow Agent.
b. Records to be Maintained by the Escrow Agent. The Escrow Agent shall
keep complete and accurate records of all receipts and disbursements of
funds and Escrow Shares (hereafter "Property") to and from the Escrow
Account, including the names, addresses and other appropriate identifying
information as to all persons submitting monies to the Escrow Account, the
person to whom funds are delivered and a complete record of all
transactions involving the Escrow Shares. Such records shall be available
to USWD and Tillicomb immediately upon request.
c. Escrow Period. The escrow period (the "Escrow Period") shall begin on
the date set forth in paragraph 5a, above, and shall terminate upon the
earlier to occur of the following dates:
(1) The date upon which the Escrow Agent has paid Tillicomb funds
equal to $91,921.00 and has delivered or properly instructed USWD's
Transfer Agent for its Common Stock to deliver all of the Escrow
Shares deposited into the Escrow Account to the person(s) entitled to
receive such Shares as a result of the exercise of Assigned Options as
described in paragraph 4c, and/or the exercise of the Option by USWD
pursuant to paragraph 4d, above; or
(2) The date upon which the Escrow Agent has returned to Tillicomb any
Escrow Shares as to which Assigned Options or the Option has not been
exercised, pursuant to the provisions of paragraphs 4c and 4d, above.
d. Payment of Interest. The Escrow Account shall be non-interest bearing.
As a result, all amounts deposited therein shall be paid to the person
entitled thereto without any interest. Neither shall any deductions be made
as to any amounts to be paid to any person entitled to receive funds from
the Escrow Account.
e. Collection Procedure. The Escrow Agent is hereby authorized to forward
for collection any check received as payment hereunder and, upon collection
of the proceeds of each check, deposit the collected proceeds in the Escrow
Account. As an alternative, the Escrow Agent may telephone the bank on
which the check is drawn to confirm that the check has been paid. Any check
returned unpaid to the Escrow Agent shall be Assignment Agreement (With
Escrow Provisions)
-4-
<PAGE>
returned to the person that submitted the check. In such cases, the Escrow
Agent will promptly notify USWD of such return.
f. Compensation of Escrow Agent. USWD shall pay the Escrow Agent any and
all fees for its services hereunder as agreed between USWD and the Escrow
Agent. All ordinary expenses of the Escrow Agent, including any bank or
transfer charges, shall be reimbursed to the Escrow Agent by USWD.
g. Successor Escrow Agents. The Escrow Agent, or any successor Escrow
Agent, may resign at any time by giving notice in writing to each of the
parties and to any person from whom funds are held in the Escrow Account.
Escrow Agent shall be discharged from its duties under this Escrow
Agreement on the first to occur of (i) the appointment of a successor
Escrow Agent as provided in this paragraph and the transfer of all Escrow
Funds to such successor escrow agent, or (ii) the expiration of thirty (30)
calendar days after such notice is given. Any successor Escrow Agent shall
deliver to each of the parties and any subscriber for whom funds are held
in the Escrow Account, a written instrument accepting appointment under
this Agreement, and thereupon it shall succeed to all the rights and duties
of the Escrow Agent hereunder and shall be entitled to receive, in its
capacity as Escrow Agent, possession of the Property in the Escrow Account.
In such event, the parties shall deliver to the former Escrow Agent a
release executed by each of them, releasing such Escrow Agent from its
obligations hereunder.
h. Indemnification. In the event the Escrow Agent becomes involved in any
suit, litigation or other investigative or legal proceeding in connection
with this Agreement, or its duties hereunder, the Escrow Account or any
matter relating hereto or thereto, USWD agrees to indemnify and hold the
Escrow Agent harmless from all loss, cost, damage, expense, liability, fees
and expenses (including attorneys' fees and expenses) suffered or incurred
by the Escrow Agent as a result thereof, except any such loss, cost,
damage, expense, or liability that arises as a result of the Escrow Agent's
gross negligence or willful misconduct.
i. Acting on Notices. The Escrow Agent shall be protected in acting on any
written notice, request, waiver, consent, certificate, receipt,
authorization, power of attorney, or other paper or document that the
Escrow Agent believes to be genuine received from USWD and Tillicomb or an
authorized agent of both such persons. Upon notice to the Escrow Agent from
any person which requests that some action be taken with respect to the
return, payment or release of funds or property from the Escrow Account,
the Escrow Agent shall notify all parties to this Agreement. Thereafter,
the Escrow Agent shall not take any such requested action unless approved
in writing by the parties or authorized by a court of competent
jurisdiction.
j. Standard of Care. The Escrow Agent shall not be liable for anything that
it may do or refrain from doing in connection herewith, provided it acts in
good faith and is not grossly negligent.
k. Consultation with Counsel. The Escrow Agent may consult with legal
counsel in the event of any dispute or question as to the construction of
any of the provisions of this Agreement or Escrow Agent's duties hereunder,
and shall incur no liability
Assignment Agreement
(With Escrow Provisions)
-5-
<PAGE>
and shall be fully protected in acting in accordance with the opinion and
instructions of such counsel. The parties agree that the nonprevailing
party as between USWD, Draper and Tillicomb shall be liable for the payment
of any attorneys' fees reasonably incurred by Escrow Agent in connection
with such consultation or representation in any proceeding.
l. Disagreements. In the event of any disagreement involving the parties
resulting in adverse clams or demands being made in connection with the
Escrow Account or any Property, or in the event the Escrow Agent, in good
faith, shall be in doubt as to what action it should take hereunder, the
Escrow Agent may, at its option and in its sole discretion, (i) interplead
the Property into a court of competent jurisdiction, and/or (ii) refuse to
take any other action hereunder, so long as such disagreement continues or
such doubt exists, and in such event, the Escrow Agent shall not be or
become liable in any way or to any person for its failure or refusal to
act. The Escrow Agent shall be entitled to continue to refrain from acting
until (a) the rights of all interested parties or persons (including any
Option assignee) shall have been fully and finally adjudicated by a court
of competent jurisdiction, or (b) all differences shall have been adjusted
and all doubt resolved by agreement between the parties, and (c) the Escrow
Agent shall have been notified thereof by a written document signed by the
parties or persons interested in the outcome of such dispute. Should a bill
of interpleader be instituted, or should Escrow Agent become involved in
litigation in any manner whatsoever on account of this Agreement, the
Escrow Account or the terms or performance hereof, USWD, Draper and
Tillicomb hereby bind and obligate themselves, jointly and severally, and
their respective heirs, executors, administrators, successors, assigns and
legal representatives, that the non-prevailing party as between them will
pay the reasonable attorneys' fees incurred by Escrow Agent, and any other
disbursements, expenses, losses, costs, and damages in connection with and
resulting from such proceeding or litigation.
m. Discharge of Obligations. The Escrow Agent, upon transferring any and
all funds to Tillicomb and by taking all actions necessary to cause the
Escrow Shares to be properly delivered to the person(s) entitled thereto
from the Escrow Account in accordance with the terms of this Agreement, or
upon interpleading the Property in accordance with paragraph 4l hereof,
shall be discharged from any further obligation hereunder.
6. Notices. Any notices permitted or required to be given under the terms
of this Agreement shall be in writing and may be served by certified mail,
postage prepaid, return receipt requested, and addressed to the person or entity
to be notified at the appropriate address specified below, or by delivering or
causing to be delivered any such notice to the person or entity, or by facsimile
transmission, addressed to the person or entity to be noticed at said address,
provided a copy is placed in the certified mail, postage prepaid, return receipt
requested, on the same date as sent by facsimile. Any notice given in any
authorized manner shall be effective when actually received, or, if such notice
was sent only by certified mail, on the fifth day after it was deposited into
the custody of the United States
Assignment Agreement
(With Escrow Provisions)
-6-
<PAGE>
Postal Service, whether actually received by
the addressee or not. Addresses may be changed by notice given in the manner
provided in this paragraph 6.
U.S. WIRELESS DATA, INC.
2200 Powell Street, Suite 450
Emeryville, CA 94608
Attn: Chief Executive Officer
Telephone: (510) 596-2025
Facsimile: (415) 510-2029
With a copy to:
Ireland Stapleton Pryor & Pascoe, P.C.
1675 Broadway, Suite 2600
Denver, CO 80202
Attn: John G. Lewis, Esq.
Telephone: (303) 623-2700
Facsimile: (303) 623-2062
RICHARD P. DRAPER
c/o Mail Boxes, Etc.
103 4344 Main Street, Suite 902
Whistler, B.C.
Canada VON 1B4
Telephone: (604) 905-0242
Facsimile: (604) 905-0270
With a copy to:
Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Attn: Luke E. Sims, Esq.
Telephone: (414) 271-2400
Facsimile: (414) 297-4900
Assignment Agreement
(With Escrow Provisions)
-7-
<PAGE>
TILLICOMB INTERNATIONAL, LDC
c/o Royal Bank of Canada Trust Company (Cayman)
P.O. Box 1586
George Town
Grand Cayman, BWI
Attn: Sheena Thompson
Telephone: (345) 949-9107
Facsimile: (345) 949-5777
ESCROW AGENT
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, Suite 2600
Denver, CO 80202
Attn: John G. Lewis, Esq.
Telephone: (303) 623-2700
Facsimile: (303) 623-2062
7. Effect of Agreement. This Agreement shall be binding on, inure to the
benefit of, and be enforceable by and against the parties and their respective
heirs, executors, administrators, successors, assigns and legal representatives.
8. Captions. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9. Choice of Law. This Agreement shall be interpreted and construed in
accordance with, and shall be governed by, the laws of the State of Colorado and
the laws of the United States applicable in Colorado, without regard to the
choice of law rules of such State.
10. Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be decreed an original, but all of which together shall
constitute one and the same instrument.
11. Waiver. Any waiver to be enforceable must be in writing and executed by a
person authorized to execute such a waiver. No waiver by any party of any
condition, or of the breach of any term, provision, or covenant contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or the breach of any other
term, provision, or covenant.
Assignment Agreement
(With Escrow Provisions)
-8-
<PAGE>
IN WITNESS WHEREOF, this Escrow Agreement has been executed by
the parties effective as of the date set forth above.
U.S. WIRELESS DATA, INC.
By:/s/ Robert E. Robichaud
--------------------------
Print Name: Robert E. Robichaud
Title: Corporate Secretary & CFO
Date of Execution: March 12, 1998
RICHARD P. DRAPER /s/Richard D. Draper
---------------------
Date of Execution: March 12, 1998
TILLICOMB INTERNATIONAL, LDC
By: /s/Deborah I. Ebanks /s/ Frank Boers
--------------------- ---------------
Print Name:Deborah I. Ebanks Frank Boers
Title: Director Director
Date of Execution: 12 March 1998
ESCROW AGENT
Ireland, Stapleton, Pryor & Pascoe, P.C.
By: /s/ John G. Lewis
---------------------
Print Name:John G. Lewis
Title: Vice President
Date of Execution: March 17, 1998
Assignment Agreement
(With Escrow Provisions)
-9-
OPTION PURCHASE AND ASSIGNMENT AGREEMENT
This Option Purchase and Assignment Agreement is entered into
between the undersigned purchaser (the "Purchaser"), U.S. Wireless Data, Inc.
(the "Company") effective as of __________________, 1998, and Ireland Stapleton
Pryor & Pascoe, P.C., (the "Escrow Agent") to evidence the purchase by Purchaser
and the sale and assignment by the Company of the Company's option to purchase a
total of _________________ shares of the Company's no par value Common Stock
(the "Option Shares") from Tillicombe International LDC, a Cayman Island company
("Tillicombe") to Purchaser pursuant to the terms of this Agreement.
WHEREAS, the Company owns an option, which is initially
exercisable to purchase an aggregate of 367,684 shares of the Company's Common
Stock from Tillicombe (the "Tillicombe Shares") at $.25 per Tillicombe Share
until midnight on September 30, 1998 (the "Option");
WHEREAS, Purchaser desires to acquire such portion of the
Option for the number of Option Shares described in the first paragraph above,
for the price and under the terms and conditions stated herein (the "Assigned
Option");
WHEREAS, Tillicombe has deposited the Tillicombe Shares into
an escrow account with Ireland Stapleton Pryor & Pascoe, P.C. in Denver,
Colorado (the "Escrow Agent") and Tillicombe has authorized the Escrow Agent to
act on its behalf in connection with the transfer of the Option Shares to
persons such as Purchaser upon exercise of Assigned Options (a fully executed
copy of the Assignment Agreement (with Escrow Provisions) (the "Tillicombe
Escrow Agreement") by which Escrow Agent has so agreed to act has been provided
to Purchaser);
WHEREAS, Ireland Stapleton Pryor & Pascoe, P.C., has agreed to
act as escrow agent for the transactions described herein; and
WHEREAS, Purchaser is an accredited investor as defined under
Regulation D of the Rules and Regulations promulgated by the United States
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "1933 Act") and has such knowledge and sophistication in business
and financial matters that it is fully capable of evaluating the merits and
risks associated with an investment in the Option and the Option Shares;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is acknowledged by the parties hereto, the parties
agree as follows:
<PAGE>
1. Purchase and Sale of Option. Purchaser hereby purchases and the Company
hereby sells, assigns and transfers unto Purchaser all of the Company's right,
title and interest in and to, the Assigned Option, in return for the
consideration to be paid in accordance with the terms hereof to the Company as
described in Exhibit 1 hereto.
2. Payment of Consideration to Company. Upon execution of this Agreement by
Purchaser, Purchaser shall immediately initiate a wire transfer to the Escrow
Agent, for the benefit of the Company, in immediately available funds in the
amount (in U.S Dollars) set forth on Exhibit 1 hereto (the "Option Assignment
Price").
3. Assignment of Option to Purchaser. Upon receipt by the Company of both an
executed copy of this Agreement from the Purchaser and the Option Assignment
Price, the Company shall immediately evidence assignment of the Assigned Option
by executing an Option Assignment for the Assigned Option, in the form attached
hereto as Exhibit 2. The Company shall contemporaneously notify the Escrow Agent
of the assignment of the Assigned Option to Purchaser by transmitting a copy of
the Option Assignment to the Escrow Agent by facsimile, with a concurrent,
confirming copy to Purchaser (the "Assignment Notice").
4. Exercise Rights of Purchaser; Expiration Date of Option. Once payment of
the Option Assignment Price has been paid to the Company (by deposit of
immediately available funds with the Escrow Agent), Purchaser shall be free to
exercise the Assigned Option by transmitting an exercise notice in the form
attached hereto as Exhibit 3 hereto to the Escrow Agent and concurrently
transmitting by wire transfer of immediately available funds the option exercise
price of U.S. $0.25 per share for each share being purchased by Purchaser
pursuant to exercise of the Assigned Option (the "Option Exercise Price"). The
Option Exercise Price may be concurrently wired to the Escrow Agent by
Purchaser. Purchaser understands and agrees that the Option can be exercised in
minimum amounts of fifty thousand (50,000) shares only, unless and until,
following previous assignments made by the Company, there remain less than
50,000 shares subject to the Option, in which case the Company may assign the
remaining Option, which may then be exercised by an investor even though less
than for 50,000 shares. Upon exercise of the Assigned Option by Purchaser, all
rights in the Assigned Option shall be forever extinguished and Purchaser shall
thereby acquire only the right to receive the Option Shares as stated in
paragraph 5, below. THE ASSIGNED OPTION EXPIRES EFFECTIVE AS OF MIDNIGHT (UNITED
STATES MOUNTAIN TIME) ON OCTOBER 5, 1998, AND MUST BE EXERCISED BY PURCHASER
(INCLUDING DELIVERY OF THE OPTION EXERCISE PRICE TO THE ESCROW AGENT) PRIOR TO
SUCH TIME. IF NOT EXERCISED BY SUCH TIME, ALL RIGHTS UNDER THE ASSIGNED OPTION
SHALL AUTOMATICALLY REVERT TO THE COMPANY, AND ALL AMOUNTS PAID BY PURCHASER FOR
THE ASSIGNED OPTION SHALL BE FORFEITED BY THE PURCHASER.
-2-
<PAGE>
5. Delivery of Shares to Purchaser. The Escrow Agent shall within one business
day after receipt of the Option Exercise Price, institute payment of the Option
Exercise Price to Tillicombe by wire transfer of immediately available funds.
Thereafter, upon confirmation that the Option Exercise Price has been received
by Tillicombe or its designated agent, the Escrow Agent shall, within one
business day of receiving such confirmation, deliver any documentation needed by
the transfer agent for the Company's Common Stock, American Securities Transfer
& Trust, Inc. ("AST"), located in Denver, Colorado, to allow AST to transfer the
Option Shares to Purchaser.
6. Character of Shares Deliverable to Purchaser upon Exercise of the Option.
The Option Shares shall be free of any "restricted securities" legend upon
issuance to Purchaser, and provided Purchaser is not an "affiliate" of the
Company (as such term is defined under United States securities laws), the
Option Shares may be immediately resold without restriction of any sort in the
public market.
7. Duties and Obligations of the Company and the Escrow Agent; recordkeeping.
The Option Assignment (a copy of which shall be delivered to the Escrow Agent as
described in paragraph 3, above) shall be the only document delivered to the
Purchaser by the Company to evidence the rights of Purchaser in an Assigned
Option. As such, the Assigned Option shall be deemed an "uncertificated
security" and the Company (based upon information supplied to it by the Escrow
Agent and AST) shall maintain appropriate records as to all ownership rights in
and to, and exercises of, Assigned Options. All purchases and exercises of
Assigned Options and authorizations for delivery of Option Shares shall be
effected exclusively through the Escrow Agent.
8. Acknowledgement of Relationship between the Company and the Escrow Agent.
Purchaser acknowledges and understands that the Escrow Agent acts as counsel to
the Company and that as such, possible conflicts of interest could arise as a
result of such relationship. To the extent that any actual conflict of interest
arises, Purchaser and the Company understand that the Escrow Agent could be
required to resign as Escrow Agent and/or as counsel to the Company, which could
delay any transactions pending at the time. Should such a situation arise, the
Escrow Agent may take any appropriate action, including interpleading any funds
or property in its possession, according to the provisions of Section 5 of the
Tillicombe Escrow Agreement. Purchaser further understands and agrees that the
purchase of the Assigned Option by Purchaser from the Company is a separate and
independent transaction from exercise of the Assigned Option.
9. Additional Provisions Applicable to the Escrow Agent. The provisions of
Section 5 of the Tillicombe Escrow Agreement shall be applicable to the parties
hereto and the Escrow Agent. Such provisions are incorporated by reference
herein the same as if fully set forth.
-3-
<PAGE>
10. Company's Representations and Warranties. The Company represents and
warrants to the Purchaser as follows:
a. The Company is the owner of the Option, free and clear of all liens
and encumbrances.
b. The Company has full power and authority to enter into this
Agreement and the transactions contemplated hereby.
c. The Company will use its best efforts to assist the Purchaser in
obtaining the issuance of certificates representing the Option Shares
issuable upon exercise of the Assigned Option within one business day of
the date of the delivery of the Option Exercise Price to Tillicombe, as
described in Paragraph 5, above.
10. Purchaser's Representations and Warranties. Purchaser represents,
warrants and covenants to the Company that:
a. Purchaser is sophisticated in business and financial matters and by
reason of Purchaser's knowledge and experience in such matters, Purchaser
has the capacity to evaluate the merits and risks of the prospective
investment in the Option and the Option Shares.
b. Purchaser is an "accredited" investor within the meaning of Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "1933 Act").
c. To the extent Purchaser deemed necessary, Purchaser has consulted
with Purchaser's attorney and/or Purchaser's accountant or other advisors
regarding all aspects of the proposed investment. Purchaser understands
that an investment in the Company's securities involves high risks,
including the risk of loss of the entire investment.
d. Purchaser has adequate means of providing for Purchaser's current
needs and possible financial contingencies, and has no need, and
anticipates no need in the foreseeable future, to sell the Option.
Purchaser is able to bear the economic risks of this investment and,
consequently, without limiting the generality of the foregoing, is able to
hold the Option for an indefinite period of time and has a sufficient net
worth to sustain a loss of the entire investment in the Company in the
event such loss should occur.
e. Purchaser is the sole party in interest as to the Option being
acquired by the Purchaser and is acquiring the Option for Purchaser's own
account, for investment only and not with a view toward the resale or
distribution of the Option.
-4-
<PAGE>
f. Purchaser understands that the Option is not registered under the
1933 Act and is a "restricted security" as defined under Rule 144
promulgated under the 1933 Act. The Option may not be resold unless
registered under the 1933 Act or an exemption from such registration is
available. Purchaser agrees that Purchaser will not attempt to dispose of
the Option except in compliance with the 1933 Act.
g. Purchaser understands that the Company does not intend to issue a
certificate evidencing the Assigned Option, but that the Assigned Option,
even though in uncertificated form, is subject to the following
restrictions:
THE ASSIGNED OPTION HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE OR
FOREIGN LAW. THIS OPTION MAY NOT BE SOLD, TRANSFERRED, PLEDGED
OR HYPOTHECATED UNLESS (i) THEY SHALL HAVE BEEN REGISTERED
UNDER THE ACT AND ANY APPLICABLE STATE AND FOREIGN SECURITIES
ACT OR OTHER LAW OR (ii) AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE AND THE CORPORATION SHALL HAVE BEEN FURNISHED
WITH AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION,
THAT REGISTRATION OR OTHER COMPLIANCE IS NOT REQUIRED UNDER
ANY OF SUCH ACTS OR LAWS.
Should any certificate be issued to evidence the Assigned Option, it will be
imprinted with a legend in substantially the foregoing form.
h. Purchaser understands and agrees that there is no market for the
Option and that the Company acts as its own transfer agent and will
prohibit any transfer of the Option except in strict compliance with the
provisions of this Agreement.
i. Purchaser understands and agrees that the Assigned Option does not
have any "registration" or other rights entitling Purchaser to have the
Assigned Option registered under the 1933 Act and that the Assigned Option
is an illiquid security which cannot be sold, assigned or otherwise
negotiated by Purchaser.
j. Purchaser has had the opportunity to examine copies of all reports
filed by the Company pursuant to the Securities Exchange Act of 1934 (the
"1934 Act") and has examined all such 1934 Act reports to the extent
desired. Purchaser has also had the opportunity to ask questions of, and
receive answers from, qualified representatives of the Company concerning
the business and financial condition of the Company and this transaction
and all such questions have been answered to Purchaser's satisfaction.
-5-
<PAGE>
k. Purchaser understands that the Company is relying upon the accuracy
of the representations and warranties of Purchaser contained herein in
agreeing to the sale and assignment of the Option to Purchaser.
l. Purchaser is not and has not ever been an officer, director or
holder of greater than 5% of the outstanding shares of the Company,
directly or indirectly, not does Purchaser have the direct or indirect
ability to control the Company through voting of securities, contract or
any other method, nor is investor controlled by or under common control
with, the Company, directly or indirectly. Purchaser agrees that he, she or
it shall immediately inform the Company of any change in this status at any
time prior to exercise of an option or at any time when Purchaser owns any
securities of the Company and shall thereafter refrain from disposing of
any of the Company's securities until advised that Purchaser may do so in
writing by the Company.
m. Purchaser understands and agrees that the Option is the property of
the Company and the Option Shares are the property of Tillicombe, and
payment of the Option Assignment Price to the Company is due in full at the
time of purchase of the Assigned Option from the Company and payment to
Tillicombe is due in full at the time of the exercise of the Assigned
Option. The payment obligations to the Company and Tillicombe hereunder are
not contingent in any way upon any sale of the Option Shares by Purchaser
nor does Purchaser have any agreements, either oral or in writing with the
Company to such effect.
11. Notices. Any notices permitted or required to be given under the terms of
this Agreement shall be in writing and may be served by certified mail, postage
prepaid, return receipt requested, and addressed to the person or entity to be
notified at the appropriate address specified below, or by delivering or causing
to be delivered any such notice to the person or entity, or by facsimile
transmission, addressed to the person or entity to be noticed at said address,
provided a copy is placed in the certified mail, postage prepaid, return receipt
requested, on the same date as sent by facsimile. Any notice given in any
authorized manner shall be effective when actually received, or, if such notice
was sent only by certified mail, on the fifth day after it was deposited into
the custody of the United States Postal Service, whether actually received by
the addressee or not. Addresses may be changed by notice given in the manner
provided in this paragraph 11.
The address of the Purchaser and the Company are set forth on the signature page
hereto.
The address of the Escrow Agent is as set forth on Exhibit 3.
-6-
<PAGE>
12. Miscellaneous.
a. This Agreement contains the entire agreement between the Purchaser
and the Company regarding the purchase and transfer of the Option.
Purchaser understands that no person has been authorized to represent
anything to the Purchaser which in any way contradicts what is set forth in
this Agreement and any such representation cannot be relied upon as having
been authorized by the Company.
b. The provisions of this Agreement may not be modified or waived
except in writing signed by the party to be bound by any such modification
or waiver.
c. The provisions of this agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assignees.
d. The caption headings of the Sections of this Agreement are for
convenience only and shall not be considered a part of this Agreement.
e. Time is of the essence with respect to all performance under this
Agreement.
f. This Agreement is not assignable by the Purchaser absent the
written consent of the Company. This Agreement shall be binding on, inure
to the benefit of, and be enforceable by and against the parties and their
respective heirs, executors, administrators, successors, permitted assigns
and legal representatives.
g. This Agreement shall be interpreted and construed in accordance
with, and shall be governed by, the laws of the State of Colorado and the
laws of the United States applicable in Colorado, without regard to the
choice of law rules of such State.
h. This Agreement may be executed in multiple counterparts, each of
which shall be decreed an original, but all of which together shall
constitute one and the same instrument.
i. Any change, modification, amendment or waiver must be in writing
and executed by a person authorized to execute the same in order to be
enforceable. No waiver by any party of any condition, or of the breach of
any term, provision, or covenant contained in this Agreement in one or more
instances shall be deemed to be or construed as a further or continuing
waiver of any such condition or the breach of any other term, provision, or
covenant.
-7-
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Company have
executed this Option Purchase and Assignment Agreement as of the ____ day of
____________________, 199___.
PURCHASER:
-----------------------------------
(Print Name)
-----------------------------------
(Signature)
Social Security or Tax I.D. Number:
-----------------------------------
Address:
===================================
U.S. WIRELESS DATA, INC.
By:________________________________
Title:______________________________
Address:
2200 Powell Street, Suite 450
Emeryville, CA 94608
Attn: Chief Financial Officer
Telephone: (510) 596-2025
Facsimile: (510) 596-2029
-8-
<PAGE>
EXHIBIT 1
CONSIDERATION PAYABLE TO COMPANY
Option Assignment No. ____________
[To be provided by the Company prior to completing this Exhibit]
The consideration payable to the Company pursuant to paragraph 2 of the
Agreement for the Assigned Option shall be:
$________ per Option Share x __________ Option Shares = U.S. $
Purchaser's Signature:
<PAGE>
EXHIBIT 2
FORM OF OPTION ASSIGNMENT NOTIFICATION
THE OPTION BEING ASSIGNED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE OR FOREIGN LAW. THIS OPTION MAY
NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (i) THEY SHALL HAVE
BEEN REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE AND FOREIGN SECURITIES
ACT OR OTHER LAW OR (ii) AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND
THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION, THAT REGISTRATION OR OTHER COMPLIANCE IS NOT
REQUIRED UNDER ANY OF SUCH ACTS OR LAWS.
OPTION ASSIGNMENT NO.______________________
FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF
WHICH IS HEREBY ACKNOWLEDGED, U.S. WIRELESS DATA, INC. (THE "COMPANY"), HEREBY
SELLS, ASSIGNS AND TRANSFERS UNTO:
WHOSE ADDRESS IS:
ALL OF THE COMPANY'S RIGHT, TITLE AND INTEREST IN AND TO, THE FOLLOWING OPTION
TO PURCHASE SHARES OF THE COMPANY'S COMMON STOCK OWNED OF RECORD BY TILLICOMBE
INTERNATIONAL LDC:
[State number of shares subject to Option being assigned and Company's
identifying information in terms of number of shares subject to Option out of
total number of shares subject to Option.]
IN WITNESS WHEREOF, THE UNDERSIGNED HAS EXECUTED THIS OPTION ASSIGNMENT
EFFECTIVE AS OF THE _________ DAY OF ________________, 1998, AND SUCH OPTION
ASSIGNMENT SHALL BE EFFECTIVE AT ANY TIME FROM THE DATE HEREOF AND CONTINUING
UNTIL MIDNIGHT ON OCTOBER 5, 1998.
U.S. WIRELESS DATA, INC.
By:
Title:
<PAGE>
EXHIBIT 3
OPTION EXERCISE NOTIFICATION
TO: Ireland, Stapleton, Pryor & Pascoe, P.C.
Escrow Agent
1675 Broadway, Suite 2600
Denver, CO 80202
Attn: John G Lewis, Esq.
Telephone (303) 623-2700
Facsimile (303) 623-2062
The undersigned Purchaser, as the holder of an Assigned Option from
U.S. Wireless Data, Inc. (the "Company") to purchase shares of the Company's No
Par Value Common Stock presently owned of record by Tillicombe International
LDC, described by the Company as:
ASSIGNED OPTION NO. (the "Assigned Option"),
hereby exercises the Assigned Option and tenders herewith the Option Exercise
Price of $___________ (U.S. $.25 x Number of Shares Subject to Assigned Option),
effective as of this _________ day of _______________________, 1998.
You are hereby authorized and directed to cause the shares of Common Stock
issuable upon exercise of the Assigned Option to be registered in the name of:
and to be delivered as follows:
PURCHASER:
[Signature]
[Print Name]
[Signature Guarantee]
To be filed by Amendment
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY U.S. WIRELESS DATA, INC. FOR
CERTAIN INFORMATION CONTAINED IN ARTICLE 6 OF THIS AGREEMENT.
CONTRACT NO. ###-##-####
JOINT CDPD SALES AND MARKETING AGREEMENT
between
US WIRELESS DATA INC
and
BELL ATLANTIC MOBILE
PRIVATE
The information contained herein is proprietary and should not be disclosed to
unauthorized persons. It is meant solely for use by authorized Bell Atlantic
Mobile employees and persons employed, retained or consulted by them.
JOINT CDPD SALES AND MARKETING AGREEMENT
THIS JOINT MARKETING AGREEMENT is made by and between Cellco
Partnership, a Delaware General Partnership, doing business as Bell Atlantic
Mobile, located at 180 Washington Valley Road, Bedminster, NJ 07921 (hereinafter
"Bell Atlantic Mobile"), and US WIRELESS DATA INC, a California corporation,
with its principal place of business at 2200 Powell Street, Suite 450,
Emeryville, CA 94608 ("USWD").
W I T N E S S E T H
WHEREAS, Bell Atlantic Mobile has the ability to offer its current and
prospective customers its wireless data Cellular Digital Packet Data ("CDPD")
services; and
WHEREAS, USWD develops and distributes a certain software and hardware
package to provide wireless credit card merchant service to satisfy particular
customer requirements; and
WHEREAS, the parties have entered into an Airbridge Packet Service
Agreement, dated August 14, 1997, a copy of which is attached hereto;
WHEREAS the parties have determined that it will be beneficial for the
parties to sell and market a total USWD Solution to prospective customers.
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties as hereinafter set forth, Bell Atlantic Mobile and USWD agree as
follows:
ARTICLE 1 - DEFINITIONS
-----------
"Affiliate" of a person or entity (the "primary party") means another
person or entity which falls within any one or more of the following categories:
(i) a person or entity that is controlled by, controls or is under the same
control as the primary party, or (ii) a subsidiary (whether or not consolidated)
of the primary party, or (iii) an entity of which the primary party is a
subsidiary (whether or not consolidated), or (iv) a person or entity which has a
material ownership interest in the primary party or which manages a significant
portion of the primary party's day-to-day operations, or (v) an entity in which
the primary party has a material ownership interest or which has a significant
portion of its day-to-day operations managed by the primary party.
"Bell Atlantic Mobile Market Area" means the area designated as the Bell
Atlantic Mobile Market Area in Exhibit A hereto.
"Bell Atlantic Mobile Services" means CDPD, services as set forth in the
Airbridge CDPD Service Agreement.
"Cellular Digital Packet Data Service ("CDPD"). Cellular radio service
utilizing packet switching technology to transmit data over radio frequency
channels. The raw data rate of CDPD is 19.2 Kilobits per second. It is a
connectionless multi-protocol network service providing peer network wireless
extension to existing data networks.
"USWD Market Area" means the area(s) designated as the Bell Atlantic Mobile
Primary Serving Markets as listed in Exhibit A
"USWD Products" means a VeriFone TRANZ 330 or TRANZ 380 Credit Card
terminal and the TRANZenabler unit or equivalent unit and/or combination of
services along with credit card processing services.
<PAGE>
"Customer" means, at any time, any current customer or client of the party
in question.
"Solutions" means actual or proposed total wireless data solutions to the
needs of Prospects, which solutions utilize CDPD along with the USWD Products.
"Direct Sales Channel" means for any entity all individuals employed by
such entity for the purpose of sales and all sales facilities operated by such
entity (such as communication store outlets, in the case of Bell Atlantic
Mobile), but shall not include independent agents of such entity.
"Existing Bell Atlantic Mobile Services" means the CDPD services which Bell
Atlantic Mobile markets generally from time to time.
"Network Entity Identifier" ("NEI"). A network address assigned to the MES.
Each MES has an NEI and a unique corresponding EID for authentication purposes.
"Prospect" means any Customer or potential Customer to whom a party hereto
has made, or is considering making, a Proposal.
To "Reasonably Recommend" a Product or Solution means to recommend and
promote such Product or Solution to a Prospect in a manner reasonably designed
to influence the Prospect to purchase the Product or Solution; provided, that an
obligation to Reasonably Recommend a Product or Solution does not include any
obligation: (a) to promote any Product or Solution if there exists a good faith
belief that the Prospect's requirements would not be addressed as well by such
Product or Solution as they would by some competing Product or Solution or (b)
to continue promoting the Product or Solution if the Prospect indicates an
unwillingness to consider using it.
ARTICLE 2 - JOINT SALES AND PROMOTION
-------------------------
2.1 Recommendation of USWD Products. During the term of this Agreement, Bell
Atlantic Mobile, through its Direct Sales Channel, may Reasonably Recommend the
USWD Products in the Bell Atlantic Mobile Market Area.
2.2 Bell Atlantic Mobile Proposals. During the term of this Agreement, whenever
Bell Atlantic Mobile is considering making a Proposal which, in Bell Atlantic
Mobile's reasonable judgment, may benefit from the inclusion of USWD Products,
Bell Atlantic Mobile may so notify USWD. Upon receipt of such notice, USWD shall
promptly provide to Bell Atlantic Mobile all sales, marketing and technical
support necessary to enable Bell Atlantic Mobile to include in its Proposal, to
the extent reasonably practical, Solutions using USWD Products. Bell Atlantic
Mobile may request USWD's support, but Bell Atlantic Mobile shall be under no
obligation to recommend Solutions containing USWD Products to Bell Atlantic
Mobile's Prospects.
2.3 Training Regarding USWD Products and Technology. During the term hereof, in
order to enhance Bell Atlantic Mobile's ability to Reasonably Recommend USWD
Products and its ability to create Proposals which could include USWD Products,
and thereby to further advance both parties' purposes hereunder, USWD shall make
available to Bell Atlantic Mobile information designed to enhance Bell Atlantic
Mobile's understanding of the functions and advantages of the USWD Products.
<PAGE>
2.4 Exclusivity of Bell Atlantic Mobile CDPD Service. During the term hereof,
USWD shall use only Bell Atlantic Mobile CDPD Service for its USWD Products and
Solutions, in the Bell Atlantic Mobile Market Area. In the event that USWD has a
similar Joint Sales and Marketing Agreement in place with another wireless
carrier, it may sell such services as part of the Solution, provided that it
must be done solely through the other carrier's sales force and not by USWD
Agents or employees. USWD employees will only jointly sell with another
carrier's direct sales force when the carrier specifically refers the potential
Customers to USWD. If any sales are made by USWD, its Agents or sales force or
through Bell Atlantic Mobile, it must exclusively be a solution utilizing Bell
Atlantic Mobile CDPD Service. USWD shall not recommend any provider of CDPD
other than Bell Atlantic Mobile to any Customer or potential Customer in the
Bell Atlantic Mobile Market Area.
ARTICLE 3 - RELATIONSHIP OF THE PARTIES
---------------------------
Each of the parties hereto will act as, and will be, independent
contractors in all aspects of their performance of this Agreement. Neither party
will act or have authority to act as an agent for the other party for any
purpose whatsoever. Nothing in this Agreement will be deemed to constitute or
create a joint venture, partnership, franchise, pooling arrangement, or other
formal business entity or fiduciary relationship between USWD and Bell Atlantic
Mobile.
3.1 BELL ATLANTIC MOBILE RESPONSIBILITIES
-------------------------------------
3.1.1 Bell Atlantic Mobile will market the USWD Solution to retail merchants
that meet the criteria set forth in Section 3.2.
3.1.2 Should the retail merchant wish to submit an application to purchase the
USWD Solution, the Bell Atlantic Mobile sales representative will provide the
merchant with an application to be filled out. The Bell Atlantic Mobile sales
representative will arrange for the delivery of the completed USWD or other Bank
Processor merchant application, Rates and Fees Schedule and a check from the
merchant for the activation fees due to USWD.
3.1.3 Bell Atlantic Mobile will make available the USWD retail merchant solution
to select Bell Atlantic Mobile sales representatives in specific Bell Atlantic
Mobile CDPD markets on a region by region basis. The decision as to the regions
that will participate shall be at the sole discretion of Bell Atlantic Mobile
3.1.4 Sales Demo Equipment- In each Bell Atlantic Mobile market participating in
this program, Bell Atlantic Mobile will purchase, lease, or rent TRANZ 330 or
TRANZ 380 terminals for Bell Atlantic Mobile sales representatives for the
purpose of demonstrating the USWD solution to potential customers. For each of
these terminals, USWD will provide fully operational TRANZenabler units for use
with these terminals at a total fee of $7.50 per month per terminal for up to 30
units. Bell Atlantic Mobile and USWD agree to revisit this issue and USWD shall,
in good faith, supply Bell Atlantic Mobile with additional units should Bell
Atlantic Mobile require additional TRANZenabler units beyond the 30 units stated
above.
3.1.5 Bell Atlantic Mobile will assist USWD in scheduling and coordinating
training programs for Bell Atlantic Mobile sales representatives in specific
Bell Atlantic Mobile markets for this project.
<PAGE>
3.1.6 Make good faith efforts to arrange for its sales representatives attend
scheduled training sessions conducted by USWD;
3.1.7 Market the USWD Product and Solutions to qualified retail business
merchants;
3.1.8 Arrange for the collection of a $150 merchant application fee and any
additional activation fees for each retail merchant who submits a merchant
application for the USWD service.
3.1.9 Deliver completed merchant application and Rates and Fees Schedule to the
USWD representative along with a check collected from the merchant for the
application fee.
3.1.10 Bell Atlantic Mobile will provide Airbridge CDPD services for all USWD
representatives in Bell Atlantic Mobile markets for demonstration purposes as
follows:
3.1.10.1 for USWD employees directly supporting Bell Atlantic Mobile sales
efforts in Bell Atlantic Mobile CDPD territories, Bell Atlantic Mobile will
provide one NEI for each employee
3.1.10.2 for non-salaried Independent Sales Organization of USWD selling
directly to end merchants in Bell Atlantic Mobile CDPD territories, Bell
Atlantic Mobile will provide up to 2 NEIs per Independent Sales Organization.
The rates for such demonstration services shall be at no charge within the Bell
Atlantic Mobile Market Area on the Bell Atlantic Mobile System and shall be at
the rate of 8 cents per kilobyte when outside the Bell Atlantic Mobile Market
Area or when on another carrier's System while in the Bell Atlantic Mobile
Market Area.
3.1.11 Ordering of all NEIs for Demo units must be approved by Bell Atlantic
Mobile HQ Marketing Project Manager. These Units are for demonstration purposes
only and are not to be permanently installed in a merchant location.
3.2 USWD RESPONSIBILITIES
---------------------
3.2.1 USWD will provide credit/debit card transaction payment services to
qualified retail merchants:
3.2.2 USWD shall provide the TRANZenabler or equivalent as follows:
3.2.2.1 at no charge once a qualified merchant has met the established minimum
transaction volume requirements of $12,000 in credit dollar transactions or 200
transactions; or
3.2.2.2 at the rate of $15 per unit per month for merchants who do not meet the
requirements set forth in Section 3.2.2.1; or
3.2.3 USWD will process the application for the merchant service and, if
approved, will deploy and install TRANZenabler(s) exclusively using Bell
Atlantic Mobile
<PAGE>
CDPD services under the terms and conditions of the AirBridge
Packet Services Agreement attached hereto.
3.2.4 USWD shall provide all USWD Products and Solutions to its Customers for
its own account and train the retail merchants in the operation of the Products
and Solutions. The retail merchants shall at all times be the Customer of USWD
and Bell Atlantic Mobile shall have no liabilities or obligations to these
merchants. USWD shall be Bell Atlantic Mobile's only Customer for CDPD Service
and sales of USWD Solutions under this Agreement.
3.2.5 USWD will be responsible, either directly or indirectly, for all first
level help desk (24 hours per day, 7 days per week ) support of the retail
merchant for this program.
3.2.6 For each Bell Atlantic Mobile CDPD market identified as participating in
the Program", USWD will provide the following:
3.2.6.1 reasonable sales training material for each Bell Atlantic Mobile sales
representative who will be marketing to retail merchants;
3.2.6.2 A minimum of one USWD representative residing in the applicable Bell
Atlantic Mobile region(s) to coordinate all USWD responsibilities for this
program; and
3.2.6.3 Delivery of fully operational demonstration units for Bell Atlantic
Mobile sales representatives selling this solution, pursuant to Section 3.1.4
3.2.7 The USWD representative will perform the following functions in the
selected Bell Atlantic Mobile market:
3.2.7.1 Reasonably train each Bell Atlantic Mobile sales representative,
including classroom training and joint sales calls;
3.2.7.2 Provide each Bell Atlantic Mobile sales representative with all retail
merchant application paperwork, procedures, checklists, worksheets and all other
sales tools required necessary for the Bell Atlantic Mobile sale representatives
to appropriately market the USWD Products and Solutions. Each application shall
contain a provision or an addendum containing a waiver of liability against Bell
Atlantic Mobile by the merchant.
3.2.7.3 Process all merchant applications according to procedures developed by
USWD and agreed to by Bell Atlantic Mobile;
3.2.7.4 Negotiate any non-standard price quotations directly with the retail
merchant; and
3.2.7.5 Provision and install terminal devices for the merchant upon approval of
the application.
3.2.8 USWD agrees to deploy a fully configured merchant system within a period
of ten (10) business days following the approval of the merchant application by
the credit card processor used by USWD provided the quantity of hardware
<PAGE>
is less than twenty-five (25) units per occurrence. For any quantity above
twenty-five (25) units, USWD agrees to schedule deployment in a timely manner
with the retail merchant.
3.2.9 USWD agrees to submit a properly completed merchant application to the
credit card processing company within two (2) days of the submission of the
application from Bell Atlantic Mobile. The Credit Card Processing company will
either approve or deny the merchant application within four (4) business days
from submittal of the application to the Credit Card Processor unless the Credit
Card Processor requires additional information or paperwork from the merchant,
but in no event greater than fifteen (15) days from resubmital of the
information..
3.2.10 USWD will ensure that terminal units are installed in merchant locations
of the qualified and approved merchants within sixteen (16) business days from
the time the completed application and applicable merchant application fees are
delivered to the USWD representative unless the Credit Card Processor requires
additional information or paperwork from the merchant, but in no event greater
than fifteen (15) days from resubmital of the information. USWD will notify Bell
Atlantic Mobile immediately of any conditions including but not limited to,
manufacturing, change in credit card processor relationships, merchant terminal
equipment compatibility and applications software, personnel, and business
operations, that may cause delay in these time frames.
3.2.12 USWD will define the specific time interval and procedures for
identifying escalating, and closing merchant troubles within 10 business days of
execution of this agreement.
3.2.13 In order to ensure that Bell Atlantic Mobile will be able to comply with
USWD requests for NEIs, USWD will periodically reserve additional NEIs in each
Bell Atlantic Mobile market as defined in Bell Atlantic Mobile's methods and
procedures attached to this Agreement.
3.2.14 In the event that a merchant is dissatisfied with the USWD solution sold
to them, USWD will be responsible for remedying the situation to the
satisfaction of the merchant. In such cases, USWD will notify Bell Atlantic
Mobile in writing of such incident on a monthly basis and include the cause of
the dissatisfaction and a description of the remedy taken to satisfy the
merchant.
3.2.15 USWD will notify Bell Atlantic Mobile of any planned change in its
standard processing rates and activation fees ten (10) days prior to making
these rates available to any merchants under this program.
3.3 JOINT RESPONSIBILITIES
----------------------
3.3.1 Both parties may mutually agree to marketing and promotional programs to
support this project that may include but not be limited to the following:
3.3.1.1 Joint sales collateral material includes, but is not limited to, data
slicks, color brochures using both Bell Atlantic Mobile and USWD logos;
<PAGE>
3.3.1.2 Direct mail campaigns and local advertising to generate leads for Bell
Atlantic Mobile sales representatives;
3.3.1.3 Sales incentives/contests for Bell Atlantic Mobile representatives;
3.3.1.4 Public relations activities
3.3.1.5 Printing of all USWD developed sales materials for the Bell Atlantic
Mobile sales representatives.
3.3.1.6 Tele-services programs to pre-qualify potential stationary merchants
within Bell Atlantic Mobile's service area
3.3.2 Bell Atlantic Mobile has tested and approved the Solutions using the
TRANZenabler units with USWD's existing credit card processor, NOVA Information
Systems, Inc. Bell Atlantic Mobile reserves the right to test and approve any
new or modified Solutions including the use of any new Credit Card Processor
prior to any direct solicitation by Bell Atlantic Mobile representatives.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF USWD
--------------------------------------
USWD hereby represents and warrants to Bell Atlantic Mobile as follows:
4.1 Sufficient Rights; No Infringement. USWD owns the entire right, title and
interest in and to the USWD Products, or has sufficient rights therein, to
utilize the USWD Products for the purposes set forth herein. The USWD Products
to be used in accordance with any arrangements contemplated by this Agreement do
not infringe or violate any United States patents or any copyright, trademark,
trade secret or other intellectual property rights and there are no claims of
any such infringement or violation.
4.2 Authority. USWD has the requisite authority to enter into this Agreement and
to perform all of its obligations hereunder.
4.3 USWD represents and warrants that Bell Atlantic Mobile shall have no
registration, reporting, auditing or filing requirements in connection with any
banking, credit card processing or other financial institution.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF BELL ATLANTIC MOBILE
------------------------------------------------------
Bell Atlantic Mobile hereby represents and warrants to USWD as follows:
5.1 Sufficient Rights; No Infringement. Bell Atlantic Mobile owns the entire
right, title and interest in and to the Bell Atlantic Mobile Services and Bell
Atlantic Mobile Technology, or has sufficient rights therein, to utilize the
Bell Atlantic Mobile Services and the Bell Atlantic Mobile Technology for the
purposes set forth herein. Neither the Bell Atlantic Mobile Services nor the
Bell Atlantic Mobile Technology to be used in accordance with any arrangements
contemplated by this Agreement infringe or violate any United States patents or
any copyright, trademark, trade secret or any other intellectual property rights
and there are no claims of any such infringement or violation.
5.2 Authority. Bell Atlantic Mobile has the requisite authority to enter into
this Agreement and to perform all of its obligations hereunder.
<PAGE>
ARTICLE 6 - SALES COMPENSATION
------------------
6.1 Within thirty (30) days after activation of a unit, USWD will pay to Bell
Atlantic Mobile $## per unit activated per merchant ID for each of the first two
(2) units and thereafter $## per unit for each such merchant ID activated under
this Agreement.
6.2 For each unit that is activated under this Agreement, commencing with the
##th month after activation, USWD will pay Bell Atlantic Mobile $# per unit per
month for every merchant that has reached the threshold of greater than or equal
to $## in credit sales or ############ transactions per month.
6.3 USWD will provide Bell Atlantic Mobile with monthly Sales and Activations
reports indicating the following:
6.3.1 the number of units sold per merchant location
6.3.2 the NEI and merchant name for each NEI activated under this program 6.3.3
the date that the unit was successfully installed in the merchant location
6.3.4 the sales ID for the Bell Atlantic Mobile representative responsible for
generating the application for the Solution and the date of installation of the
merchant unit for each NEI activated.
6.4 Bell Atlantic Mobile shall have the right to audit all reports and data of
USWD relating to sales and activations, names and merchant Ids, and the related
transaction levels of merchants under Section 6.2 of this Agreement and all
other information relevant to this Agreement, upon reasonable notice. USWD will
further provide Bell Atlantic Mobile with reports of those merchants that have
not been approved and the reasons for denial of the applications in each
instance.
ARTICLE 7 - NON-DISCLOSURE
--------------
7.1 Non-Disclosure of Agreements. Neither party will make any disclosure
regarding the terms of this Agreement or the business arrangements described
herein without obtaining the prior written consent of the other party; provided,
however, that (i) the parties may communicate with Customers and Prospects to
the extent reasonably required to perform hereunder (but will obtain prior
written approval of the other party hereto before identifying such party in
advertisements, mass mailings or general publicity); (ii) each party will be
permitted to make such disclosures as are required by legal or regulatory
requirements applicable to, and beyond the reasonable control of, the party; and
(iii) either party may disclose the terms of this Agreement and the business
arrangements described herein to employees of their affiliates who have a need
to know.
7.2 Confidential Information. The parties recognize that in the course of
negotiating and performing this Agreement both parties have had and will
continue to have access to certain confidential or proprietary information
belonging to the other and each desires that any such confidential and
proprietary information remain confidential. Each party agrees that, both during
the term hereof and for a period of two (2) years after the termination of this
Agreement such party will use the same means it uses to protect its own
confidential proprietary information, but in no event less than reasonable
means, to prevent the disclosure and to protect the confidentiality of both (i)
written information received from the other party which is marked or identified
as confidential, and (ii) oral or visual information identified as confidential
at the time of disclosure which is summarized in writing and provided to the
other party in such written form promptly after such oral or visual disclosure
("Confidential Information"). The foregoing will not prevent either party from
disclosing Confidential Information which belongs to such party that is (i)
already known by the recipient party without an obligation of confidentiality,
## CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY U.S. WIRELESS DATA, INC. FOR
THIS PORTION OF THIS DOCUMENT PURSUANT TO COMMISSION RULES 24b-2 AND/OR 406. THE
OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
(ii) publicly known or becomes publicly known through no unauthorized act of the
recipient party, (iii) rightfully received from a third party, (iv)
independently developed by the recipient party without use of the other party's
Confidential Information, (v) disclosed without similar restrictions to a third
party by the party owning the Confidential Information, (vi) approved by the
other party for disclosure, or (vii) required to be disclosed pursuant to a
requirement of a governmental agency or law so long as the disclosing party
provides the other party with notice of such requirement prior to any such
disclosure.
7.3 Remedies. Each party acknowledges that the other would suffer irreparable
damage in the event of any breach of the provisions of this Article 7.
Accordingly, in such event, a party will be entitled to temporary, preliminary
and final injunctive relief, as well as any other applicable remedies at law or
in equity against the party who has breached or threatened to breach this
Article 7.
7.4 No Rights Granted. Nothing contained in this Agreement shall be construed as
granting or conferring any rights by license or otherwise in any Confidential
Information disclosed to the receiving party. All Confidential Information shall
remain the property of the disclosing party and shall be returned by the
receiving party to the disclosing party upon request. All notes, abstracts,
memoranda, or other documents prepared by receiving party which contain
Confidential Information or any discussion thereof, shall be destroyed or
returned to the disclosing party upon written request. If the parties hereto
decide to enter into any licensing arrangement regarding any Confidential
Information or present or future patent claims disclosed hereunder, it shall
only be done on the basis of a separate written agreement between them. No
disclosure of any Confidential Information hereunder shall be construed a public
disclosure of such Confidential Information by either party for any purpose
whatsoever.
7.5 Limitation on Obligations. The furnishing of Confidential Information
hereunder shall not obligate either party to enter into any further agreement of
negotiation with the other or to refrain from entering into an agreement or
negotiation with any other party.
7.6 Public Relations. Neither party shall make any press releases, public
references or engage in public relations activities with respect to this
Agreement or reference this Agreement without the expressed written consent of
the other party.
ARTICLE 9 - TERM AND TERMINATION
--------------------
9.1 Subject to the termination provisions below, this Agreement shall take
effect upon execution of this Agreement by the parties and shall continue for a
period of two (2) year from the date hereof.
9.2 This Agreement may be terminated by either party with or without cause by
giving thirty (30) days' prior written notice to the other (to the attention of
the person signing this Agreement on behalf of such other party). Upon material
breach or default under this Agreement by either party, if the other party gives
notice of such breach or default the party in default will be required to submit
to the other party a mutually agreed plan within ten (10) days to resolve the
default then without limitation of any other remedy available hereunder, the
non-defaulting party may terminate this Agreement immediately by delivery of a
notice of termination simultaneously with the notice of default or at any time
thereafter. If no plan is presented or agreed upon, the other party may
terminate this Agreement without liability except for funds owed to a party
prior to such termination. This Agreement may be immediately terminated without
prior written notice at the option of Bell Atlantic Mobile in the event that
USWD violates any of the conditions of Article 8 relating to the Confidential
Information of Bell Atlantic Mobile or USWD shall have
<PAGE>
ceased business, been adjudged bankrupt or insolvent, made an assignment for the
benefit of creditors, and/or filed for a petition in bankruptcy or
reorganization.
9.3 Following expiration or termination of this Agreement, except for the
obligations of the parties set forth in Section 9.5 below, the parties will have
no further obligation or responsibility to each other.
9.4 No Waiver. The right of either party to terminate this Agreement hereunder
shall not be affected in any way by its waiver of or failure to take action with
respect to any previous default.
9.5 Survival of Obligations upon Expiration of Term or Termination of Agreement.
9.5.1 All obligations of the parties arising hereunder and relating to any
Proposal or joint Customer relationship existing on the date of expiration or
termination (other than obligations to recommend or jointly market each others
Products and services) shall continue in full force and effect subsequent to and
notwithstanding the termination or expiration of this Agreement until all such
obligations are satisfied in full. The termination or expiration of this
Agreement shall in no way affect the rights and obligations of Bell Atlantic
Mobile and USWD under any then existing subcontracting agreement or similar form
of agreement between the parties , except to the extent set forth therein.
9.5.2 All representations, warranties and covenants of the parties set forth in
Section, Section, Section, Section shall survive the termination of this
Agreement for a period of two (2) years (the "Two-Year Period"); provided,
however, (i) if a claim or allegation of infringement of any U.S. patent or any
trademark, copyright, trade secret or other intellectual property right is made
during the Two-Year Period, then, with respect to such claim or allegation, the
indemnification provisions of Section shall survive beyond the Two-Year Period
and (ii) if a claim or demand covered by Section is made within the Two-Year
Period, then, with respect to such claim or demand, the indemnification
provisions of Section shall survive beyond the Two-Year Period.
ARTICLE 10 - INDEMNIFICATION
---------------
10.1 Intellectual Property Indemnification.
--------------------------------------
10.1.1 USWD shall defend, indemnify, and hold harmless Bell Atlantic Mobile,
Bell Atlantic Mobile's parent and affiliated companies, and Bell Atlantic
Mobile's customers (each, an "Indemnified Party") for any loss, damage, expense
or liability that may result by reason of any infringement or claim or
allegation of infringement of any U.S. patent or any trademark, copyright, trade
secret or other intellectual property rights by any USWD Products furnished by
USWD hereunder or as contemplated hereby and to pay costs, expenses, attorney's
fees and damages resulting from any claim, suit, settlement or judgment provided
that USWD is notified promptly in writing of the claim or suit and at USWD's
request and at its expense is given control of said suit and, at USWD's expense,
all reasonable requested assistance for defense of same. If a settlement or
judgment involves a license, then USWD shall obtain for Indemnified Party and
pay the cost of the license, so that USWD Products furnished hereunder or as
contemplated hereby will be licensed.
10.1.2 If the use, manufacture or sale of any USWD Product furnished hereunder
is claimed to infringe any U.S. patent or any trademark, copyright, trade secret
or other intellectual property rights, at Indemnified Party's option and at no
expense to Indemnified Party, USWD shall obtain for the Indemnified Party the
right to use or sell said Product(s) or technology or shall substitute an
equivalent Product
<PAGE>
reasonably acceptable to Indemnified Party and extend this indemnity thereto or
shall accept the return of the Product(s) and reimburse Indemnified Party the
purchase price therefor. This indemnity extends to any claim or suit based upon
any infringement or alleged infringement of any patent, trademark, copyright,
trade secret or other intellectual property rights by the reasonably foreseeable
alteration by Indemnified Party of any USWD Products furnished by USWD and by
the foreseeable combination of any USWD Products furnished by USWD and other
elements.
10.1.3 USWD shall, at USWD's expense, respond to, and assist Indemnified Party
to respond to, informal and formal allegations, notifications and claims of
infringement in connection with the USWD Products furnished hereunder or as
contemplated hereby and will assist Indemnified Party to evaluate the merits of
any such allegations, notifications or claims.
10.1.4 USWD further agrees to coordinate, form, and cooperate in a joint defense
with other vendors that supply Products to Indemnified Party that are alleged to
commonly or in combination with the USWD Products furnished hereunder or as
contemplated hereby, infringe. The joint defense shall, at its expense, retain
independent outside counsel acceptable to Indemnified Party to coordinate
defense activities. Indemnified Party retains the right to implead USWD in the
event of a suit.
10.2 Payment of Taxes and Indemnification.
-------------------------------------
10.2.1 Neither USWD nor its officers and directors and its associated personnel
and employees (all hereinafter designated "employees") shall be deemed to be
employees of Bell Atlantic Mobile, it being understood that USWD is an
independent contractor for all purposes and at all times; and USWD shall be
solely responsible for the withholding or payment of all Federal, State and
local Personal Income Taxes, Social Security, Unemployment and Sickness
Disability Insurance and other payroll taxes with respect to its employees,
including contributions from them when and as required by law.
10.2.2 USWD shall defend, indemnify, and save harmless Bell Atlantic Mobile and
its successors and assigns and its employees and agents and their heirs, legal
representatives and assigns from any and all claims or demands whatsoever,
including the costs, expenses and reasonable attorney's fees (including all
costs and attorney's fees incurred in the enforcement of this
indemnification).incurred on account thereof, that may be made by any person,
specifically including, but not limited to, employees of the USWD, including but
not limited to claims for bodily injury (including death to persons) or damage
to property (including theft) occasioned by or alleged to have been occasioned
by the acts or omissions of USWD, USWD Products, Solutions or Services its
employees or persons furnished by USWD whether negligent or otherwise.
10.2.3 USWD will further indemnify, defend and hold harmless Bell Atlantic
Mobile for any claims, liabilities, costs, fees, penalties or fines due to any
actions by any of NOVA, MasterCard, VISA, Maverick or any other banking credit
card processing, credit or financial institution based upon a claim against Bell
Atlantic Mobile of violation of any rules, regulations, laws, ordinances or
charters related to banking or credit card processing. Such claims may include,
but are not limited to claims of failure to file any reports, or fulfilling any
registration or audit obligations. This indemnification shall include any
special, indirect, consequential or special damages, except for claims by Bell
Atlantic Mobile of lost profits. 10.2.3 USWD represents and warrants to Bell
Atlantic Mobile that all software, hardware and related services provided by
USWD under this Agreement shall be "Year 2000 Compliant" meaning that (i) they
will perform on and after January 1, 2000 in as good a manner as before such
date, and (ii) they shall at all times manage, manipulate and report data
involving dates (including the year 2000, dates before and after the year 2000,
and single-century and multi-century formulas) without generating incorrect
values or dates or causing an abnormally-ending scenario within an application.
<PAGE>
10.2.4 USWD shall defend Bell Atlantic Mobile at Bell Atlantic Mobile's request,
against any such liability, claim or demand described in the preceding
paragraph. The foregoing indemnification shall apply whether USWD or Bell
Atlantic Mobile defends such suit or claims and whether the death, injury or
property damage is caused by the sole acts or omissions of USWD or by the
concurrent acts or omissions of Bell Atlantic Mobile or USWD hereunder. Bell
Atlantic Mobile agrees to notify USWD promptly of any written claim or demands
against Bell Atlantic Mobile for which USWD is responsible hereunder.
ARTICLE 11 - GENERAL
-------
11.1 Assignment. This Agreement is personal to each party hereto and neither may
assign or otherwise transfer its rights or delegate its duties hereunder without
the prior written consent of the other, which consent shall not be unreasonably
withheld; provided, however, either party may upon written notice to the other
assign any of its rights or obligations hereunder to (i) an Affiliate of the
assigning party or (ii) the purchaser of or successor in interest to all or
substantially all of the assigning party's assets, unless (with respect to an
assignment by USWD) in the reasonable judgment of Bell Atlantic Mobile the
assignee is a competitor of Bell Atlantic Mobile, in which case the assignment
by USWD shall not be valid or binding between the parties without Bell Atlantic
Mobile's prior written consent.
11.2 Amendment. This Agreement and the Schedules and Exhibits attached hereto
shall not be deemed or construed to be modified, amended, or waived, in whole or
in part, except by written agreement duly executed by the parties to this
Agreement.
11.3 Severability. In the event any provision hereof shall be deemed invalid or
unenforceable by any court or governmental agency of competent jurisdiction,
such provision shall be deemed severed from this Agreement and all remaining
provisions shall be afforded full force and effect as if such severed provision
had never been a provision hereof.
11.4 Execution. At the time of execution of this Agreement, the parties shall
cause their authorized officers to execute two original copies of this
Agreement. One executed copy together with one initialed copy of each schedule
and attachment hereto shall be maintained by the parties at their respective
offices.
11.5 Injunctive Relief. The parties recognize and agree that money damages are
an inadequate remedy for breach of the provisions contained in Article 2 and
Article 7 above, and further recognize that such breach would result in
irreparable harm to the party against whom such breach is committed. Therefore,
in the event of a breach or threatened breach of any such provision, the
breaching party may be enjoined from engaging in any activity proscribed by such
provision by a court of competent jurisdiction. Injunctive relief pursuant to
this Section shall be in addition to all remedies available at law or in equity
to a party arising from a breach of such provisions by the other party.
<PAGE>
11.6 Excused Performance. The parties shall not be liable for any failure to
perform under this Agreement or any default due to fire, electrical failure,
flood or similar act of God, embargo, or governmental restrictions which prevent
the parties from performing in the normal and usual course of their businesses,
provided they undertake diligent action to cure such failure and mitigate
damage.
11.7 Headings. The headings of this Agreement are intended solely for the
convenience of reference and shall be given no effect in the construction of
this Agreement.
11.8 Number, Gender. The masculine, feminine, singular and plural of any word or
words shall be deemed to include and refer to the gender and number appropriate
in the context.
11.9 Notices. Except as otherwise provided in this Agreement, all notices or
other communications which are required or permitted hereunder shall be in
writing and shall be valid and sufficient if delivered by: a) registered or
certified mail, postage prepaid; b) hand delivery; c) overnight courier prepaid;
or d) via facsimile transmission upon electronic confirmation of receipt, as
follows:
To Bell Atlantic Mobile:
180 Washington Valley Road
Bedminster, NJ 07921
Attn.: Robert J. Hirsh, Director
Wireless Data Distribution
Phone: (908) 306-7520
Facsimile: (908) 306-7541
With a Copy to: Bell Atlantic Mobile
180 Washington Valley Road
Bedminster, NJ 07921
Attn.: Steven Tugentman
Legal Department
Phone: (908) 306-7352
Facsimile: (908) 306-6836
To USWD: US WIRELESS DATA INC
2200 Powell Street, Suite 450
Emeryville, CA 94608
Attn.: Mr. Clyde F. Casciato
Vice President of Sales
Phone: 510 596-2025
Facsimile:
11.10 Counterparts. This Agreement may be signed in two or more counterparts,
each of which shall be considered an original and which shall, taken together,
constitute this Agreement.
11.11 No Third Party Beneficiaries. Except for the indemnification provisions
contained in Section 10.1, nothing in this Agreement is intended or shall be
construed or interpreted to give any person or entity other than the parties
hereto any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
11.12 Governing Law. This Agreement shall be governed by the law of the State of
New York without reference to its conflict of law rules. With respect to any
judicial action which
<PAGE>
may arise under or with respect to this Agreement, each party agrees to waive
trial by jury.
11.13 Entire Agreement. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous agreements and understandings, whether written or oral,
between the parties with respect to such subject matter, and there are no
representations, understandings or agreements relating to this Agreement that
are not fully expressed in this Agreement.
11.14 Procedure.
11.14.1 Each party shall appoint an individual from its organization to
interface with the other party on any issues arising out of this Agreement, and
shall promptly notify the other party of such appointment. 11.14.2 Bell Atlantic
Mobile and USWD will jointly conduct an annual meeting to review performance and
set objectives for the new year.
11.15 No Representations. Bell Atlantic Mobile shall not make any
representations or warranties to third parties on behalf of USWD, and if any
such representations or warranties are made they shall have no force or effect
on USWD. USWD shall not make any representations or warranties to third parties
on behalf of Bell Atlantic Mobile, and if any such representations or warranties
are made they shall have no force or effect on Bell Atlantic Mobile.
11.16 Trademark Guidelines. Each party hereto shall comply with the other
party's reasonable written guidelines with respect to the use of such other
party's trademarks and/or service marks and for quality control in connection
with such party's trademarked Products and/or service-marked services.
ARTICLE 12 - ACKNOWLEDGEMENTS AND REPRESENTATIONS.
-------------------------------------
USWD acknowledges that it has not received or relied upon, any guaranty,
express or implied, as to the amount of commissions or other revenue that it may
earn as a result of its relationship with Bell Atlantic Mobile. USWD represents
and warrants that: 12.1 the execution, delivery and/or performance of this
Agreement will not conflict with or result in any breach of any provision of the
charter or by-laws of USWD or any agreement, contract or legally binding
commitment or arrangement to which USWD is a party, and 12.2 USWD is not subject
to any limitation or restriction (including, without limitation, noncompetition,
and confidentiality arrangements) which would prohibit, restrict or impede the
performance of any of USWD's obligations under this Agreement.
This Agreement does not constitute a joint venture, partnership,
employment, or similar relationship among the parties, and, unless authorized in
writing, neither Bell Atlantic Mobile nor USWD shall make any express or implied
agreements, guarantees or representations, or incur any indebtedness or
obligations, in the name of or on behalf of the other.
<PAGE>
ARTICLE 13 - INDEPENDENT INVESTIGATION.
--------------------------
BELL ATLANTIC MOBILE AND USWD ACKNOWLEDGE THEY HAVE READ THIS
AGREEMENT AND UNDERSTAND AND ACCEPT THE TERMS, CONDITIONS, AND COVENANTS
CONTAINED HEREIN AS BEING REASONABLY NECESSARY TO MAINTAIN BELL ATLANTIC
MOBILE'S HIGH STANDARDS FOR SERVICE. USWD ACKNOWLEDGES AND UNDERSTANDS THAT BELL
ATLANTIC MOBILE MAY AT ANY TIME ALSO BE ENGAGED DIRECTLY OR INDIRECTLY THROUGH
ITS DIRECT SALES FORCE, AGENTS, OTHER RETAILERS, OR OUTLETS OF ANY KIND, IN
SOLICITING POTENTIAL SUBSCRIBERS FOR THE SERVICE OR OTHER SERVICES OR PRODUCTS
OR FOR THE SALE, LEASE, INSTALLATION, REPAIR, OR SERVICING OF EQUIPMENT IN THE
MARKET. USWD ALSO ACKNOWLEDGES AND UNDERSTANDS THAT BELL ATLANTIC MOBILE MAY
SELL THE SERVICE TO OTHERS WHO MAY RESELL IT. USWD HAS INDEPENDENTLY
INVESTIGATED THE CELLULAR SERVICE OR EQUIPMENT SALES BUSINESS AND THE
PROFITABILITY (IF ANY) AND RISKS THEREOF AND IS NOT RELYING ON ANY
REPRESENTATION, GUARANTEE, OR STATEMENT OF BELL ATLANTIC MOBILE OTHER THAN AS
SET FORTH IN THIS AGREEMENT.
IN PARTICULAR, USWD ACKNOWLEDGES THAT BELL ATLANTIC MOBILE HAS
NOT REPRESENTED: (A) USWD'S PROSPECTS OR CHANCES FOR SUCCESS SELLING SERVICES
UNDER THIS AGREEMENT; (B) THE TOTAL INVESTMENT THAT USWD MAY NEED TO MAKE TO
OPERATE UNDER THIS AGREEMENT (BELL ATLANTIC MOBILE DOES NOT KNOW THE AMOUNT OF
THE TOTAL INVESTMENT THAT MAY BE REQUIRED FOR THIS PURPOSE); OR (C) THAT IT WILL
LIMIT ITS EFFORTS TO SELL SERVICE OR ESTABLISH OTHER AGENTS OR RETAILERS IN THE
AREA.
USWD ALSO ACKNOWLEDGES THAT BELL ATLANTIC MOBILE HAS NOT
REPRESENTED TO IT THAT: (A) BELL ATLANTIC MOBILE WILL PROVIDE LOCATIONS OR
ASSIST USWD TO FIND LOCATIONS TO PROMOTE THE SALE OF SERVICE UNDER THIS
AGREEMENT; (B) BELL ATLANTIC MOBILE WILL PURCHASE ANY PRODUCTS MADE BY USWD THAT
ARE IN ANY WAY ASSOCIATED WITH THE SERVICE SOLD BY USWD UNDER THIS AGREEMENT;
(C) USWD WILL DERIVE INCOME FROM THE SALE OF BELL ATLANTIC MOBILE'S SERVICES
UNDER THIS AGREEMENT, OR BELL ATLANTIC MOBILE WILL REFU ANY PAYMENTS MADE BY
USWD TO BELL ATLANTIC MOBILE UNDER THIS AGREEMENT; OR (D) BELL ATLANTIC MOBILE
WILL PROVIDE A SALES OR MARKETING PROGRAM THAT WILL ENABLE USWD TO DERIVE INCOME
UNDER THIS AGREEMENT.
USWD FURTHER ACKNOWLEDGES THAT BELL ATLANTIC MOBILE HAS NOT MADE
ANY REPRESENTATIONS REGARDING: (A) THE QUANTITY OR QUALITY OF SERVICE TO BE SOLD
BY USWD OTHER THAN AS STATED IN THIS AGREEMENT; (B) THE PROVISION BY BELL
ATLANTIC MOBILE TO USWD OF TRAINING AND MANAGEMENT ASSISTANCE; (C) THE AMOUNT OF
PROFITS, NET OR GROSS, THAT USWD CAN EXPECT FROM ITS OPERATIONS UNDER THIS
AGREEMENT; (D) THE SIZE (OTHER THAN THE GEOGRAPHIC AREA), CHOICE POTENTIAL, OR
DEMOGRAPHIC NATURE OF THE MARKET IN WHIC BELL ATLANTIC MOBILE'S SERVICE IS
AVAILABLE OR THE NUMBER OF OTHER RETAILERS OR AGENTS THAT ARE OR MAY IN THE
FUTURE OPERATE IN THAT AREA, OR (E) THE TERMINATION, TRANSFER OR RENEWAL
PROVISIONS OF THIS AGREEMENT OTHER THAN AS SET FORTH IN THE AGREEMENT. USWD
ACKNOWLEDGES THAT IT UNDERSTANDS THAT IT WILL NOT OBTAIN ANY EXCLUSIVE RIGHTS
UNDER THIS AGREEMENT EITHER WITH RESPECT TO TERRITORY OR OTHERWISE, AND
UNDERSTANDS THAT BELL ATLANTIC MOBILE MAY APPOINT OTHER AGENTS OR RETAILERS IN
THE MARKET AFFECTED BY THIS AGREEMENT. USWD ALSO ACKNOWLEDGES THAT BELL ATLANTIC
MOBILE CANNOT CALCULATE IN ADVANCE THE TOTAL AMOUNT THAT BELL ATLANTIC MOBILE
WILL PAY TO USWD UNDER THIS AGREEMENT AS THAT AMOUNT DEPENDS ON THE QUANTITY OF
SERVICE THAT SUBSCRIBERS PURCHASE FROM BELL ATLANTIC MOBILE. ARTICLE 14 -
LIMITED LIABILITY
<PAGE>
BELL ATLANTIC MOBILE SHALL NOT BE LIABLE TO USWD FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR SPECIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO
LOST PROFITS, LOST BUSINESS, OR OTHER COMMERCIAL OR ECONOMIC LOSS, WHETHER SUCH
DAMAGES ARE CLAIMED FOR BREACH OF CONTRACT, NEGLIGENCE OR OTHERWISE AND WHETHER
OR NOT BELL ATLANTIC MOBILE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 15 - RESOLUTION OF DISPUTES/ARBITRATION 15.1 The parties agree and
acknowledge that as a precondition to pursuing any type of claim against the
other party arising from this Agreement, or any previous or other Agreement
between the parties, irrespective of the claim or cause of action, the aggrieved
party shall provide the other party with written notice. The parties shall
subsequently, and within thirty (30) days of such notice, negotiate in good
faith a resolution of the alleged claim and type of remedy sought.
15.2 Any disputed claim or other such dispute arising out of or related to this
Agreement or any previous or other Agreement between the parties which cannot be
resolved by subsection 14.1 above, shall be settled by binding arbitration. The
parties further agree that judgement may be entered upon the award in any court
having jurisdiction thereof.
15.3 If either party commences arbitration in the manner described above, the
dispute will be subject to expedited, binding arbitration before one (1)
independent arbitrator familiar with the wireless telecommunications industry.
Such arbitration shall be held in New York City, New York pursuant to the
American Arbitration Association ("AAA") Rules in effect at the time of the
dispute. The arbitrator shall be selected by the joint agreement of the parties,
but if they do not so agree within fourteen (14) days after the date of the
notice referred to above, the selection shall be made by AAA pursuant to the AAA
Rules. Any award rendered by the arbitrator shall be conclusive and binding upon
the parties hereto; provided, however, that any such award shall be accompanied
by a written opinion of the arbitrator giving the reasons for the award. The
arbitrator shall have the authority to require the submission (at hearing or
otherwise) of such documents, information, testimony, and other items as the
arbitrator may deem necessary to make a fair and reasonable decision. The
findings of the arbitrator may not change the express terms of this Agreement
and shall be consistent with the arbitrator's understanding of the findings a
court of proper jurisdiction would make in applying the applicable law to the
facts underlying the dispute. This provision for arbitration shall be
specifically enforceable by the parties and the decision of the arbitrator in
accordance herewith shall be final and binding and there shall be no right of
appeal therefrom. Each party shall pay its own expenses of arbitration and the
expense of the arbitrator shall be shared equally; provided, however, that if in
the opinion of the arbitrator any party's delay in the arbitration process was
unreasonable, the arbitrator may assess, as part of the award, all or any part
of the arbitration expenses of the other party (including reasonable attorneys'
fees) and of the arbitrator against the party causing such unreasonable delay.
In no event whatsoever shall such an arbitration award include an award of
punitive damages and the parties hereby waive the right to recover punitive
damages. All applicable statutes of limitation and defenses based upon the
passage of time shall be tolled while the procedures specified in this Section
14 are pending. The parties will take such actions, if any, required to
effectuate such tolling. The parties will not be prohibited from seeking
injunctive relief to preserve the status quo pending resolution under this
provision. The arbitration shall be governed by the United States Arbitration
Act, 9 USC 1-16, as amended. In the event of any conflict between the United
States Arbitration Act and the AAA, the AAA shall govern.
15.4 ALL DISCUSSIONS AND DOCUMENTS PREPARED PURSUANT TO ANY ATTEMPT TO RESOLVE A
DISPUTE UNDER THIS PROVISION ARE CONFIDENTIAL AND FOR SETTLEMENT PURPOSES ONLY
AND SHALL NOT BE ADMITTED IN ANY COURT OR OTHER FORUM AS AN ADMISSION OR
OTHERWISE AGAINST A PARTY FOR ANY PURPOSE INCLUDING THE APPLICABILITY OF FEDERAL
AND STATE COURT RULES.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in counterparts on the day and year written below.
CELLCO PARTNERSHIP
by Bell Atlantic Mobile, Inc.
its managing general partner US WIRELESS DATA INC
By: /s/ Jack Plating By: /s/ Clyde F. Casciato
-------------------- ----------------------
Name: Jack Plating Name:Clyde F. Casciato
Title: EVP & COO Title: Vice President, Sales
Date: 3/23/98 Date: March 20, 1998
<PAGE>
EXHIBIT A
BELL ATLANTIC MOBILE PRIMARY SERVING MARKETS
Market Name
MSAs Licensed
New York/New Jersey MSA
Philadelphia, PA-NJ MSA
Washington, DC-MD MSA
Pittsburgh, PA MSA
Baltimore, MD MSA
Allentown, PA-NJ MSA
New Brunswick, NJ MSA
Wilmington, DE-NJ MSA
Long Branch, NJ MSA
Reading, PA MSA
Trenton, NJ MSA
Atlantic City, NJ MSA
Vineland, NJ MSA
Boston, MA MSA
Manchester, NH MSA
Poughkeepsie, NY MSA
Orange, NY MSA
Glen Falls NY MSA
Burlington, VT MSA
Providence, RI MSA
New Haven, CT MSA
Charlotte, NC MSA
Springfield, MA MSA
Greenville, SC MSA
New Bedford, MA MSA
Columbia, SC MSA
New London-Norwich, CT MSA
Hickory, NJ MSA
Pittsfield, MA MSA
Anderson, SC MSA
Hartford, CT MSA
RSAs Licensed
Delaware 1 - KENT
Georgia 2 - DAWSON
Maryland 2 - KENT
Maryland 3 - FREDERICK
New Jersey 1 - HUNTERDON
New Jersey 2 - OCEAN
New Jersey 3 - SUSSEX
Pennsylvania 2 - MCKEAN
Pennsylvania 6 - LAWRENCE (B2)
Pennsylvania 7 - JEFFERSON
Pennsylvania 9 - GREENE
Pennsylvania 11 - HUNTINGDON
North Carolina 1 - CHEROKEE
Massachusetts 2 - BARNSTABLE
New Hampshire 2 - CARROLL Vermont 1 - FRANKLIN
Vermont 2 - ADDISON
Connecticut 2 - WINDHAM
North Carolina 1 - CHEROKEE
North Carolina 4 - HENDERSON
North Carolina 5 - ANSON
North Carolina 15 - CABARRUS
Rhode Island 1 - NEWPORT
South Carolina 1 - OCONEE
South Carolina 2 - NEWBERRY
South Carolina 3 - CHEROKEE
South Carolina 7 - CALHOUN
South Carolina 9 - LANCASTER
Virginia 1 - LEE
Virginia 10 - FREDERICK (B1)
Virginia 11 - MADISON
Virginia 12 - CAROLINE
West Virginia 1 - MASON
West Virginia 2 - WETZEL
<PAGE>
Affirmative Action Exhibit B
An Equal Opportunity Employer
NON-DISCRIMINATION COMPLIANCE AGREEMENT
To the extent this contract is subject to them, Contractor shall comply with the
applicable provisions of the following: Exec. Order No. 11246, Exec. Order No.
11625, Exec. Order No. 12138, Exec. Order No. 11701, Exec. Order No. 11758,
Section 503 of the Rehabilitation Act of 1973, Section 402 of the Vietnam Era
Veterans' Readjustment Assistance Act of 1974 and the rules, regulations and
relevant Orders of the Secretary of Labor pertaining to the Executive Orders and
Statutes listed above. The following table describes the clauses which are
included in the contract.
Annual Contract Value Clauses
Under $2,500 5*
$2,500 - $10,000 5*, 8
$10,000 - $50,000 1,2,5*,6,7,8,9
$50,000 - $500,000 1,2,3**,4**,5,6,7,8,9
Over $500,000 1,2,3**,4**, 5,6,7,8,9***
1. Equal Employment Opportunity Provisions
In accordance with Executive Order 11246, dated September 24, 1965, and
Subpart 22.8 of Subchapter D of Chapter 1 of Title 48 of the Code of Federal
Regulations as may be amended from time to time, the parties incorporate herein
by this reference the regulations and contract clauses required by those
provisions to be made a part of government contracts and subcontracts.
2. Certification of Non-segregated Facilities
The Contractor certifies that it does not and will not maintain any
facilities it provides for its employees in a segregated manner, or permit its
employees to perform their services at any location under its control where
segregated facilities are maintained; and that it will obtain a similar
certification prior to the award of any nonexempt subcontract.
3. Certification of Affirmative Action Program
The Contractor affirms that it has developed and is maintaining an
Affirmative Action Plan as required by Subpart 22.8 of Subchapter D. of Chapter
1 of Title 48 of the Code of Federal Regulations.
4. Certification of Filing of Employer Information Reports
The Contractor agrees to file annually on or before the 31st of March
complete and accurate reports on Standard Form 100 (EEO-1) or such forms as may
be promulgated in its place.
5. Utilization of Small Business Concerns and Small Disadvantage Business
Concerns
(a) It is the policy of the United States that small business concerns
owned and controlled by socially and economically disadvantaged
individuals shall have the maximum practicable opportunity to
participate in performing contracts let by any Federal agency.
(b) The Contractor hereby agrees to carry out this policy in the awarding
of subcontractors to the fullest extent consistent with efficient
contract performance. The Contractor further agrees to cooperate in
studies or surveys as may be conducted by the United States Small
Business Administration or the awarding agency of the United States as
may be necessary to determine the extent of the Contractor's
compliance with this clause.
(c) As used in this contract, the term "small business concern" shall mean
a small business as defined pursuant to Section 3 of the Small
Business Act and relevant regulations promulgated pursuant thereto.
The term "small business concern owned and controlled by socially and
economically disadvantaged individuals" shall mean a small business
concern.
(1) Which is at least 51 percent owned by one or more socially
and economically disadvantaged individuals; or, in the case of
any publicly owned business, at least 51 percent of the stock of
which is owned by one or more socially and economically
disadvantaged individuals; and
*Applies only if contract has further subcontracting opportunities.
**Applies only to businesses with 50 or more employees.
***Contractor must also adopt and comply with a small business disadvantaged
business subcontracting plan pursuant to Title 48 of the Code of Federal
Regulations.
<PAGE>
(2) Whose management and daily business operations are controlled
by one or more of such individuals;.
The Contractor shall presume that socially and economically disadvantaged
individuals include Black Americans, Hispanic American, Native Americans,
Asian-Pacific Americans, Asian-Indian Americans and other minorities, or any
other individual found to be disadvantaged by the Administration pursuant to
section 8(a) of the Small Business Act.
(d) Contractors acting in good faith may rely on written representations
by their subcontractors regarding their status as either a small
business concern or a small business concern owned and controlled by
socially and economically disadvantaged individuals.
6. Utilization of Women-Owned Small Businesses
(a) "Women-Owned small businesses," as used in this clause, means
businesses that are at least 51 percent owned by women who are United
States citizens and who also control and operate the business.
"Control," as used in this clause, means exercising the power to make
policy decision.
"Operate," as used in this clause, means being actively involved in
the day-to-day management of the business.
(b) It is the policy of the United States that women-owned small
businesses shall have the maximum practicable opportunity to
participate in performing contracts awarded by any Federal agency.
(c) The Contractor agrees to use its best efforts to give women-owned
small business the maximum practicable opportunity to participate in
the subcontracts it awards to the fullest extent consistent with the
efficient performance of its contract.
7. Affirmative Action for Special Disabled Veterans and Veterans of the Vietnam
Era
In accordance with Exec. Order 11701, dated January 24, 1973, and
subpart 22.13 of Subchapter D of Chapter 1 of Title 48 of the Code of Federal
Regulations, as may able amended from time to time, the parties incorporate
herein by the reference the regulations and contract clauses required by those
provisions to be made a part of Government contracts and subcontracts.
8. Affirmative Action for Handicapped Workers
In accordance with Exec. Order 11758, dated January 15, 1974, and
Subpart 221.4 of Subchapter D of Chapter 1 of Title 48 of the code of Federal
Regulations as may be amended from time to time, the parties incorporate herein
by this reference the regulations and contract clauses required by those
provisions to be made a part of Government contracts and subcontracts.
9. Employment Reports on Special Disabled Veterans and Veterans of the Vietnam
Era
(a) The contractor agrees to report at least annually, as required by
the Secretary of Labor, on:
(1) The number of special disabled veterans and the number of
veterans of the Vietnam era in the workforce of the contractor by
job category and hiring location; and
(2) The total number of new employees hired during the period
covered by the report, and of that total, the number of veterans
of the Vietnam era.
(b) The above items shall be reported by completing the form entitled
"Federal Contractor Veterans" Employment Report VETS-100."
(c) Reports shall be submitted no later than March 31 of each year
beginning March 31, 1988.
(d) The employment activity report required by paragraph (a)(2) of this
section shall reflect total hires during the most recent 12-month period as of
the ending date selected for the employment profile report required by paragraph
(a)(1) of this section. Contractors may select an ending date:(1) as of the end
of any pay period during the period January through March 1st of the year the
report is due, or (2) as of December 31, if the contractor has previous written
approval form the Equal Employment Opportunity Commission to do so for purposes
of submitting the Employer Information Report EEO-1 (Standard Form 100).
(e) The count of veterans reported according to paragraph (a) above
shall be based on voluntary disclosure. Each contractor subject to the reporting
requirements at 38 U.S.C. 2012(d) shall invite all special disabled veterans and
veterans of the Vietnam era who wish to benefit under the affirmative action
program at 38 U.S.C. 2012 to identify themselves to the contractor. The
invitation shall state that the information is voluntarily provided, that the
information will be kept confidential, that disclosure or refusal to provide the
information will not subject the applicant or employee to any adverse treatment,
and that the information will be used only in accordance with the regulations
promulgated under 38 U.S.C. 2012. Nothing in this paragraph (e) shall relieve a
contractor from liability for discrimination under 38 U.S.C. 2012.
<PAGE>
PAGE 2
JNT CDPD NON COM RVD 71096 US WIRELESS DATA INC
draft October 16, 1997 ###-##-####
JNT CDPD NON COM RVD 111097 US WIRELESS DATA INC
###-##-####
JNT CDPD NON COM RVD 121297 US WIRELESS DATA INC
Final 3/19/98 ###-##-####
JNT CDPD NON COM RVD 121297 US WIRELESS DATA INC
Final 3/19/98 ###-##-####
ENGAGEMENT AGREEMENT
This Agreement is effective as of the date of execution, by and between U.S.
Wireless Data, Inc., 2200 Powell Street, Suite 450, Emeryville, CA 94608
(referred to as "Company"), and entrenet Group, LLC, 1304 Southpoint Boulevard,
Suite 220, Petaluma, California 94954 (referred to as "entrenet").
In this Agreement, the party who is contracting to receive services shall be
referred to as "Company," and the party who will be providing the services shall
be referred to as "entrenet".
Company desires to have services provided by entrenet.
Therefore, the parties agree as follows:
1. DESCRIPTION OF SERVICES. Beginning on the Effective Date, entrenet will
provide the services, (collectively, the "Services") as described in
Exhibit A attached hereto and incorporated herein by reference.
2. PERFORMANCE OF SERVICES. The manner in which the Services are to be
performed and the specific hours to be worked by entrenet shall be
determined by entrenet. entrenet shall, and the Company will rely on
entrenet's promise to work as many hours as may be reasonably necessary to
fulfill entrenet's obligations under this Agreement.
3. PAYMENT. Company will pay a fee to entrenet for the Services in an amount
and under terms and conditions as described in Exhibit A.
4. TRANSACTION. For purposes of this agreement, the term "Transaction" shall
mean (except as set forth in Exhibit B), whether in one or a series of
transactions entered into subsequent to this agreement: Any capital
financing, including without limitation, any financing for debt, equity,
capital stock (common or preferred), convertible instruments, lines of
credit and secured and/or unsecured debt; Any merger/acquisition activity
including without limitation, (i) the acquisition, directly or indirectly,
through purchases, sales, or otherwise, of any or all portions of the
securities of the Company by an investor or (ii) any merger, consolidation,
reorganization, recapitalization, restructuring or other business
combination involving the Company and an investor.
5. CONSIDERATION. For purposes of this agreement, the term "Consideration"
means the total proceeds and other consideration paid and to be paid or
contributed directly or indirectly, in connection with a Transaction (which
consideration shall be deemed to include amounts paid or to be paid into
escrow) to the Company and its shareholders, including, without limitation:
(i) cash; (ii) notes, securities, and other property (including all
options, warrants or other instruments or arrangements convertible into or
exercisable for any of the foregoing) at the fair market value thereof;
(iii) liabilities assumed; (iv) payments to be made in installments; (v)
amounts paid or payable under management, consulting, supply, service,
distribution, technology transfer or licensing agreements, and real
property or equipment lease agreements, and agreements not to compete, and
other similar arrangements (including such payments to management), entered
into other than in the ordinary course of business; and (vi) contingent
payments (whether or not related to future earnings or operations). The
fair market value of non-cash consideration consisting of securities shall
be determined based upon (A) the closing sale price for such securities on
the
<PAGE>
registered national securities exchange providing the primary market
therein on the last trading day prior to the date of receipt thereof by the
Company or its shareholders, (B) if such securities are not so traded, the
average of the closing bid and asked prices, as reported by the National
Association of Securities Dealers Automated Quotation System on the last
trading day prior to the date of receipt thereof by the Company or its
shareholders, or (C) if such securities are not so traded or reported,
agreement between the Company and entrenet. The fair market value of any
non-cash Consideration other than securities shall be determined by
agreement of the Company and entrenet. If all or any portion of the
Consideration is to be paid over time, then that portion of the Transaction
Fee attributable thereto shall be payable, in the sole discretion of
entrenet, either (i) as and when such payments are made or (ii) upon
consummation of a Transaction, calculated based on the present value of
such Consideration utilizing a discount rate of 7% per annum.
6. ACCOUNTING AND INSPECTION RIGHTS. For all compensation referred to in
Exhibit A, it is further agreed that Company shall maintain written records
in sufficient detail for purposes of determining the amount of Fees due
entrenet. Company shall provide to entrenet a written accounting that sets
forth the manner in which Fee payments were calculated. Upon 15 days
notice, entrenet or entrenet's agent shall have the right to inspect
Company's records for the limited purpose of verifying the calculation of
Fee payments, subject to such restrictions as Company may reasonably impose
to protect the confidentiality of the records. Such inspections shall be
made at the company's principal place of business during regular business
hours as may be set by the Company.
7. EXPENSE REIMBURSEMENT. entrenet shall be entitled to reimbursement from
Company as described in Exhibit A.
8. TERM/TERMINATION. This Agreement shall be effective upon signing and shall
have an initial term and such renewal terms as shall be described in
Exhibit A. The termination of this engagement is also defined in Exhibit A.
9. RELATIONSHIP OF PARTIES. It is understood by the parties that entrenet is
an independent contractor with respect to Company, and not an employee of
Company. Company will not provide fringe benefits, such as health insurance
benefits, paid vacation, or any other employee benefit, for the benefit of
entrenet.
10. INDEMNIFICATION AND CONTRIBUTION. (a) If, in connection with the services
or matters that are the subject of this agreement, entrenet becomes
involved in any capacity in any action or legal proceeding, the Company
agrees to reimburse entrenet, its affiliates and their respective
directors, officers, employees, representatives and controlling persons
(each an "Indemnified Person") promptly upon request for all expenses
(including without limitation, fees and disbursements of legal counsel and
the cost of investigation and preparation) as they are incurred. In the
event a determination is made to the effect set forth below holding that
entrenet is not entitled to indemnification hereunder, entrenet shall
promptly refund to the Company all amounts advanced under this Section in
respect of reimbursement of expenses. The Company also agrees to indemnify
and hold each Indemnified Person harmless against all losses, claims
damages or liabilities, joint or severable (collectively, "Damages"), to
which such Indemnified Person may become subject (i) arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in any offering materials or any other written or oral
communication provided to any investor of securities of the Company or
arising out of or based upon the omission or alleged omission to state in
any such document or communication a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; or (ii) in
connection with the services or matters which are the subject of this
agreement, provided that the Company shall not be liable under the
foregoing indemnity in respect of any Damages to the extent that a court
having jurisdiction shall have determined by a final judgment (not subject
to further appeal) that such damages resulted directly
<PAGE>
and primarily from the gross negligence or willful misconduct of entrenet
or any other Indemnified Person. The Company also agrees that no
Indemnified Person shall have any liability to the Company for or in
connection with this engagement, except for any liability that results
directly and primarily from the gross negligence or willful misconduct of
the Indemnified Person. (b) The Company and entrenet agree that if, for any
reason, any indemnification sought pursuant to this Section is unavailable
or is insufficient to hold any Indemnified Person harmless, then, whether
or not entrenet is the person entitled to indemnification, the Company and
entrenet shall each contribute to amounts paid or payable in respect of the
Damages for which such indemnification is unavailable or insufficient in
such proportion as if appropriate to reflect (i) the relative benefits to
the Company, on the one hand, and entrenet, on the other and (ii) their
relative fault, in connection with the matters as to which such Damages
relate, as well as any relevant equitable considerations; provided that in
no event shall the amount to be contributed by entrenet exceed the amount
of fees actually received by entrenet hereunder (excluding any amounts
received by entrenet as a reimbursement of expenses). The Company and
entrenet agree to consult in advance with one another with respect to the
terms of any proposed waiver, release or settlement of any claim, action or
proceeding to which entrenet or an Indemnified Person may be subject as a
result of the matters contemplated by this agreement and further agree not
to enter into any such waiver, release or settlement without the prior
written consent of one another (which consent shall not be unreasonably
withheld), unless such waiver, release or settlement includes an
unconditional release of entrenet or such indemnified Person, as the case
may be, from all liability arising out of such claim, action or proceeding.
(c) The agreements of the Company under this Section shall be in addition
to any liabilities the Company may otherwise have and shall apply whether
or not entrenet or any other Indemnified Person is a formal party to any
claim, action or legal proceedings. ANY RIGHT TO A TRIAL BY JURY WITH
RESPECT TO ANY CLAIM FOR INDEMNIFICATION OR CONTRIBUTION HEREUNDER OR IN
RESPECT OF ANY CLAIM, ACTION OR LEGAL PROCEEDING ARISING OUT OF OR RELATED
TO THE SERVICES OF entrenet HEREUNDER OR IN ANY OTHER MANNER IS HEREBY
WAIVED BY EACH INDEMNIFIED PARTY AND BY THE COMPANY.
11. COOPERATION, CONFIDENTIALITY, ETC. (a) The Company shall furnish entrenet
with all information and data which entrenet shall reasonably deem
appropriate in connection with its activities on the Company's behalf, and
shall provide entrenet full access to the Company's officers, directors,
employees and professional advisors. Further, the Company shall involve
entrenet in all discussions between the Company and potential investors and
shall make available to entrenet all information regarding potential
investors which the Company receives from any source whatsoever. The
Company recognizes and confirms that entrenet in acting pursuant to this
engagement will be using information in public reports and other
information provided by others, including information provided by the
Company, and that entrenet does not assume responsibility for, and may rely
without independent verification upon, the accuracy or completeness of any
such information. (b) the Company agrees that entrenet's advice is for the
use and information of the Company's management and Board of Directors only
and the Company will not disclose such advice to others (except the
Company's professional advisors and except as required by law) or summarize
or refer to such advice without, in each case, entrenet's prior written
consent. Notwithstanding anything to the contrary contained in the
foregoing, in the event the Company is required by law to make any filings
with any governmental authority (including without limitation the
Securities and Exchange Commission) which mention entrenet or any
disclosure to the holder of its securities concerning entrenet, the Company
shall if practible make an effort to afford entrenet the opportunity to
review such disclosure in advance and to approve the form thereof, such
approval not to be unreasonably withheld or delayed. entrenet agrees that
it will not, without the prior written consent of the Company, disclose, to
any third party any confidential information provided by the Company to
entrenet in connection with this engagement, except to the extent (i) such
disclosure is required by applicable law, regulation or legal process, (ii)
such information becomes publicly known other than as a result of the
breach by entrenet of its obligations set forth in this sentence, and (iii)
such disclosure is requested or required by any bank regulatory authority
having jurisdiction over entrenet.
<PAGE>
12. OTHER TRANSACTIONS. The Company acknowledges that entrenet and its
affiliates may have and may in the future have investment and commercial
banking, trust and other relationships with parties other than the Company,
which parties may have interests with respect to a Transaction. Although
entrenet in the course of such other relationships may acquire information
about the Transaction, potential investors or such other parties, entrenet
shall have no obligation to disclose such information to the Company or to
use such information on the Company's behalf. Furthermore, the Company
acknowledges that entrenet may have fiduciary or other relationships
whereby entrenet may exercise voting power over securities of various
persons, which securities may from time to time include securities of the
Company, potential investors or to others with interests with respect to a
Transaction. The Company acknowledges that entrenet may exercise such
powers and otherwise perform its functions in connection with such
fiduciary or other relationships without regard to its relationship to the
Company hereunder.
13. ACKNOWLEDGMENT OF SERVICES PROVIDED. entrenet may include descriptions of
services provided by entrenet to the Company in entrenet's promotional
materials. entrenet shall also have the right to place notices
("Tombstones") in financial and other newspapers and journals at entrenet's
own expense describing its services to Company under this Agreement.
entrenet may not otherwise publicly refer to the Company without the
Company's prior consent.
14. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be deemed delivered when delivered in person or deposited
in the United States mail, first class postage prepaid, addressed as
follows:
IF for Company:
U.S. Wireless Data, Inc.
Evon Kelly
Chief Executive Officer
2200 Powell Street, Suite 450
Emeryville, CA 94608
Fax - 510-596-2029
IF for entrenet:
entrenet Group, LLC
John Billington
Chief Legal and Tax Officer
1304 Southpoint Boulevard, Suite 220 Petaluma, CA 94954 Fax -
707-781-2514 Email - [email protected]
Engagement Agreement
Such addresses may be changed from time to time by either party by
providing written notice to the other in the manner set forth above.
15. ARBITRATION AND CONSENT TO JURISDICTION. Any dispute and/or controversy
relating to or arising from the interpretation and/or application of this
Agreement shall be submitted at the request of the Company or entrenet to a
neutral arbitrator selected by the parties from the J.A.M.S/Endispute panel
of arbitrators for a determination which shall be final and binding as to
the parties thereto. Arbitration shall take place in Petaluma, located in
the county of Sonoma, state of California for a determination that shall be
final and binding as to the parties thereto. The decision and award of the
arbitrator may include the cost of the arbitration proceedings and may
include reasonable attorney fees for the successful party. The arbitration
shall be conducted in accordance with California Arbitration Act (CCP
Section 1280 et seq.) and not by court action except as provided by
California law for the judicial review of arbitration proceedings. Nothing
herein contained shall be deemed to affect the rights of any Party to serve
process in any manner other than as permitted by law.
<PAGE>
16. ENTIRE AGREEMENT. This Agreement, along with any Exhibits attached hereto,
contains the entire agreement of the parties with respect to the subject
matter and supersedes any other agreement whether oral or written which are
not fully expressed herein, except for carryover provisions of any previous
executed agreements between entrenet and Company.
17. AMENDMENT. This Agreement may be modified or amended if the amendment is
made in writing and is signed by both parties.
18. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision
of this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid and enforceable, then such provision shall
be deemed to be written, construed, and enforced as so limited.
19. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or
limitation of that party's right to subsequently enforce and compel strict
compliance with every provision of this Agreement.
20. APPLICABLE LAW. This Agreement shall be governed by the laws of the State
of California, excluding that body of law known as conflict of laws.
"Company"
By: /s/ Robert E. Robichaud
---------------------------
Robert E. Robichaud
Chief Financial Officer
Date Executed: March 12, 1998
entrenet Group, LLC
By: /s/ John Billington
-----------------------
John Billington
Chief Legal & Tax Officer
Date Executed: March 12, 1998
<PAGE>
EXHIBIT A
ADVISORY SERVICES PROVIDED BY entrenet
As a corporate advisor, entrenet will use its best efforts to assist Company in
achieving a successful Transaction. Such Transaction, as defined in paragraph
four (4) of this agreement, includes without limitation: any capital financing,
debt financing, and/or merger/acquisition transactions.
entrenet will act as corporate advisor in providing services to the management
of the Company. Services may include advice and counsel in the following areas
(all final decisions to be solely determined by the Company):
Strategic planning, corporate positioning, and business plan
development.
Selection, negotiations, and management of investment bankers,
placement agents, brokers and finders as may be required.
Financing and Merger & Acquisition strategies
Financial forecasts, private placement documentation, public
offering documents, financial meeting presentation materials
("Road Show"), and similar documentation.
Identification and selection of market makers to support the
Company's stock. Identification and selection of lenders and
other debt financing parties.
Identification and selection of equity investors.
Identification and selection of strategic partnerships,
acquisition and merger candidates.
Organizational strategy
Executive search, recruitment & placement.
entrenet will not act as a broker, but will assist in locating brokerage
services if required. entrenet will not participate in general advertising or
solicitation of the Company. Investors brought to the Company will be accredited
investors to the best of entrenet's knowledge.
entrenet may provide additional direct consulting services to the Company beyond
its role as corporate advisor (egs. business plan preparation, corporate
presentation development, financial pro-forma preparation, private-placement or
public offering administrative/contractual/financial services, interim senior
management, etc.) at the Company's request. Such additional direct consulting
services would be charged at entrenet's prevailing consulting rates at the time
of the assignment(s) or as agreed to separately in the future.
entrenet COMPENSATION.
TRANSACTIONS.
Debt. Upon the successful completion of a Debt Transaction, as defined in
paragraph 4 of this agreement, initiated at any time prior to the
termination of the contract, except for sources whose terms are modified on
Exhibit B, the fees paid to entrenet shall be two percent (2%) (payable in
cash) of the total facility. At the Company's Option in lieu of cash,
payment may be in the form of a 10% Note as described below. The Company
shall grant to entrenet a five-year warrant to purchase shares of Company's
common stock on terms and conditions as defined below, the value of the
<PAGE>
purchasable shares shall be equal to the value of all compensation paid to
entrenet under this paragraph.
Equity. Upon the successful completion of an Equity or Convertible Debt
Transaction, as defined in paragraph 4 of this agreement, initiated at any
time prior to the termination of the contract, except for the financing
sources whose terms are modified on Exhibit B, the fees paid to entrenet
shall be seven percent (7%) (payable in cash) of gross Consideration as
defined in paragraph 5 of this agreement. However, should there be a
Licensed Investment Banker who receives compensation from the Company for
the placement of the Company equity, the fees paid to entrenet shall be two
and one half percent (2 1/2%) (payable in cash) of gross Consideration as
defined in paragraph 5 of this agreement. The Company shall grant to
entrenet a five-year warrant to purchase shares of Company's common stock
on terms and conditions as defined below, the value of the purchasable
shares shall be equal to the value of all compensation paid to entrenet
under this paragraph.
Mergers & Acquisitions. Upon the successful completion of a Merger,
Acquisition or other business combination Transaction, as defined in
paragraph 4 of this agreement, initiated at any time prior to the
termination of the contract, except for the acquisition of Maverick
International Processing Services, Inc., the fees paid to entrenet shall be
five percent (5%) (payable in cash) of gross Consideration as defined in
paragraph 5 of this agreement. However, should there be a Licensed
Investment Banker who receives compensation from the Company for
facilitating the transaction, the fees paid to entrenet shall be three
percent (3%) (payable in cash) of gross Consideration as defined in
paragraph 5 of this agreement.
For the acquisition of Maverick International Processing Services, Inc.,
the fees paid to entrenet shall be two percent (2%) (payable in cash) of
gross Consideration as defined in paragraph 5 of this agreement. For this
transaction only, payment shall be in the form of a 10% Note as described
below.
For all transactions under this Mergers & Acquisition Section, the Company
shall grant to entrenet a five-year warrant to purchase shares of Company's
common stock on terms and conditions as defined below, the value of the
purchasable shares shall be equal to the value of all compensation paid to
entrenet under this paragraph.
ADVISORY SEVICES.
At signing of this engagement agreement, entrenet shall earn compensation
of $60,000 for the six-month term. Payment shall be in the form of a 10%
Note as described below. The Company shall grant to entrenet a five-year
warrant to purchase shares of Company's stock on terms and conditions as
defined below, equal to the value of all compensation paid to entrenet
under this paragraph.
EXECUTIVE PLACEMENT.
In addition to other applicable fees, if entrenet introduces an
executive-level candidate for management, who is subsequently hired by
Company during the term of this Agreement (or within two years from
introduction), then entrenet's fee shall be thirty percent (30%) (payable
in cash) of the candidate's total first year Consideration.
FORN OF WARRANTS.
The warrants shall be a five-year warrant to purchase shares of Company's
Common Stock and shall contain all standard provisions, as well as stock
split adjustments and piggyback registration provisions. The exercise price
shall be equal to the lower of market or: (i) for fees earned in
conjunction with a transaction -- the purchase price of the stock issued in
conjunction with any such
<PAGE>
transaction; (ii) for fees earned in conjunction with advisory services and
executive placement services -- $5.75 per share. Warrants related to
advisory services are due and payable immediately upon execution of this
Agreement. All other warrants are due and payable upon completion of the
corresponding event. The form of the Warrant is attached as Exhibit A-1
FORM OF NOTES PAYABLE.
Notes shall take the form of non-transferable Note with 10% simple interest
rate, with interest and principal due at maturity. Maturity shall be the
earlier of one-year (1) or upon the receipt of "Cumulative Proceeds" of
$2,000,000 from equity or convertible debt financing transactions from any
source. For this purpose of determining Cumulative Proceeds transactions on
Exhibit B are excluded from proceeds. The form of the Note is attached as
Exhibit A-2
ESCROW.
All Fees, Common Stock Warrants, or other consideration earned in
conjunction with a transaction are to be paid through the escrow account at
time of closing of the transaction.
EXPENSE REIMBURSEMENT
NON-ACCOUNTABLE EXPENSE ADVANCE.
To offset local auto travel, long-distance telephone calls, postage,
delivery, copying, faxing and other office costs, entrenet shall be
advanced a non-accountable $1500 for the six-month term. Form of payment
shall be $750 payable in cash upon signing of this agreement. The balance
of $750 is payable in cash upon completion of a Transaction, or quarterly
thereafter, whichever comes first.
PRE-APPROVED EXPENSES.
Additionally, entrenet shall be entitled to reimbursement from Company for
the following pre-approved "out-of-pocket" expenses: travel expenses,
airfare, hotel, meals, printing & binding or other expenses as shall be
mutually agreed upon.
TERM
The term of the Agreement shall be six (6) months from date of signing. The
Agreement shall automatically renew for successive six (6) month terms, unless
either party provides 60 days written notice to the other party prior to either
the termination of the applicable initial term or any renewal terms.
Upon termination of this Agreement, payments under this paragraph shall cease;
provided, however, that entrenet shall be entitled to payments for periods or
partial periods that occurred prior to the date of termination and for which
entrenet has not yet been paid. For any sources introduced to the company prior
to termination, the above entrenet compensation schedule will remain in effect
for two (2) years following the termination date of this agreement.
For any sources introduced to the company prior to termination, the above
entrenet compensation schedule will remain in effect for two (2) years following
the termination date of this agreement.
<PAGE>
EXHIBIT A-1
WARRANT
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
Number:_____ _________ Shares
WARRANT TO PURCHASE COMMON STOCK
U.S. Wireless Data, Inc, a Colorado corporation (the "Corporation"), hereby
grants to entr[THETA]net Group LLC (the "Holder") the right to purchase from the
Corporation 10,435 shares of the common stock of the Corporation (the "Warrant
Shares"), subject to the terms and conditions set forth below. This Warrant is
issued in connection with and subject to certain rights, privileges and
restrictions set forth in the Engagement Agreement entered into between the
Holder and the Corporation (the "Engagement Agreement") as of March 12, 1998.
1) Term. This Warrant may be exercised into fully paid and nonassessable shares
of the Corporation's Common Stock, at the option of the Holder, at any time and
from time to time in whole or in part during the five years ending March 11,
2003 (the "Exercise Period"), subject to certain stand-off limitations and
extensions as set forth in Section 9 (below).
2) Purchase Price. This Warrant shall be exercisable into the Corporation's
Common Stock at a price equal to the lower of _________________________ per
share, as adjusted pursuant to Section 9 below.
3) Exercise of Warrant. This Warrant may be exercised in whole or in part, but
not for less than one hundred (100) Warrant Shares (or such lesser number of
Warrant Shares as may at the time of exercise constitute the maximum number
exercisable) and in excess of 100 Warrant Shares in increments of 100 Warrant
Shares. It is exercisable at any time during the Exercise Period by the
surrender of the Warrant to the Corporation at its principal office together
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder, accompanied by the amount, in full, of the aggregate purchase
price of the Warrant Shares in immediately available funds. The Corporation
agrees that the Warrant Shares so purchased shall be issued as soon as
practicable thereafter, and that the Holder shall be deemed the record owner of
such Warrant Shares as of and from the close of business on the date on which
this Warrant shall be surrendered together with payment in fill as required
above.
<PAGE>
4) Cashless Exercise Option. Notwithstanding the foregoing, in lieu of
exercising this Warrant for cash, the Holder may elect to receive Warrant Shares
equal to the value of this Warrant (or equal to the value of the portion of the
Warrant Shares thereof being cancelled) which shall be that number of Warrant
Shares equal to the excess, if any, by which the Fair Market Value of the
aggregate Warrant Shares exceeds the aggregate Exercise Price (determined by
subtracting the Warrant Exercise Price for one Warrant Share on the exercise
date from the Fair Market Value of one Warrant Share on the exercise date
multiplied by the number of Warrant Shares exercised) on the exercise date. Fair
Market Value of one share of a Warrant Share shall mean the fair market value as
determined by the parties in good faith, taking into account publicly quoted
prices for the Corporation's Common Stock if such are available. In the event of
a cashless exercise, the underlying Warrant must be surrendered, and no new
Warrant shall be issued. 5) Fractional Interest. The Corporation shall not be
required to issue any fractional shares on the exercise of this Warrant.
6) Warrant Confers No Rights of Shareholder. The Holder shall not have any
rights as a shareholder of the Corporation with regard to the Warrant Shares
prior to actual exercise resulting in the purchase of the Warrant Shares.
7) Investment Representation. Neither this Warrant nor the Warrant Shares
issuable upon the exercise of this Warrant have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws. The Holder acknowledges by acceptance of the Warrant that (a)
he has acquired this Warrant for investment and not with a view to distribution;
and either (b) he has a pre-existing personal or business relationship with the
Corporation, or its executive officers, or by reason of his business or
financial experience be has the capacity to protect his own interests in
connection with the transaction; and (c) he is an accredited investor as that
term is defined in Regulation D promulgated under the Securities Act. The Holder
agrees that any Warrant Shares issuable upon exercise of this Warrant will be
acquired for investment and not with a view to distribution and such Warrant
Shares will not be registered under the Securities Act and applicable state
securities laws and that such Warrant Shares may have to be held indefinitely
unless they are subsequently registered or qualified under the Securities Act
and applicable state securities laws or, based on an opinion of counsel
reasonably satisfactory to the Corporation, an exemption from such registration
and qualification is available. The Holder by acceptance hereof, consents to the
placement of the following restrictive legends or similar legends, on each
certificate to be issued to the Holder by the Corporation in connection with the
issuance of such Warrant Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES
LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) There
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH
SECURITIES, OR (B) THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THE SECURITIES SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
<PAGE>
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND
THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE LAW.
8) Reservation of Shares. The Corporation agrees at all times during the
Exercise Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon exercise of this Warrant, a sufficient number of
shares of its common stock to provide for the exercise of the rights represented
hereby.
9) Adjustment for Re-Classification of Capital Stock. If the Corporation at any
time during the Exercise Period shall, by subdivision, combination or
re-classification of securities, change any of the securities to which purchase
rights under this Warrant exist under the same or different number of securities
of any class or classes, this Warrant shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares immediately prior to
such subdivision, combination, or reclassification. If shares of the
Corporation's common stock are subdivided into a greater number of shares of
common stock, the purchase price for the Warrant Shares upon exercise of this
Warrant shall be proportionately reduced and the Warrant Shares shall be
proportionately increased; and conversely, if shares of the Corporation's common
stock are combined into a smaller number of common stock shares, the price shall
he proportionately increased, and the Warrant Shares shall be proportionately
decreased.
10) The Corporation's Obligation to Register. If the Corporation at any time
proposes to initiate a registration of its securities under the Securities Act
of 1933, as amended (the "Securities Act") and thereafter to register any of its
securities under the Securities Act (other than a registration effected solely
to implement an employee benefit plan, a transaction to which Rule 145 of the
Commission is applicable or any other form or type of registration in which
Registrable Securities cannot be included pursuant to Commission rule or
practice), it will give written notice to Holder of this Warrant of its
intention to do so. If such registration is proposed to be on a form which
permits inclusion of the Stock underlying the exercise of this Warrant, upon the
written request from any Holder within 20 days after transmittal by the
Corporation to the Holder of such notice, the Corporation will, subject to the
limits contained in this Section, use its best efforts to cause all such Stock
underlying the exercise of this Warrant to be registered under the Securities
Act and qualified for sale under any relevant state blue sky law, all to the
extent requisite to permit such sale or other disposition by Holder of the Stock
so registered. Notwithstanding any other provision of this Section, if the
underwriter managing such registration notifies the Holder in writing that
market or economic conditions limit the amount of securities which may
reasonably be expected to be sold, Holder will at a minimum be allowed to
register their Stock pro rata based on the ratio of the total number of shares
of Stock to be offered for sale by the Corporation to the total shares
outstanding just prior to the offering.
11) Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Corporation of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any Warrant or stock certificate, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Corporation of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Corporation will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
this Warrant or stock certificate.
12) Assignment. The Holder of this Warrant shall not assign or transfer this
Warrant without the consent of the Corporation; provided however, that the
Holder, if a limited liability company, may assign this Warrant to its Members
without the consent of the Corporation. The Holder of this Warrant shall not
assign his Warrant unless such assignment is in compliance with applicable state
and federal securities laws. In giving its consent to an assignment, the
Corporation may request an opinion of counsel reasonably acceptable to it that
such transfer is in compliance with all applicable state and federal securities
laws.
13) Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts between
California residents entered into and to be performed entirely within the State
of California.
14) Amendments. Any term of this Warrant may be amended with the written consent
of the Company and the holders of warrants representing not less than a majority
in interest (50% +) of the shares of Common Stock issuable and issued upon
exercise of all Series A Warrants.
15) Notices. Unless otherwise provided, any notice required or permitted under
this Warrant shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified by hand or professional
courier service or five (5) days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party in the Subscription
Agreement, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
16) Attorneys' Fees. If any action at law or in equity is necessary to enforce
or interpret the terms of this Warrant, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
Executed as of _________________, 199___.
By: __________________________
Evon Kelly
Chief Executive Officer
The name and address of the registered Holder of this Note is:
entrenet Group LLC
1304 Southpoint Blvd., Suite 220
Petaluma, California 94954
Fax 707-781-2514
Email [email protected]
<PAGE>
NOTICE OF EXERCISE
To: ______________________
1. The undersigned hereby elects to purchase ______ shares of Common Stock of
____________________________, pursuant to the terms of the attached Warrant and
tenders herewith payment of the purchase price for such shares in full.
2. In exercising this Warrant, the undersigned hereby confirms and acknowledges
that the shares of Common Stock are being acquired solely for the account of the
undersigned and not as a nominee for any other party, or for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
shares of Common Stock except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws.
3. Please issue a certificate representing said shares of Common Stock in the
name of the undersigned:
4. Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned:
Dated: ___________________________ HOLDER
By: _____________________________
_________________________________
(Print Name & Title)
<PAGE>
Exhibit A-2
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING THIS
NOTE AND/OR SUCH SECURITIES, OR THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THE NOTE AND/OR SUCH SECURITIES SATISFACTORY TO THE CORPORATION
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND THE
QUALIFICATION REQUIREMENTS UNDER STATE LAW.
U.S. WIRELESS DATA, INC.
10%, UNSECURED and NONASSIGNABLE,
PROMISSORY NOTE
DUE ______________
$-------------- ---------------
1) Obligation. FOR VALUE RECEIVED, U.S. Wireless Data, Inc., a Colorado
corporation (hereinafter called the "Corporation"), hereby promises to pay
entr[THETA]net Group LLC (hereinafter called the "Holder") on the earlier of
________________ or upon a "Financing Event", (the "Payment Date") the principal
sum of _________________ Dollars ($_________) and interest on such principal sum
from the date hereof at the annual rate of ten percent (10%) per annum (based on
a 360-day year, 30-day month) until payment in full of principal. A Financing
Event shall have been considered to have occurred upon the Corporation having
received a gross proceeds of $2,000,000, cumulative from the date of this note,
from the sale of the Corporations Equity Securities, instruments convertible
into Equity and the sale of the Stock Repurchase Rights.
2) Medium of Payment. The principal and interest on this promissory note (this
"Note") are payable in lawful money of the United States of America at the
Holder's address set forth below, or at such other address as the Holder hereof
may from time to time designate to the Corporation in writing.
3) Prepayment. The Corporation may prepay this Note in whole or in part at any
time prior to due date of this Note.
4) Default.
a. Events of Default. Without notice, except as expressly provided
herein, the following will be deemed to be events of default:
i. Covenants. Failure on the part of the Corporation to observe or
perform any of
<PAGE>
the covenants or agreements on the part of the Corporation contained in this
Note after (A) written notice of such failure, requiring the Corporation to
remedy the same, has been given to the Corporation by the Holder, and (B) such
failure has continued without remedy for a period of thirty days; or
ii. Receivership. The entry of a decree or order of a court having
jurisdiction in the matter for the appointment of a receiver and such
decree or order has continued in force undischarged or unstayed for a
period of one hundred twenty days; or
iii. Bankruptcy. The Corporation institutes proceedings to be adjudged
a voluntary bankrupt, or consents to the filing of bankruptcy proceedings
against it, or files a petition or answer or consent seeking reorganization
under the National Bankruptcy Act or any other similar or applicable
federal or state law, or consents to the filing of any such petition, or
consents to the appointment of a receiver, liquidator, or trustee in
bankruptcy, or makes a general assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they become
due; or
iv. Attachment. Any judgment, writ, or warrant of attachment or of any
similar process in an amount in excess of $100,000 is entered or filed
against the Corporation or against any of its property or assets and
remains unpaid, unvacated, unbonded or unstayed for a period of 120 days.
b. Acceleration of Maturity. If any one or more of the foregoing events of
default occurs, the Holder, by notice in writing to the Corporation, may declare
the principal of and all accrued interest on this Note then outstanding
immediately due and payable without further notice or demand; provided, however,
that at any time after such declaration the same may be rescinded and such event
of default may be waived by the Holder by written notice to the Corporation.
c. Payment on Acceleration. Upon any such acceleration of the maturity of
this Note, the Corporation will within 90 days pay to the Holder the entire
principal balance unpaid on this Note, together with accrued interest thereon to
the date of such payment.
d. Failure to Pay. If the Corporation fails to make payment to the Holder
as provided in the preceding Subsection (Payment on Acceleration), the Holder
will be entitled and empowered to take such measures as may be appropriate to
enforce the Corporation's obligations under this Note, by judicial proceedings
or otherwise. If suit is brought to enforce payment of this Note, the
Corporation promises to pay reasonable attorneys' fees to be fixed by the Court.
5) No Assignment. This Note is unsecured, nontransferable and nonassignable.
Holder may not sell, assign, pledge, hypothecate or otherwise transfer this Note
6) Notices. Any communication or notices may be delivered or mailed to the
offices of the Corporation at its principal place of business and to the Holder
at the Holder's address set forth below, or to such other addresses as the
Corporation, or Holder, may designate in writing from time to time.
<PAGE>
7) Applicable Law. This Note shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts between
California residents entered into and so be performed entirely within the State
of California.
Executed as of ______________________
By: _______________________________
Evon Kelly
Chief Executive Officer
The name and address of the registered Holder of this Note is:
entrenet Group LLC
1304 Southpoint Blvd., Suite 220
Petaluma, California 94954
Fax 707-781-2514
Email [email protected]
<PAGE>
EXHIBIT B
EXCLUSION OF FINANCING SOURCES
Transactions from the following sources shall be excluded from the entrenet
Compensation section of Exhibit A.
Sale of options on common stock owned of record by Tillicombe International LDC.
Any investments by Officers or Directors and proceeds from the exercise of the
Company's Stock Option Plan.
GTE Finance for equipment financing.
Any short term Bridge Loans from Liviakis Financial Communications,Inc, John
Liviakis or Robert Prag.
Compensation to entrenet for Transactions from the following sources shall be
modified from the entrenet Compensation section of Exhibit A as follows:
entrenet's compensation for equity or convertible loan
Investments by Liviakis Financial Communications,Inc, John
Liviakis or Robert Prag, will be reduced from fee of seven percent
(7%) to a fee of two and one half percent (2.5%).
SETTLEMENT AND MUTUAL RELEASE AGREEMENT
PARTIES
This Settlement and Mutual Release Agreement ("the Agreement") is
entered into on April 9, 1998, by and among the following parties:
1. U.S. WIRELESS DATA, INC., a Colorado corporation (the
"Company"); and
2. CHARLES DELLE DONNE (hereafter referred to as
"Investor")
3. KATHLEEN DELLE DONNE;
4. SCOTT DELLE DONNE;
5. CRAIG DELLE DONNE, (parties 2,3,4 and 5 are referred to
collectively as "the Delle Donnes")
RECITALS
A. The Investor received in exchange for full consideration a
convertible promissory note with the Company in the form as set
forth in Exhibit A, attached hereto and incorporated herein (the
"Note")
B. The Investor, on May 10, 1997 transferred title in the Note and
the shares and other benefits due upon exercise of the right to
convert the Note, to the following in the following percentages;
Charles Delle Donne and Kathleen Delle Donne husband and wife, as
community property, 53-1/3%, Scott Delle Donne 23-1/3% and Craig
Delle Donne 23-1/3%.
C. There arose a dispute between the Company and the Delle Donnes
regarding the nature of the securities to be issued to the
Investors upon the exercise of their conversion rights.
D. Without admitting liability, each of the parties desires to
resolve the disputes as among the Company and the Delle Donnes
pursuant to the terms and conditions set forth in this Agreement.
NOW THEREFORE, in accordance with and subject to the terms
<PAGE>
and conditions and in consideration of the promises and covenants contained
herein and the recitals set forth above, the parties agree as follows:
TERMS OF SETTLEMENT AND RELEASE
1. PAYMENT
a. Issuance of Restricted Stock. Subject to the terms
herein, the Company shall issue to the Delle Donnes,
upon surrender of the original Note, the following
shares of restricted common stock of the Company (the
"Restricted Stock"): Charles and Kathleen Delle Donne
husband and wife, as community property -88,000
shares, Scott Delle Donne- 38,500 shares, Craig Delle
Donne-38,500 shares
b. Date of Issuance and Delivery of Restricted Stock.
The Company shall issue and deliver the Restricted
Stock to the Delle Donnes within five (5) business
days of the execution of this Agreement.
2. ISSUANCE AND TRANSFERABILITY OF THE RESTRICTED STOCK. The
Restricted Stock so issued in conversion of each Note shall
be resalable, pursuant to Rule 144, on and after May 7,
1998.
In connection with the issuance of the Restricted Stock to the
Delle Donnes there shall become effective and filed with
American Security & Transfer & Trust of Lakewood Colorado
(Transfer Agent) within one (1) business day of the date this
Agreement is signed, the
following documents:
a. For Issuance:
(i) Board of Directors resolution authorizing the
execution of this Agreement and authorizing the
issuance of the Restricted Stock in the form attached
hereto as Exhibit B.
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<PAGE>
(ii) Instructions to the Transfer Agent from the
Company ordering the issuance of the Restricted Stock
to each of the Delle Donnes in the amount set forth
above.
(iii) Such other directions, instructions,
authorizations or opinions as may be required for the
immediate issuance of the Restricted Stock pursuant
to this Agreement.
In connection with the resale of the restricted shares by the
Delle Donnes there shall become effective and filed with the
transfer agent upon the request of the transfer agent, the
following documents:
b. For Resale:
Such directions, instructions, authorizations or
opinions as may be required for the resale of the
Restricted Stock per this Agreement.
3. GUARANTEE AND PUT.
(a) Guarantee. In addition to the issuance of the
Restricted Stock, in the event that any of the
Delle Donnes sells its or his respective shares of
the Restricted Stock during the one year period
from and including May 7, 1998 to May 7, 1999 for
a price of less than $4.29 a share, the Company
shall within thirty (30) days of receipt of
written notice by a selling Delle Donne and a copy
of the confirmation of sale concerning such sale,
transfer to the Delle Donne who has sold its or
his Restricted Stock during said one year period,
an amount equal to the difference between $4.29 a
share and the gross sales price for each such
sale.
(b) Put. If, on May 3, 1999, or, if the market on
which the Restricted Stock is traded is closed on
that date, on the next trading day, the opening
price for the stock of the Company is below $4.29
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<PAGE>
a share, each of the Delle Donnes shall have the
option, for a five day period thereafter, ending
at midnight, Pacific Time, on the fifth day to put
their remaining Restricted Stock back to the
Company for a price of $4.29 a share. If one or
more of the Delle Donnes exercises the put, the
Company shall have the option, to be exercised
within three days of receipt of the put, to
require by written notice from the Company to the
selling Delle Donne(s) such selling Delle Donne(s)
to sell the Restricted Stock on the open market
and shall then be obligated to pay the selling
Delle Donne(s) the difference between $4.29 a
share and the sales price, in cash delivered to
the selling Delle Donne(s) no later than fifteen
(15) days after the respective sale. If one or more
of the Delle Donnes exercises the put, and the
Company does not exercise its option to the selling
Delle Donne(s) to sell the Restricted Stock into the
open market, the Company shall pay such selling Delle
Donne(s) $4.29 per share in cash within fifteen (15)
days from the date of the put.
4. REPRESENTATIONS AND WARRANTIES.
As a condition to the settlement, the Company represents and warrants
as follows:
a. The Company has all requisite corporate power and
authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate
action on behalf of the Company. The Company has
applied for registration and qualification as a foreign
corporation with the California Secretary of State,
qualified to do business in California.
b. This Agreement when executed and delivered by the Company will
constitute a legal, valid and binding obligation of the
Company enforceable against the
4
<PAGE>
Company in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws effecting
the enforcement of creditors' rights.
c. The undersigned individuals signing this Agreement on behalf
of the Company represent and warrant that they are duly
authorized to execute and deliver this instrument on its
behalf and have the right to execute this Agreement.
d. The Company is authorized to issue the Restricted Stock as set
forth in this Agreement.
e. The Company shall comply with the requests of the Transfer
Agent or any other transfer agent of the Company, to
effectuate the transfer and sale of the Restricted Stock.
f. The Restricted Stock issued pursuant to this Agreement
shall be saleable under Rule 144 one year from the date of the
Notes which made up the underlying consideration for the
investment; that is May 7, 1998.
g. The Company is currently in compliance with and shall remain
in compliance with all rules and conditions of federal and
State securities, corporate or other laws, including but not
limited to Rule 144, which are required to or are a
prerequisite for the issuance of the opinion letter by the
Company's legal counsel, to allow for the sale of the
Restricted Stock.
h. The securities issued to John M. Liviakis and Robert B. Prag
and Liviakis Financial Communications, Inc., as set forth in
Exhibit C are subject to a Lock-up Agreement and may not be
sold prior to August 1, 1998
even if registered.
i. The Restricted Shares when issued and delivered will be
validly authorized and issued and will be fully paid and
non-assessable and no shareholder of the Company will have any
preemptive right of subscription or purchase thereof.
5
<PAGE>
j. It shall be a condition of any merger, consolidation,
sale of all or substantially all of the Company (either
by way of stock transaction or of all or substantially
all assets of the Company other than in the ordinary
course of business), acquisition or other
reorganization or recapitalization of the Company
occurring prior to the date the Restricted Stock is
actually issued to the Delle Donnes hereunder, that any
agreements or other consummating documents entered or
to be entered into or filed or to be filed by the
Company with the Colorado Secretary of State in
connection with or to effect any such transaction shall
include provisions that provide for treatment of the
Delle Donnes in any such transaction as if the
Restricted Stock had been issued to such Parties as of
the time immediately preceding the consummation or
effective time of any such transaction.
k. To the best of the Company's knowledge, it has filed all
reports required to be filed by it pursuant to the Securities
Exchange Act of 1934, as amended, through the date of this
Agreement.
l. If and whenever, prior to the full performance of the
guarantee and put granted in Section 3 above, the Company
shall effect a subdivision or consolidation of shares or other
capital reorganization or readjustment, (other than those
described in subsection 4(m), below) the payment of a stock
dividend (except for dividends payable on the shares of the
Company's Series A Preferred Stock outstanding on the date of
this Agreement), or other increase or reduction of the number
of shares of the Company's stock outstanding without receiving
compensation thereof in money, services, or property, the
number of shares of Restricted Stock then remaining to be sold
by the Delle Donnes shall (a) in the event of an increase in
the number of outstanding shares, be proportionately
increased, and the $4.29 amount of the said guarantee and put
shall be proportionally reduced; and (b)in the event of a
reduction in the number of outstanding shares, be
proportionally reduced, and the amount of
6
<PAGE>
the said guarantee and put shall be proportionately increased.
m. It shall be a condition of any merger, consolidation,
sale of all or substantially all the Company (either by
way of a stock transaction or of all or substantially
all assets of the Company other than in the ordinary
course), acquisition or other reorganization prior to
the full performance of said guarantee and put, that
the surviving Company shall provide to the Delle
Donnes, a guarantee and put sufficient to provide them
with the same minimum cash return for sales of the
Delle Donnes interest in the surviving entity as they
would have received if they had sold the Restricted
Stock prior to the said merger, sale, acquisition or
other reorganization, if such right is requested by the
Delle Donnes.
n. The Company covenants that it will not, by voluntary
action, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement, but
it will at all times in good faith assist in carrying
out all those terms and take all action necessary or
appropriate to protect the rights of the Delle Donnes
against dilution or other impairment and take all
necessary action to effect the resale of the Restricted
Stock by the Delle Donnes at such time or times as the
Delle Donnes desire to sell such Restricted Stock,
whether or not any such sale may occur in or out of the
period of the said guarantee and put.
Investor, where appropriate and the Delle Donnes, individually, where
appropriate represent and warrant to the Company that (both at the time of
execution of this agreement and as of the date upon which Investor first
purchased the Notes being converted into shares of the Company's no par value
Common Stock (the "Shares") pursuant to the terms of this agreement):
a. Investor or the Delle Donnes either: (1) had or have a
pre-existing personal or business relationship with the
Company; and/or (2) either alone or through a purchaser
representative of the Delle Donnes choosing (who is not
affiliated in any way with the Company) are
7
<PAGE>
sophisticated in business and financial matters and by
reason of either such pre-existing relationship and/or
their knowledge and experience in such matters, they
have the capacity to evaluate the merits and risks of
the prospective investment in the Shares.
b. To the extent Investor or the Delle Donnes deemed necessary,
they have consulted with their attorney, accountant or other
business and/or financial advisors regarding all aspects of
the proposed investment in the Company.
c. Investor was and the Delle Donnes are the sole parties in
interest as to the Shares being acquired by them and are
acquiring the Shares for their own account, for investment
only and not with view toward the resale or distribution
thereof, except as permitted by law or rule.
d. The Delle Donnes understand that the Shares are not
registered under the Securities Act of 1933, (the "1933
Act") and the Shares will be "restricted Securities" as
defined under Rule 144 promulgated under the 1933 Act.
The Shares may not be resold unless registered under
the 1933 Act or an exemption from such registration is
available. The Delle Donnes agree that they will not
attempt to dispose of the Shares except in compliance
with the 1933 Act.
e. The Delle Donnes understand that the Shares will be imprinted
with a legend in substantially the following form:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
STATE OR FOREIGN LAW. THE SHARES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (i) THEY SHALL
HAVE BEEN REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
AND FOREIGN SECURITIES ACT OR OTHER LAW OR (ii) AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE AND THE CORPORATION
SHALL HAVE BEEN FURNISHED
8
<PAGE>
WITH AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION,
THAT REGISTRATION OR OTHER COMPLIANCE IS NOT REQUIRED UNDER
ANY OF SUCH ACTS OR LAWS.
f. At the time of any resale of Shares, the selling Delle Donnes
will return the appropriate number of Shares sold to the
Transfer Agent.
g. The Delle Donnes understand and agree that the Company will
lodge stop-transfer instructions with its transfer agent to
prohibit transfer of the Shares except in strict compliance
with the provisions of this agreement.
h. The Delle Donnes understand and agree that the Shares
do not have any "registration" or other rights
entitling them to have the Shares registered under the
1933 Act and that absent registration, the most likely
method by which the Shares may be resold in the public
market absent registration is under Rule 144
promulgated by the SEC under the 1933 Act, which will
become available at the earliest, one year from the
date the Company received consideration, which was May
7, 1997, for the Note. The Delle Donnes understand and
agree that there is no guarantee that Rule 144 will be
available for resales of the Shares and that if Rule
144 is not available to them for any reason, they may
not be able to resell the Shares in the public market
at all.
The Delle Donnes understand that the Company files reports
and other information concerning the Company, its business
and financial affairs with the United States Securities and
Exchange Commission (the "SEC") that are publicly available.
To the extent the Delle Donnes deemed necessary, they have
examined such reports and information as are available
through the SEC, including, without limitation: the
Company's Annual Report on Form 10-KSB for te fiscal year
ended June 30, 1997, as amended to date, the Company's
Quarterly Reports on Form 10-QSB for the fiscal quarters
ended September 30, 1997 and December 31,
<PAGE>
1997, as amended to date; the Company's Definitive Proxy
Statement for its Annual Meeting of Shareholders held
February 6 ,1998 and its Current Report on Form 8- K
Reporting an Event of November 14, 1997, as filed with the
SEC on or about December 17, 1997.
j. The Delle Donnes fully understand that an investment in
the Company's securities (including the Shares)
involves a high degree of risk and could result in the
entire loss of the investment. The Delle Donnes have
adequate means of providing for their current needs and
possible financial contingencies, and have no need, and
anticipate no need in the foreseeable future, to sell
the Shares for an indefinite period of time and have a
sufficient net worth to sustain a loss of the entire
investment in the Shares in the event such loss should
occur.
5. FUTURE CONDUCT.
(a) The Company shall comply with all federal and state
securities, corporate and other laws which are required to allow for the sale of
the Restricted Stock under Rule 144.
(b) The Company shall use its best efforts to secure, within
two(2) business days of any request from the Delle Donnes or any of them, their
brokers or the transfer agent, the necessary opinion from the Company's Counsel
that the Restricted Stock is eligible for sale under Rule 144, should there be
no current opinion in existence to that effect.
(c) The Company acknowledges and agrees that any violation of
Section 1,2,3,4, and of this Section 5 hereof or the inability of the Investors
to resell the Restricted Stock pursuant to Rule 144 will cause damage to the
Investors and agree that in the event of such violation, breach or inability,
whether or not caused by the Company or its officers, directors, employees,
agents, attorney, affiliates or transfer agents, this Agreement shall be null
and void, at the option of the Delle Donnes, except for the provisions of 7,8 or
10 below.
6. MUTUAL RELEASE. The Company for itself and its partners,
shareholders, directors, officers, employees, assigns,
9
<PAGE>
predecessors, successors, representatives, affiliates, attorneys, heirs,
legatees and agents on the one hand, and the Delle Donnes, individually for
themselves and their employees, assigns, predecessors, successors,
representatives affiliates, attorneys, heirs, legatees and agents on the other
hand, except as provided in Sections 1,2,3,4,5 and 7 of this Agreement, each
irrevocably and unconditionally releases the other from any and all claims,
demands, and causes of action of any kind whatsoever (collectively referred to
as "Claims"), whether known or unknown, which it/he/she now has or ever has had,
from the beginning of time to the date of this Agreement and Release, which
arise out of the offer and sale of the said Note to the Investor.
Each party understands that it/he/she may have Claims of which the
party has no knowledge or suspicion; nevertheless, the party agrees that the
release contained in this Section 6 extends to all Claims whether or not known,
claimed or suspected by the party except the obligations of Sections 1,2,3,4,5
and 7 hereof. As to such matter, except as provided in Section 1,2,3,4,5 and 7
of this Agreement, each party expressly waives the benefits of Section 1542 of
the California Civil Code, which provides:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must
have materially affected his settlement with the debtor."
Each party acknowledges that the party knows and understands the
contents of this Agreement and Release, that the party has executed it
voluntarily and without coercion of any kind, and that the party understands
that after signing this Agreement and Release except as provided in paragraph 7
of this Agreement the party cannot proceed against any person or entity
mentioned in it with respect to or on account of any of the matters referred to
in it.
7. LIMITATION ON RELEASE. The Parties agree that the release set forth
in Section 6 of this Agreement shall not apply to claims that the Delle Donnes
may have against the Company and their partners, shareholders, directors,
officers, employees, assigns, predecessors, successors, representatives
affiliates, attorneys, heirs, legatees and agents arising from or related to
10
<PAGE>
fraud on the marketplace or market manipulation with regard to the Note or their
investment in the Company or for any claims against the Company and its
partners, shareholders, directors, officers, employees, assigns, predecessors,
successors, representatives, affiliates, attorneys, heirs, legatees and agents
if the Company fails to perform its obligations under this Agreement or breaches
the representations or warranties set forth in this Agreement.
8. TOLLING. The Parties agree to toll and suspend the running or accrual of
time by which is determined any defense which they may have individually or
collectively against the other(s) by virtue of any statute of limitations,
laches or any similar defense, to and including June 7, 1999.
Nothing in this Agreement shall toll or suspend any statute of
limitations beyond the permissible periods set forth in California Code of Civil
Procedure Section 360.5 or any other applicable law or rule; provided, however,
that should the period of tolling or suspension of statutes of limitations
described in this Agreement be effective for a period or periods exceeding those
permitted by any said Section 360.5 or other applicable law or rule, such period
or periods shall be reduced to the period or periods permitted by said Section
or applicable law or rule.
9. NO CLAIMS. Each party affirms that the party has not initiated any
claim, charge, action, or legal proceeding of any kind against any party
he/she/it released with respect to the Claims released in this Agreement.
10. ATTORNEYS FEES. The parties agree that the prevailing party in any
action or proceeding henceforth between the parties, in regard to any action to
enforce or interpret this Agreement, shall be entitled to reasonable attorneys'
fees and costs in addition to all other relief to which they may be entitled.
11. TAX LIABILITY. Except as otherwise required by applicable law, the
Investors agree that they alone will be responsible for all taxes applicable to
the securities issued under this Agreement.
12. NO ADMISSION OF LIABILITY. Each party acknowledges that this Agreement
is not an admission of guilt or liability.
11
<PAGE>
13. WARRANTIES. Each party warrants and represents to each of the other
parties that the party has full power, legal capacity and authority to enter
into, perform and comply with the terms of this Agreement. Each party further
warrants and represents to each of the other parties that such party has not by
agreement, operation of law or otherwise, heretofore assigned, transferred,
hypothecated, or purposed to assign, transfer or hypothecate to any person or
party, the whole or any part of portion of such party's clams which constitute
matters released pursuant to this Agreement. Each party warrants and represents
to each of the other parties that such party is the sole party who has the
right, title and interest in or to the matters such party is releasing. Each
party agrees to indemnify, defend and hold harmless, including for attorneys'
fees and costs, the other party from and against any claim threatened or
instituted against any other party for breach by such party of the
representations and warranties set forth in this paragraph.
14. CONFIDENTIALITY. Each party agrees that the terms of this Agreement are
confidential and further agrees, except as required by law or to perform the
obligations hereunder, not to disclose its terms or the fact of its execution to
any other person or entity. This non-disclosure provision does not apply to the
party's immediate family, employer, stockbroker, attorney, officers, directors,
transfer agents or tax advisor.
15. VALIDITY. If any portion of this Agreement shall be held invalid by a
court of competent jurisdiction, the validity of the remainder of this Agreement
shall not be affected.
16. INTEGRATION. This Agreement supersedes any previous understandings,
agreements or correspondence of the parties on this subject and is binding on
the parties, their heirs, executors, administrators, and successors in interest.
17. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties to this Agreement and their respective
heirs, executors, administrators, legal representatives, successors, assigns,
employees, partners, agents and attorneys.
12
<PAGE>
21. COUNTERPARTS. This Agreement may be executed in multiple originals or
counterparts, in which event each multiple original or counterpart shall be
deemed to constitute an original of this Agreement as to any persons or entities
whose original signatures or that of their representatives, appear thereon.
22. MUTUALLY NEGOTIATED AGREEMENT. The terms of this Agreement were freely
negotiated by the parties and neither this Agreement nor any of its provisions
shall be interpreted for or against any party on the basis of the party that
drafted the Agreement or the provision at issue. Each party has received the
advice of their counsel about this Agreement.
This Space Intentionally
Left Blank
13
<PAGE>
In witness whereof, the undersigned, and each of them, state that they
have read and understand the terms of the foregoing Agreement, that they enter
into the Agreement freely and without coercion or under duress, and have
executed this Agreement on the date and year first above written.
U.S. WIRELESS DATA, INC.
a Colorado Corporation
Dated:4/9/98 By: /s/ Evon Kelly
------------------
EVON KELLY, Chief Executive Officer
Dated:4/9/98 By: /s/ Robert E. Robichaud
---------------------------
ROBERT ROBICHAUD, Chief
Financial Officer and Secretary
Date: 4/9/98 /s/ Charles Delle Donne
-----------------------
CHARLES DELLE DONNE
Dated: 4/9/98 /s/ Kathleen Delle Donne
------------------------
KATHLEEN DELLE DONNE
Dated: 4/9/98 /s/ Scott Delle Donne
---------------------
SCOTT DELLE DONNE
Dated:4/9/98 /s/ Craig Delle Donne
---------------------
CRAIG DELLE DONNE
14
<PAGE>
Reviewed and Approved
SHEARER, LANCTOT & NOELKE LLP
By: /s/ Carl B. Noelke
------------------
Counsel for the Delle Donnes
IRELAND, STAPLETON, PRYOR & PASCOE, P.C.
BY: /s/ Jeffrey M. Brenman
----------------------
Counsel for the Company
15
SETTLEMENT AND MUTUAL RELEASE AGREEMENT
PARTIES
This Settlement and Mutual Release Agreement ("the Agreement") is
entered into on April 7, 1998, by and among the following parties:
1. U.S WIRELESS DATA, INC., a Colorado corporation (the "Company"); and
2. PAUL AND CORINNE RIVAS;
3. EVELYN AND WILLIAM SCHOEPP;
4. GREGORY SCHOEPP;
5. DR. RAPLH PENDELTON;
6. BARBARA PERRY;
7. NORMA RIVAS;
8. JOSEPH SCHOEPP (parties 2-8 collectively referred to as the "Investors").
RECITALS
A. The Investors received in exchange for full consideration convertible
promissory notes with the Company in the form as set forth in Exhibit A,
attached hereto and incorporated herein (the "Notes")
B. There arose a dispute between the Company and the Investors regarding the
nature of the securities to be issued to the Investors upon the exercise of
their conversion rights.
C. Without admitting liability, each of the parties desires to resolve the
disputes as among the Company and the Investors pursuant to the terms and
conditions set forth in this Agreement.
NOW THEREFORE, in accordance with and subject to the terms and
conditions and in consideration of the promises and covenants contained herein
and the recitals set forth above, the parties agree as follows:
TERMS OF SETTLEMENT AND RELEASE
1. PAYMENT.
a. Issuance of Restricted Stock. Subject to the terms herein, the Company shall
issue to the Investors, upon return of the original Notes held by the Investors
that number of shares of restricted stock of the Company (the "Restricted
Stock") as is set forth on Exhibit B, attached hereto and incorporated herein.
b. Date of Issuance of Restricted Stock. The Company shall issue the Restricted
Stock to the Investors, c/o their counsel, P. Jason Silverstein, 744 Montgomery
Street, Fifth Floor, San Francisco, California 94111 no later than April 10,
1998.
<PAGE>
2. ISSUANCE AND TRANSFERABILITY OF THE RESTRICTED STOCK. The Restricted
Stock so issued in conversion of each Note shall be resalable pursuant to Rule
144 promulgated under the Securities Act of 1933 ("Rule 144") one (1) year after
the date consideration was paid for such Note. In connection with the issuance
of the Restricted Shares to the Investors there shall become effective and filed
with American Security & Transfer & Trust of Lakewood Colorado (Transfer Agent)
within one business day of the date this Agreement is signed, the following
documents:
a. For Issuance:
(i) Board of Directors resolution authorizing the issuance of
the Restricted Stock in the form attached hereto as Exhibit C.
(ii) Instructions to the Transfer Agent from the Company
ordering the issuance of the Restricted Stock to the Investors in the amounts
set forth in Exhibit B.
(iii) Such other directions, instructions, authorizations or
opinions as may be required for issuance of the Restricted Stock pursuant to
this Agreement.
In connection with the sale of the Restricted Shares by the
Investors there shall become effective and filed with American Security &
Transfer & Trust of Lakewood Colorado (Transfer Agent) in a timely manner upon
request of the Transfer Agent, the following documents:
b. For Resale:
Such directions, instructions, authorizations or opinions as
may be required for the resale of the Restricted Stock per this Agreement.
3. GUARANTEE AND PUT.
This Section 3 shall apply to all of the Notes and the Restricted Stock issued
to the Investors under the Notes with the exception of the Note payable to
Evelyn Schoepp in the amount of $16,825 and the 18,507 shares of Restricted
Stock issued thereunder.
a. Guarantee. In addition to the issuance of the Restricted Stock, in the event
that any of the Investors sells shares of the Restricted Stock during the one
year period from the date of the lapse of the restrictions under Rule 144 for a
price of less than $3 a share, the Company shall within thirty (30) days of
receipt of written notice from the Investor and a copy of the confirmation of
sale confirming such sale, transfer to the Investor, in cash, an amount equal to
the difference between $3 a share and the sales price.
<PAGE>
b. Put. If, on the date that is one year from the date the restriction on the
respective Restricted Stock lapses, or, if the market on which the Restricted
Stock is traded is closed on that date, on the next trading day, the opening
price for the stock of the Company is below $3 a share, each Investor shall have
the option, for a five day period, thereafter, ending on midnight Pacific Time
on the fifth day, to put their remaining Restricted Stock back to the Company
for a price of $3 a share. If an Investor exercises the put, the Company shall
have the option, to be exercised within three days of receipt of the put, to
require the Investor to sell the Restricted Stock on the open market and shall
then be obligated to pay the Investor the difference between $3 a share and the
sales price. If an Investor exercises the put, and the Company does not exercise
its option to require the Investor to sell the Restricted Stock into the open
market, the Company shall pay the Investor, in cash, under this paragraph within
fifteen (15) days of the put. If an Investor exercises the put, and the Company
exercises its option to require the Investor to sell the Restricted Stock into
the open market, the Company shall pay the Investor, in cash, the amount to be
paid under this paragraph within fifteen (15) days of receipt of written notice
from the Investor and a copy of the confirmation of sale confirming such sale.
4. REPRESENTATIONS AND WARRANTIES.
As a condition to the settlement, the Company represents and warrants
as follows:
a. The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on behalf of the Company. The Company is registered with the
California Secretary of State as a foreign corporation.
b. This Agreement when executed and delivered by the Company will
constitute legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws effecting the enforcement of creditor's rights.
c. The undersigned individuals signing this Agreement on behalf of the
Company represent and warrant that they are duly authorized to execute and
deliver this instrument on its behalf and have the right to execute this
Agreement.
d. The Company is authorized to issue the Restricted Stock as set forth
in this Agreement.
e. The Company shall comply with the requests of the Transfer Agent to
effectuate the transfer and sale of the Restricted Stock.
f. The Restricted Stock issued pursuant to this settlement shall be
saleable under Rule 144 one year from the date of the payment of the underlying
consideration for the investment, such dates upon which the restrictions on sale
will lapse are set forth on Exhibit D, attached hereto and incorporated herein.
<PAGE>
g. The Company is currently in compliance with and shall remain
in compliance with all rules and conditions of federal and State securities,
corporate or other law, including but not limited to Rule 144, which are
required to or are a prerequisite for the issuance of the opinion letter by the
Company's legal counsel, to allow for the sale of the Restricted Stock.
h. The securities issued to John M. Liviakis and Robert B. Prag and
Liviakis Financial Communications, Inc., as set forth in Exhibit E are subject
to a Lock-up Agreement and may not be sold prior to August 1, 1998 even if
registered.
i. The Restricted Shares when issued and delivered will be validly
authorized and issued and will be fully paid and non-assessable and no
shareholder of the Company will have any preemptive right of subscription or
purchase thereof.
j. It shall be a condition of any merger, consolidation, sale of all or
substantially all of the Company (either by way of stock transaction or of all
or substantially all assets of the Company other than in the ordinary course of
business), acquisition or other reorganization or recapitalization of the
Company occurring prior to the date the Restricted Stock is actually issued to
the Investors hereunder, that any agreements or other consummating documents
entered or to be entered into or filed or to be filed by the Company with the
Colorado Secretary of State in connection with or to effect any such transaction
shall include provisions that provide for treatment of the Investors in any such
transaction as if the Restricted Stock had been issued to such Parties as of the
time immediately preceding the consummation or effective time of any such
transaction.
k. To the best of the Company's knowledge, it has filed all reports
required to be filed by it pursuant to the Securities Exchange Act of 1934, as
amended, through the date of this Agreement.
l. If and whenever, prior to the full performance of the guarantee and
put granted in Section 3 above is effective, the Company shall effect a
subdivision or consolidation of shares or other capital, reorganization or
readjustment, (other than those described in subsection 4m below), the payment
of a stock dividend (except for dividends payable on the shares of the Company's
Series A Preferred Stock outstanding on the date of this Agreement), or other
increase or reduction of the number of shares of the Company's stock outstanding
without receiving compensation thereof in money, services, or property, the
number of shares of Restricted Stock then remaining to be sold by the Investors
shall (a) in the event of an increase in the number of outstanding shares, be
proportionately increased, and the $3.00 amount of the said guarantee and put
shall be proportionally reduced; and (b) in the event of a reduction in the
number of outstanding shares, be proportionally reduced, and the amount of the
said guarantee and put shall be proportionately increased.
m. It shall be a condition of any merger, consolidation, sale of all or
substantially al the Company (either by way of a stock transaction or of all or
substantially all assets of the Company other than in the ordinary course),
acquisition or other reorganization during said guarantee and put period, that
the surviving Company shall provide to the Investors, a guarantee
<PAGE>
and put sufficient to provide them with the same minimum cash return for sales
of the Investors interest in the surviving entity as they would have received if
they had sold the Restricted Stock prior to the said merger, sale, acquisition
or other reorganization, if such right is requested by the
Investors.
n. The Company covenants that it will not, by voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Agreement, but it will at all times in good faith assist in carrying out all
those terms and take all action necessary or appropriate to protect the rights
of the Investors against dilution or other impairment and take all necessary
action in a timely manner and without delay to effect the resale of the
Restricted Stock by the Investors at such time or times as the Investors desire
to sell such Restricted Stock, whether or not any such sale may occur in or out
of the period of the guarantee.
Investors, where appropriate, and each Investor, individually, where
appropriate, represent and warrant to the Company that (both at the time of
execution of this agreement and as of the date upon which Investor first
purchased the Notes being converted into shares of the Company's no par value
Common Stock (the "Shares") pursuant to the terms of this agreement):
a. Investor or the Investors either: (1) had or have a pre-existing
personal or business relationship with the Company; and/or (2) either alone or
through a purchaser representative of the Investors choosing (who is not
affiliated in any way with the Company) are sophisticated in business and
financial matters and by reason of either such pre-existing relationship and/or
their knowledge and experience in such matters, they have the capacity to
evaluate the merits and risks of the prospective investment in the Shares.
b. To the extent Investor or the Investors deemed necessary, they have
consulted with their attorney, accountant or other business and/or financial
advisors regarding all aspects of the proposed investment in the Company.
c. Investor was and the Investors are the sole parties in interest as
to the Shares being acquired by them and are acquiring the Shares for their own
account, for investment only and not with view toward the resale or distribution
thereof, except as permitted by law or rule.
d. The Investors understand that the Shares are not registered under
the Securities Act of 1993, (the "1993 Act") and the Shares will be "Restricted
Securities" as defined under Rule 144 promulgated under the 1933 Act. The Shares
may not be resold unless registered under the 1933 Act or an exemption from such
registration is available. The Investors agree that they will not attempt to
dispose of the Shares except in compliance with the 1933 Act.
e. The Investors understand that the Shares will be imprinted with a
legend in substantially the following form:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE OR FOREIGN LAW. THE
SHARES MAY NOT BE SOLD TRANSFERRED, PLEDGED OR
<PAGE>
HYPOTHECATED UNLESS (i) THEY SHALL HAVE BEEN REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE AND FOREIGN SECURITIES ACT OR OTHER LAW OR (ii) AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE AND THE CORPORATION SHALL HAVE BEEN FUNISHED
WITH AN OPINION OF COUNSEL SATISFACOTRY TO THE CORPORATION, THAT REGISTRATION OR
OTHER COMPLIANCE IS NOT REQUIRED UNDER ANY OF SUCH ACTS OR LAWS.
f. At the time of any resale of Shares, the selling Investors will
return the appropriate number of Shares sold to the Transfer Agent.
g. The Investors understand and agree that the Company will lodge stop
transfer instructions with its transfer agent to prohibit transfer of the Shares
except in strict compliance with the provisions of this agreement.
h. The Investors understand and agree that the Shares do not have any
"registration" or other rights entitling them to have the Shares registered
under the 1993 Act and that absent registration, the most likely method by which
the shares may be resold in the public market absent registration is under Rule
144 promulgated by the SEC under the 1933 Act, which will become available at
the earliest, as to each Investor, one year from the date such Investor paid
consideration for the Note (from which the Restricted Shares being sold by that
Investor were converted). The Investors understand and agree that there is no
guarantee that Rule 144 will be available for resales of the Shares and that if
Rule 144 is not available to them for any reason, they may not be able to resell
the Shares in the public market at all.
i. The Investors understand that the Company files reports and other
information concerning the Company, its business and financial affairs with the
United States Securities and Exchange Commission (the "SEC") that are publicly
available. To the extent the Investors deemed necessary, they have examined such
reports and information as are available through the SEC, including, without
limitation, the Company's Annual Report on Form 10-OSB, for the fiscal quarters
ended September 30, 1997 and December 31, 1997, as amended to date; the
Company's Definitive Proxy Statement for its Annual Meeting of Shareholders held
February 6, 1998 and its Current Report on Form 8-K Reporting an Even of
November 14, 1997, as filed with the SEC on or about December 17, 1997.
j. The Investors fully understand that an investment in the Company's
securities (including the Shares) involves a high degree of risk and could
result in the entire loss of the investment. The Investors have adequate means
of providing for their current needs and possible financial contingencies, and
have no need, and anticipate no need in the foreseeable future, to sell the
Shares for an indefinite period of time and have sufficient net worth to sustain
a loss of the entire investment in the Shares in the event such loss should
occur.
5. FUTURE CONDUCT.
(a) In consideration of the release set forth below, the
Company shall comply
<PAGE>
with all Federal and State securities laws which are required to allow for the
sale of the Restricted Stock under Rule 144.
(b) The Company shall secure, within two (2) business days of any request from
the Investors, their brokers or the Transfer Agent, the necessary opinion from
the Company's Counsel that the Restricted Stock is eligible for sale under Rule
144.
(c) The Company acknowledges and agrees that any violation of
Sections 1, 2, 3, 4, and of this section 5 hereof of this Agreement or any
breach of the representations and warranties set forth above or the inability of
the Investors to resell the Restricted Stock pursuant to Rule 144 will cause
damage to the Investors and agree that in the event of such violation or breach,
this Agreement shall be null and void, at the option of the Investors, except
for the provisions of Section 7, 8,10 and 11 below.
6. MUTUAL RELEASE. The Company for itself and its partners,
shareholders, directors, officers, employees, assigns, predecessors, successors,
representatives affiliates, attorneys, heirs, legatees and agents on the one
hand, and Investors for themselves and their employees, assigns, predecessors,
successors, representatives affiliates, attorneys, heirs, legatees and agents on
the other hand, except as provided in Sections 1,2,3,4,5 and 7 of this
Agreement, each irrevocably and unconditionally releases the other from any and
all claims, demands, and causes of action of any kind whatsoever (collectively
referred to as "Claims"), whether known or unknown, which it/he/she now has or
ever has had, from the beginning of time to the date of this Agreement and
Release which arise out of the offer and sale of the Notes to the Investors.
Each party understands that it/he/she may have Claims of which the
party has no knowledge or suspicion; nevertheless, the party agrees that the
release contained in this Section 6 extends to all Claims whether or not known,
claimed or suspected by the party except the obligations of Sections 1,2,3,4 and
5 above. As to such matter, except as provided in Sections 1,2,3,4, and 5 of
this Agreement, each party expressly waives the benefits of Section 1542 of the
California Civil Code, which provides:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor."
Each party acknowledges that the party knows and understands the
contents of this Agreement and Release, that the party has executed it
voluntarily and without coercion of any kind, and that the party understands
that after signing this Agreement and Release except as provided in paragraph 7
of this Agreement the party cannot proceed against any person or entity
mentioned in it with respect to or on account of any of the matters referred to
in it
7. LIMITATION ON RELEASE. The Parties agree that the release set forth
in Section 6 of this Agreement shall not apply to claims that the Investors may
have against the Company and its partners, shareholders, directors, officers,
employees, assigns, predecessors, successors, representatives affiliates,
attorneys, heirs, legatees and agents arising from or related
<PAGE>
to fraud on the marketplace or market manipulation with regard to the Note or
their investment in the Company or for any claims against the Company and its
partners, shareholders, directors, officers, employees, assigns, predecessors,
successors, representatives affiliates, attorneys, heirs, legatees and agents if
the Company fails to perform its obligations under this Agreement or breaches
the representations or warranties set forth in this Agreement.
8. TOLLING. The Parties agree to toll and suspend the running or
accrual of time by which is determined any defense which they may have
individually or collectively against the other(s) by virtue of any statute of
limitations, laches or any similar defense, to and including June 19, 1999.
Nothing in this Agreement shall toll or suspend any statue of
limitations beyond the permissible periods set forth in California Code of Civil
Procedure Section 360.5 or any other applicable law or rule; provided, however,
that should the period of tolling or suspension of statutes of limitations
described in this Agreement be effective for a period or periods exceeding those
permitted by any said Section 360.5 or other applicable law or rule, such period
or periods shall be reduced to the period or periods permitted by said Section
or applicable law or rule.
9. NO CLAIMS. Each party affirms that the party has not initiated any
claim, charge, action, or legal proceeding of any kind against any party
he/she/it released with respect to the Claims released in this Agreement.
10. INDEMNIFICATION FOR BREACH. Each party agrees to indemnify each
party he/she/it released for all damages, including attorneys' fees, resulting
from his/her/its breach of any provision of this Agreement and Release.
11. ATTORNEYS' FEES. The parties agree that the prevailing party in any
action or proceeding henceforth between the parties, in regard to any action to
enforce or interpret this Agreement, shall be entitled to reasonable attorneys'
fees and costs in addition to all other relief to which he/she/it may be
entitled.
12. TAX LIABILITY. Except as otherwise required by applicable law, The
Investors agree that they alone will be responsible for all taxes applicable to
the securities issued under this Agreement.
13. NO ADMISSION OF LIABILITY. Each party acknowledges that this
Agreement is not an admission of guilt or liability.
14. WARRANTIES. Each party warrants and represents to each of the other
parties that the party has full power, legal capacity and authority to enter
into, perform and comply with the terms of this Agreement. Each party further
warrants and represents to each of the other parties that such party has not by
agreement, operation of law or otherwise, heretofore assigned, transferred,
hypothecated, or purposed to assign, transfer or hypothecate to any person or
party, the whole or any part of portion of such party's clams which constitute
matters released pursuant to this Agreement. Each party warrants and represents
to each of the other parties that such party
<PAGE>
is the sole party who has the right, title and interest in or to the matters
such party is releasing. Each party agrees to indemnify, defend and hold
harmless, including for attorneys' fees and costs, the other party from and
against any claim threatened or instituted against any other party for breach by
such party of the representations and warranties set forth in this paragraph.
15. CONFIDENTIALITY. Each party agrees that the terms of this Agreement
are confidential and further agrees, except as required by law or to perform the
obligations hereunder, not to disclose its terms or the fact of its execution to
any other person or entity. This non-disclosure provision does not apply to the
party's immediate family, employer, stockholder, attorney or tax advisor.
16. VALIDITY. If any portion of this Agreement shall be held invalid by
a court of competent jurisdiction, the validity of the remainder of this
Agreement shall not be affected.
17. INTEGRATION. This Agreement supersedes any previous understandings,
agreements or correspondence of the parties on this subject and is binding on
the parties, their heirs, executors, administrators, and successors in interest.
18. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties to this Agreement and their respective
heirs, executors, administrators, legal representatives, successors, assigns,
employees, partners, agents and attorneys.
20. COUNTERPARTS. This Agreement may be executed in multiple originals
or counterparts, in which event each multiple original or counterpart shall be
deemed to constitute an original of this Agreement as to any persons or entities
whose original signatures or that of their representatives, appear thereon.
21. MUTUALLY NEGOTIATED AGREEMENT. The terms of this Agreement were
freely negotiated by the parties and reviewed by counsel for the parties and
neither this Agreement nor any of its provisions shall be interpreted for or
against any party on the basis of the party that drafted the Agreement or the
provision at issue.
<PAGE>
In witness whereof, the undersigned, and each of them, state that they
have read and understand the terms of the foregoing Agreement, that they enter
into the Agreement freely and without coercion or under duress, and have
executed this Agreement on the date and year first above written.
U. S. WIRELESS DATA, INC.
a Colorado Corporation
Dated:_____________ By
EVON KELLY, Chief Executive Officer
Dated:_____________ By
ROBERT ROBICHAUD,
Chief Financial Officer and Secretary
Dated:_____________ _____________________________________
PAUL RIVAS
Dated:_____________ _____________________________________
CORINNE RIVAS
Dated:_____________ _____________________________________
WILLIAM SCHOEPP
Dated:_____________ _____________________________________
EVELYN SCHOEPP
Dated:_____________ _____________________________________
JOSEPH SCHOEPP
Dated:_____________ _____________________________________
GREGORY SCHOEPP
Dated:_____________ _____________________________________
BARBARA PERRY
Dated:_____________ _____________________________________
NORMA RIVAS
Dated:_____________ _____________________________________
DR. RALPH PENDELTON
<PAGE>
REVIEWED AND APPROVED:
Ireland Stapleton
Dated:______________ By___________________________________
Dated:______________ Lerner & Veit, P.C.
By___________________________________
LIST OF EXHIBITS
EXHIBIT "A" CONVERTIBLE NOTES
EXHIBIT "B" SHARES OF RESTRICTED STOCK OF U.S. WIRELESS DATA, INC.
EXHIBIT "C" BOARD OF DIRECTORS RESOLUTIONS
EXHIBIT "D" DATE OF LAPSE OF 144 RESTRICTIONS
EXHIBIT "E" SECURITIES OF U.S. WIRELESS DATA, INC. OWNED BY JOHN M.
LIVIAKIS, ROBERT B. PRAG AND LIVIAKIS FINANCIAL
COMMUNICATIONS, INC.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated October 13, 1997
relating to the financial statements of U.S. Wireless Data, Inc., which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Summary Financial Information" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Summary Financial Information."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boulder, Colorado
May 8, 1998
CONSENT TO INCLUSION OF INFORMATION IN REGISTRATION STATEMENT
TO BE FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
The undersigned, Alvin C. Rice, hereby acknowledges that he has agreed to
become a member of the Board of Directors of U.S. Wireless Data, Inc. (the
"Company") as of June 1, 1998, and hereby consents to inclusion of information
to such effect in a Registration Statement on Form SB-2 to be filed by the
Company on or about May 1, 1998 with the United States Securities & Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), under the
captions "Management," "Security Ownership of Principal Shareholders and
Management" and "Certain Transactions," as may be required under the Act, and to
the filing of this Consent as an Exhibit to the Registration Statement.
/s/ Alvin C. Rice
------------------
[Signature]
The foregoing was subscribed and sworn to before me, Kelly A. Corey
a notary public of the State of California, by Alvin C. Rice, on May 4, 1998.
My commission expires: March 9, 2002
/s/ Kelly A. Corey
--------------------------
[Signature]
Address:
1304 Southpoint Blvd., #220
Petaluma, CA 94954
May 4, 1998
[Date]
